Chapter 4: Annuities Pros & Cons
Chapter 4: Table of Contents
- Life Annuities pay more than GICs for the same dollar
- Cannot outlive income
- No investment or management decisions
- Can spend every penny without worry
- Assuris insurance coverage up to $2,000 per month
- Prescribed Annuities are tax efficient
- After you commit to the terms of an annuity, you cannot change them.
- Income payments cannot be adjusted to reflect changing needs
- Permanently replaces investment capital
- Decision once made is final, can’t convert an annuity into another form of retirement income
- Why should I buy an annuity?
- Will I ever outlive my money if I purchase a life annuity?
- Do I need to add a guarantee period to an annuity?
- Prescribed or Non-Prescribed Annuity – What’s the difference?
An annuity can guarantee stable and predictable income for life, regardless of market conditions or interest rate fluctuations.
With a life annuity, you will never outlive your money.
No. Payments can be guaranteed for a specific term (e.g.5, 10 or 20 years). On its own, this is a term certain annuity. When included in a life or joint life annuity, upon your death/co-annuitant’s death, this may provide guaranteed payments to your beneficiary, which will continue until the term expires.
Annuity payments are made up of an interest component and a return of principal. If the annuity is non-registered, only the interest component is taxed.
If an annuity qualifies for prescribed tax treatment, the tax payable is spread evenly over the life of the contract.
If an annuity does not qualify for prescribed taxation, interest is taxed on an accrual basis so the tax will be higher in the early years of the annuity and will decrease over the life of the contract as the principal decreases.
There are typically no fees involved when purchasing an annuity policy. An insurance broker or agent is paid by the insurance company that sells you the annuity.
Only Canadian insurance companies in Canada can sell annuities but not all companies sell annuities. The list below is a list of insurance companies that sell annuities in Canada.
- Assumption Life
- BMO Life insurance
- Canada Life Insurance
- Desjardins Insurance
- Empire Life Insurance
- Equitable Life
- Great-West Life
- Industrial Alliance
- La Capitale Insurance
- Manulife Financial
- RBC Insurance
- Standard Life Canada (is now part of Manulife)
- Sun Life Financial