Deferred Life Annuity - Updated 2023

what is a single life annuity — Figure 1. What is a deferred life annuity?

What is a Deferred Life Annuity?

A deferred life annuity is a financial product offered by insurance companies in Canada. It is a type of annuity contract that provides a regular income stream starting at a future date after a specified deferral period. It is designed to help individuals plan for retriement and secure a relaible source of income in the future.

When the annuity income payments start, the annuitant (person receiving the income) will receive payments for the rest of their life assuming that the annuity is a single life annuity.

Click here for a free deferred life annuity quote from the top insurance companies in Canada.

Who are Deferred Life Annuities Ideal For?

Deferred life annuities in Canada can be an ideal option for individuals who have a longer time horizon until retirement and are looking for a reliable income stream in the future.

Pre-Retirees
Deferred life annuities can be attractive to individuals who are still in their working years and want to ensure a stable income stream during retirement. By purchasing a deferred life annuity well in advance, they can take advantage of the deferral period to accumulate funds and potentially increase their retirement income. They may also want to take avantage of the current interest rate environment.

Benefits of a Deferred Life Annuity

Retirement Planning
Deferred life annuities can be part of a comprehensive retirement planning strategy. They can complement other retirement savings vehicles such as pensions, registered retirement savings plans (RRSPs), or tax-free savings accounts (TFSAs). By deferring income payments, individuals can align the annuity payments with their projected retirement needs.

Long-Term Financial Security
Deferred life annuities provide a guaranteed income stream for life once the payments commence. This can be particularly beneficial for individuals seeking long-term financial security and protection against outliving their retirement savings.

Tax Planning
The tax-deferred growth of a deferred life annuity during the deferral period can be advantageous for individuals who anticipate being in a lower tax bracket when they start receiving the annuity payments. It allows for potential tax optimization and efficient use of retirement income.

Risk Mitigation
By purchasing a deferred life annuity, individuals can mitigate the risk associated with market volatility and fluctuating interest rates. The guaranteed income stream provides a level of stability and helps protect against economic uncertainties.

Income Diversification
Incorporating a deferred life annuity into a retirement income plan can provide diversification by adding a guaranteed income stream alongside other retirement income sources. This diversification can enhance financial resilience and reduce dependence on other investments.

Click here for a free deferred life annuity quote from the top insurance companies in Canada.

How Does a Deferred Life Annuity Work?

To acquire a deferred life annuity, you make a lump-sum payment, known as the premium, to an insurance company. The premium amount is determined based on various factors, including your age, gender, desired income amount, and prevailing interest rates.

Once you purchase a deferred life annuity, there is a period of time, known as the deferral period, before the income payments begin. During this period, the premium accumulates and grows through interest or potential investment gains. The premium paid for the annuity accumulates in a tax-deferred manner during the deferral period.

At the end of the deferral period, the annuity transitions from the accumulation phase to the income phase. The annuitant starts receiving regular income payments from the annuity. The frequency of payments, such as monthly, quarterly, semi-annually, or annually, is determined at the time of purchase.

The income payments from a deferred life annuity are guaranteed, meaning they will be made to you for the duration of your life once the income phase begins. Regardless of market conditions or changes in interest rates, you will continue to receive the predetermined income amount.

It is important to note that the purchaser of the annuity selects when the income starts and all other terms of the contract.

Deferred Life Annuity Quote

Annuity rates vary so much between insurance companies so it is important to shop the annuity market to make sure that you are getting the highest monthly income.

Click here for a free deferred life annuity quote from the top insurance companies in Canada.