Joint Life Annuity

Also Called A Joint And Survivor Life Annuity

senior couple — Figure 1. Senior Couple Going For A Walk

What is a Joint Life Annuity?

A joint life annuity is a financial product offered by insurance companies in Canada. It is a type of annuity product that provides a guaranteed income stream to two individuals, typically a couple, for the duration of their lives. It is designed to provide financial security to both individuals and is often chosen by spouses or partners who want to ensure ongoing income for the surviving individual after one of them passes away.

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

Who are Joint Life Annuities Ideal For?

Joint life annuities in Canada are ideal for couples or partners who want to ensure a consistent income stream throughout their lifetimes and provide financial protection for the surviving spouse or partner. Here are some situations where joint life annuities can be particularly beneficial:

Married Couples
Joint life annuities are commonly chosen by married couples as a way to secure their retirement income together. They provide assurance that the surviving spouse will continue to receive income after one of them passes away.

Life Partners
Unmarried couples in long-term committed relationships can also benefit from joint life annuities. These annuities offer financial protection for the surviving partner, helping to ensure their financial well-being in the absence of legal spousal benefits.

Age & Health Differences
Joint life annuities can be advantageous for couples with significant age differences. If one partner is older or in poorer health, a joint life annuity ensures that the surviving partner has continued income even if the higher-risk partner passes away earlier than expected.

Dependency on Retirement Income
Couples who heavily rely on retirement income may opt for joint life annuities to secure their financial stability. By ensuring a lifetime income for both partners, joint life annuities protect against the risk of outliving their savings.

Unequal Retirement Savings
In situations where one spouse has significantly more retirement savings than the other, a joint life annuity can help balance the income distribution. The annuity payments can help bridge the gap and provide financial support to the partner with lower savings.

Support for Surviving Spouse
Joint life annuities provide peace of mind by offering a financial safety net for the surviving spouse or partner. This is particularly valuable if the surviving spouse does not have other significant sources of income or faces financial challenges upon the death of the first annuitant.

Benefits of a Joint Life Annuities

Joint life annuities in Canada offer several benefits for couples or partners who choose this retirement income option. Here are some key advantages:

Lifetime Income for Both Annuitants
A joint life annuity ensures a consistent income stream for the lifetime of both annuitants. This provides financial security, as the annuitants can rely on the income for as long as either of them lives. It eliminates the risk of outliving retirement savings and helps maintain a comfortable lifestyle throughout retirement.

Income Continuation
A joint life annuity provides a seamless transition of income after the death of one annuitant. This is especially valuable if the surviving spouse or partner does not have other significant sources of retirement income. The annuity payments continue without interruption, maintaining financial stability for the surviving annuitant.

Reduced Financial Risk
By pooling the risk of longevity, joint life annuities mitigate the financial risk associated with one partner living significantly longer than the other. Even if one annuitant lives longer than expected, the income payments continue, ensuring continued financial support for both individuals. This is great peace of mind.

Potential for Higher Income
Joint life annuities often provide a higher income compared to single life annuities. Since the annuity payments are expected to cover the lifetime of two individuals, they can be larger than the payments from a single life annuity, where the income ceases upon the annuitant's death.

Spousal Protection
One of the primary benefits of a joint life annuity is the protection it offers to the surviving spouse or partner. In the event of the death of one annuitant, the surviving annuitant continues to receive the annuity payments. This helps ensure that the surviving spouse has a stable income source and financial support, reducing the risk of financial hardship.

How Does a Joint Life Annuity Work?

A joint life annuity is a financial product that provides a regular income stream to two individuals, typically a couple, for the duration of their lives.

The first step in purchasing a joint life annuity is selecting the two annuitants who will receive the income payments. The annuitants are typically spouses or partners who wish to secure their retirement income together.

A lump-sum payment, known as the premium, is then made to the life insurance company. The premium amount depends on various factors, including the age and gender of both annuitants, desired income amount, prevailing interest rates and other specific terms of the annuity contract (guarantee period, survivor benefits, indexing, etc.).

The joint life annuity provides regular income payments to the annuitants which are paid monthly, quarterly, semi-annually or annually. As long as either annuitant is alive, the annuity payments will continue to be made. This means that is one of the annuitant passes away, the surviving annuitant continues to receive income payments for the rest of their life.

Joint life annuities often offer various death benefit options to provide financial protection for the surviving annuitant. The most common option is the "100% Joint and Survivor" option, where the surviving annuitant continues to receive the same income as before the death of the first annuitant. Other options may include a reduced income for the surviving annuitant (e.g. 70% of the original payment for the rest of the surviving annuitants life). You can customize a joint life annuity to fit the needs of your specific situation.

Similar to other annuities, a joint life annuity involves surrendering control of the principal amount. The lump-sum payment used to purchase the annuity becomes the property of the life insurance company and the annuitants can no longer access that money.

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

What is the Guaranteed Period Option?

In Canada, a guarantee period is an optional feature that can be added to a joint life annuity. The guarantee period provides a measure of financial protection for the beneficiaries of the annuity in the event that both annuitants pass away during the specified period.

A guarantee period is a predetermined period of time, typically ranging anywhere from 5 to 30 years, during which the annuity payments will continue to be made to the beneficiaries or estate of the annuitants, even if both annuitants pass away.

If both annuitants were to pass away during the guarantee period, the annuity payments would continue to be made to the designated beneficiaries or the annuitants' estate until the end of the guarantee period. This ensures that a minimum number of payments are made, regardless of the annuitants' lifespan.

For example, if two individuals purchase a joint life annuity with a 20 year guarantee period, if one individual passes away 12 years into the annuity, the surviving annuitant will continue to receive the payments from the annuity. If the suriving annuitant passes away 17 years into the annuity, the insurance company still owe 3 years of payments to the beneficiaries of the annuity contract because 20 years of payments have not been paid out yet. The guarantee period ensures that a minimum amount of paymetns is guaranteed to be paid out, regardless of death. If the annuitants live beyond the guarantee period, the insurance company will continue to pay the annuity payments until the 2nd death.

What Funds Can Be Used For Purchase?

A joint and survivor annuity can be purchased with registered or non-registered funds. This includes RRSP, RRIF, LIRA, RPP and Non-registered.

Using non-registered funds means only the interest portion of the annuity payment will be taxed and the interest income may qualify for the Pension Income Tax Credit.

Pension Income Tax Credit

The interest element of a non-registered annuity, both prescribed and non-prescribed, is eligible for tax credits if the annuitant is 65 years of age or older.