Single Life Annuity - Updated 2023

What is a Single Life Annuity?

A single life annuity is a financial product offered by insurance companies in Canada. It is a type of an annuity product which is designed to provide a guaranteed income during retirement by exchanging a lump sum of money to the insurance company in exchange for a regular stream of income payments.

The annuitant, or the person who purchases the annuity, receives these payments for the rest of their life. When the annuitant dies, the contract ceases unless it contains a guarantee period.

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

Who are Single Life Annuities Ideal For?

Retirees Seeking Security
Single life annuities provide retirees with a sense of security by guaranteeing a regular income for the rest of their lives. If you are concerned about outliving your savings or the potential impact of market fluctuations on your retirement income, a single life annuity can provide peace of mind.

Those with Longevity Expectations
If you have a family history of longevity or expect to live a long and healthy life, a single life annuity can be beneficial. The longer you live, the more value you derive from the annuity payments, ensuring a stable income for as long as you need it.

Individuals Without Dependents
Single life annuities are designed to provide income for the annuitant only. If you do not have dependents or do not have a significant need to leave a financial legacy, a single life annuity can be an excellent option to secure your own financial future.

Risk-Averse Individuals
If you prefer financial stability and dislike the uncertainty of investment returns, a single life annuity can provide a predictable and reliable income stream without exposure to market risks.

Those Willing to Trade Liquidity for Income Security
By purchasing a single life annuity, you give up access to the principal amount (unless you purchase a guarantee period). If you are willing to trade some liquidity for a secure income source, a single life annuity can be a suitable choice.

Individuals with Sufficient Retirement Savings
Single life annuities are purchased with a lump sum payment. Therefore, they are more suitable for individuals who have accumulated a significant amount of retirement savings and are comfortable converting a portion of their savings into a guaranteed income stream.

Those Seeking Tax Efficiency
Single life annuities can be purchase with different sources of income including registered funds (RRSP, RRIF, LIRA, LIF, etc.) as well as non-registered funds. Registered funds are taxed 100% as income whereas non-registered funds only have a percentage of the payment which is taxable as interest income. You can choose which type of funds to use to purchase a single life annuity and properly plan for taxation in retirement.

Benefits of a Single Life Annuity

Single life annuities offer a number of benefits for Canadians looking to secure income in retirement, especially with the recent rise in interest rates by the Bank of Canada. Here are some of the main benefits of a single life annuity in Canada.

Guaranteed Income
Single life annuities provide a stable and predictable income for the rest of the annuitant's life, regardless of market fluctuations or economic conditions. This assurance brings peace of mind during retirement.

Lifelong Support
Annuities eliminate the risk of outliving your savings. Regardless of how long you live, the annuity payments will continue, ensuring a steady income stream to cover living expenses.

Tax Advantages
Depending on the source of the funds being used to purchase the annuity, the payments can be taxed at a more favourable rate compared to other forms of income. In Canada, non-registered single life annuitys have a portion of each payment that is considered a return of capital and is therefore not subject to tax.

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

How Does a Single Life Annuity Work?

When an individual purchases a single life annuity, they enter into a contract with an insurance company. They make a lump sum payment, known as the premium or principal, in exchange for a series of payments. These payments are typically made monthly, quarterly, semi-annually, or annually, depending on the preference of the annuitant.

The amount of the annuity payments depends on various factors, including the age and gender of the annuitant, the size of the premium, current interest rates, the specific terms of the annuity contract and more. Generally, the older the annuitant at the time of purchase, the higher the income payments will be, as the life expectancy is shorter.

What is the Guaranteed Period Option?

A guarantee period is an optional feature that can be added to a single life annuity. It provides a measure of financial protection for the annuitant's beneficiaries in the event of the annuitant's death during the guarantee period.

A guarantee period is a predetermined period of time, typically ranging anywhere from 5 years to 30 years (depends on the age of the annuitant and type of annuity), during which the annuity payments will continue to be made to the annuitiant's beneficiaries or estate even if the annuitant passes away. The guarantee period ensures that a minimum number of payments are made, regardless of the annuitant's lifespan.

The length of the guarantee period can be selected by the annuitant at the time of purchasing the annuity. The longer the guarantee period, the higher the cost of the annuity, as the insurance company assumes a higher risk of having to make payments for a longer duration.

For example, if someone purchases a single life annuity with a 20 year guarantee period and they pass away 15 years into the annuity, their beneficiaries on the policy will receive the remaining 5 years of payments due to the 20 year guarantee. If they live beyond 20 years, the insurance company will stil continue to make the annuity payments until death.

Refund Options

These options guarantee that in the event of the annuitant's death, a beneficiary will receive the difference between the orginal premium and the payments already received. It could be a lump sum or a continuation of the annuity payments if the annuity is non-registered.

These payments can 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.

Single 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 an example of a single life annuity quote from all of the available life insurance companies in Canada.

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