Insured Annuity

Alberta Wealth Management Inc. Offers an Insured Annuity Strategy

An insured annuity consists of two elements:

  • Lump sum funds used to purchase a non-registered life annuity (usually without guarantee period); and
  • A low cost life insurance policy (typically T100) with an insurance amount = annuity purchase price

An insured annuity may be purchased by an individual or corporation

How They Work

A prescribed life annuity with a zero guarantee period is purchased with non-registered funds:

  • At death of annuitant, annuity payments cease
  • This type of annuity provides the largest income

Income from a prescribed annuity is a blend of interest and principle; therefore, only a portion of each payment is taxed. The taxable component remains the same in each payment. After-tax income is guaranteed for the life of the client.

A portion of each payment is used to fund the cost of the life insurance:

  • Tax-free insurance proceeds replace the original deposit to the annuityThe remaining funds produce income, typically higher than a GIC.

The remaining funds produce income, typically higher than a GIC.

Advantages

  • Annuity produces higher income than a GIC
  • Tax preferred treatment of prescribed annuity produces less income tax
  • Annuity income is paid for life and is guaranteed
  • Proceeds from the life insurance are paid tax-free and, if properly structured, will pass outside the will and avoid probate and related costs

Comparison

A 70-year-old female buys a life annuity with no guarantee for $500,000. She also purchases a Term to 100 contract for $500,000.

  • The insured annuity provides more net spendable income and still maintains the full estate value of $500,000
  • The equivalent pre-tax rate of return, assuming a 39% tax rate is 7.56%

(All the above information is subject to errors and omissions.)

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