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Life Annuities

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An annuity is a fixed annual allowance provided by an investment. An annuity can provide a guaranteed regular income for the rest of your life or for a specified number of years.

Peter Howard-Jones

The amount of income provided through an annuity is generally determined at the time of purchase, and will depend on:

  • The amount of money deposited,
  • The current interest rate,
  • Your age,
  • Your sex, and
  • The number of years for which the company promises to make payments

You decide how often you wish to receive payments (ranging from monthly to annually) and if you want your payments indexed to help offset inflation.

Types of Annuities:

Life Annuities are offered only by life insurance companies, which are required by law to set aside reserves to guarantee the payments they have promised.

When a life annuity is used to provide retirement income, a minimum guaranteed number of payments can be selected to provide a death benefit to your beneficiary if you die before the end of the guarantee period. There are two types of annuities:

  • Single Life Annuity - payments are guaranteed on your life. You can select a minimum guaranteed payment period that will provide a death benefit to your beneficiary if you die before the end of the guarantee period.
  • Joint and Survivor Annuity - guarantees an income for the lifetimes of you and your spouse. This type of annuity can also have a minimum guaranteed payment period to provide a death benefit in the event that both annuitants (ie. you and your spouse) die before the end of the guarantee period. If you are purchasing an annuity with locked-in pension funds and you have a spouse, you are required to purchase a joint and survivor life annuity. You may purchase a single life annuity only if your spouse consents in writing.
  • Fixed Term (Term Certain) Annuities - May be offered by banks and trust companies as well as by life insurers.

The major differences between the life annuity and the term certain annuity is the amount of income they provide and the benefit to your heirs.

Other Types of Annuities:

A Deferred Annuity is just as its name suggests. You can purchase an annuity now and your income payments can be deferred to a specific date in the future. For registered funds, the annuity must be purchased by the end of the year you turn 69, and income payments must start by the end of the year you turn 70. You are also required to take a full year's worth of payments in this first year. The advantage here is that you can lock in interest rates today, even though you don't want the income until some time in the future.

Accelerated (Impaired) Annuities are available for people with health problems that will affect their life expectancy, such as a history of heart problems, cancer or high blood pressure. With this type of annuity, life insurance companies will pay out a higher monthly amount than to someone who has excellent health. Medical evidence is required to qualify of this type of annuity.

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