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Are you seeking a means to support your family and safeguard your possessions?
An insured annuity is an ideal solution as it ensures an effective transfer of your assets to your dear ones. It offers a secured income and safeguards against inflation and market swings, all in an efficient manner.
Your loved ones will be looked after, regardless of what may occur in the future, thanks to an insured annuity, you can have peace of mind.
Continue reading to discover more about the functioning of an insured annuity.
What Is The Insured Annuity Strategy?
When you pass away, your savings will remain untouched, ensuring that you can access them when you most need a guaranteed income. Essentially, permanent life insurance policies and annuities are life annuities that come with certain additional advantages.
In comparison to many conventional options, a protected annuity offers unique benefits including:.
How does it work?
A insured annuity is a blend of a life annuity and permanent life insurance. Here’s a concise explanation of each:
As you remain alive, the insurance company provides you with a monthly income throughout your life. In return, you make a one-time payment to the insurance company, known as a life annuity.
When you pass away, it provides your dear ones with a death benefit. You provide the insurance company with a consistent flow of payments, which is referred to as permanent life insurance.
The death payout substitutes the total amount you paid to the insurance company for the annuity.
The result of the annuity insured strategy is an increase in your net income, as compared to other fixed-income investments, while your loved ones still leave an estate.
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Who is it for?
If you are approaching retirement or if you are already retired, you should consider the concept of annuity insurance. It not only provides for your loved ones as an inheritance and allows you to preserve your savings for the future, but it also serves as a means to supplement your income by guaranteeing a higher source of income, although it does not solely rely on other sources.
You should consider other types of investments as a larger part of your diversified retirement plan. However, you should not solely rely on an insured annuity to make up your entire retirement plan.
Generally, here are some of the profiles that the strategy aligns with:
How is an insured annuity taxed?
If you are buying an annuity with funds that are not registered (excluding RRSP or TFSA), there are two types: prescribed and non-prescribed.
Over time, the taxable portion stays consistent. The rest of the return on capital is considered as the capital gains. Only a small portion of it is taxable. This applies when you receive payments from a prescribed annuity.
An annuity not prescribed commences with a substantial amount and gradually diminishes, in contrast, the taxable revenue derived from a prescribed annuity is more financially beneficial in terms of taxes compared to a non-prescribed annuity.
Is An Insured Annuity For You?
Would you be interested in a secured tax-advantaged income source for your entire life? What about the protection of your principal?
If that’s the case, the insured annuity concept might be suitable for you as it enables you to enjoy both of these advantages without compromising one over the other.
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Case Study (How An Insured Annuity Can Increase Your Retirement Income By 150%)
Let’s examine John, a 65-year-old non-smoker who recently retired, and his non-registered investments amounting to $500,000. John dedicated considerable effort to accumulate his savings, hence we will analyze them accordingly.
His marginal tax rate is 28.2%. Currently, he is considering a Guaranteed Investment Certificate (GIC) that yields 1.5%. He desires to live off his capital and exclude income from his investments. As a retired individual, he is seeking a more cautious investment for his portfolio.
Conversely, if he were to purchase an insured annuity, what would it resemble? Commencing with a $500,000 death advantage, John initially procures a perpetual insurance plan for an annual cost of $15,515. Following that, he acquires a life annuity worth $500,000 that provides him with an annual payment of $30,658.
Let’s have a glance and contrast the dissimilarity.
| GIC | Insured Annuity | |
|---|---|---|
| Annual income | $7,500 | $30,658 |
| Return of capital | N/A | $24,630 |
| Interest | $7,500 | $6,028 |
| Less: tax payable | -$2,115 | -$1,700 |
| Net income before insurance premiums | $5,385 | $28,958 |
| Less: insurance premiums | N/A | -$15,515 |
| Net income | $5,385 | $13,443 |
As you can see, the insured annuity strategy provides $8,058 more after-tax income than using a GIC. That’s an increase of 150%!
The property he owns passes directly to his beloved ones, while the death benefit circumvents this process, effectively avoiding the need to pay probate and executor fees. Consequently.
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Other Ways To Structure An Insured Annuity
In addition to the mentioned single life insured annuity, there are several other methods to organize the insured annuity.
Indexed annuity
The impact of inflation affects the effectiveness of the offset. It may take a long time for regular annuity payments to exceed and match the inflation. However, this type of annuity starts with lower payments but increases every year.
Single deposit insured annuity
Your cash flow gets better as you are not required to make any insurance premium payments after the initial year. Reduced payments from the annuity occur as you will have a smaller amount of money to purchase the annuity. Immediately, you make a substantial one-time payment instead of paying for the permanent insurance policy on an annual basis.
Charitable giving using an insured annuity
When one passes away, they can decrease their tax burden through a tax credit, and they can also enjoy the security of a lifetime income by designating their preferred charitable organization as the recipient of their insurance policy, rather than assigning it to their descendants.
Joint insured annuity
Since the insurance company expects you to pay for a longer period of time, the income you will receive will be lower, of course. With a joint annuity, the payments end when the second person passes away. Besides, you can also buy an annuity on a single life.
When the second individual passes away, this refers to a more affordable form of insurance that provides a payout. You purchase a joint last-to-die life insurance policy that safeguards two individuals simultaneously.
Corporate insured annuity
Are most of your investments held inside your corporation? Don’t fret, you can use the corporation to execute the insured annuity strategy.
Some factors to consider for a company:
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Brian So, a certified financial planner, chartered life underwriter, certified health specialist, and holder of a Bachelor of Science degree.
Today, let me assist you in finding the perfect insurance policy. Being an independent means that I represent many highly-rated companies, so I can help each client find the right company. I make sure that you are protected from unexpected events with customized insurance coverage. Life is unpredictable, so I ensure that you are well-protected. Over the past 10+ years, I have had the privilege of assisting people with their insurance needs. I am passionate about what I do and I am an insurance life advisor.
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