Life Annuities
Lifetime Annuity - Term-Certain Annuity
An annuity provides an income for the rest of your life, or for a set period of time.
With a Life Annuity, you cannot outspend your savings and your income amount will always be the same.
For those coming up on retirement, a life annuity could be a key asset to provide a secure a predictable financial future for your golden years.
About Life Annuities
Life annuities are financial products that provide a guaranteed income stream for a specified period or for the rest of your life, in exchange for a lump sum payment or a series of payments. With a life annuity, you can enjoy peace of mind knowing that you’ll receive regular payments, regardless of market fluctuations or changes in interest rates. Life annuities can be an essential component of your retirement income strategy, helping to supplement other sources of income and ensure a comfortable standard of living in retirement.
How do Annuities Work?
Life annuities are purchased from an insurance provider. The provider takes the sum provided and invests it in a portfolio, which generates interest. Your income is then drawn from the funds within the portfolio and the interest it generates.
Prescribed and Non-Prescribed Annuities
Prescribed
A prescribed annuity has level taxation. The income payments are taxed evenly over the life of the annuity. This option is only available to annuities purchased with non-registered funds.
Non-Prescribed
A non-prescribed annuity has higher taxation in the early years and decreases over time. This is because the income received in the early years is more heavily funded by the interest that the annuity generates. While in later years income is more heavily funded by return of capital. This option is available for annuities purchased by either non-registered or registered funds.
Annuities For Generational Wealth Transfer
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"Annuity Settlement Option"
An Annuity Settlement Option allows you to direct the income from an annuity to a beneficiary, based on provisions you establish in advance. This option is popular among individuals who prefer to provide their beneficiaries with a steady stream of income rather than a lump-sum payment. It is especially effective for transferring wealth to beneficiaries who are financially irresponsible, disabled, or otherwise unable to manage a large sum of money wisely.
Suppose you want to provide financial support to a family member but worry they would quickly spend a lump sum. Instead of giving them the full amount at once, you could set up an annuity that pays out over a set number of years or for the rest of their life. Importantly, once established, the annuity provisions cannot be amended, ensuring the income remains secure and guaranteed for the beneficiary.
There are two ways to fund an annuity settlement option.
Personally Funded:
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The annuity is funded directly by you.
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It functions like any standard annuity.
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Income received by the beneficiary is taxable.
Funded Through Insurance Proceeds:
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A life insurance policy is structured so that the death benefit is used to purchase an annuity upon your death.
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A segregated fund is structured so that the death benefit is used to purchase an annuity upon your death.
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This setup follows the provisions you established at the time of the policy’s purchase.
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Ideal for beneficiaries who rely on the funds for financial security, but may not handle a lump sum responsibly.
Why an Annuity? Why Not a Trust?
While trusts are also commonly used for wealth transfer, they often involve:
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Preparation costs
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Ongoing management and trustee fees
In contrast, annuities:
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Have no setup or ongoing management fees
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Are simpler to administer
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Offer guaranteed, structured income
An Annuity Settlement Option offers a cost-effective, secure, and predictable way to support your beneficiaries over time—especially when a lump sum may not be in their best interest. Whether funded personally or through life insurance, it’s a practical tool for responsible wealth transfer.
Annuity Types
Single-Life Annuity
Pays an income to the annuitant for the rest of their life
Joint-Life Annuity
There are 2 annuitants rather than 1 (usually a spouse or partner). Income is payed out according to policy specifications. When annuitant 1 dies, the policy continues to pay out to annuitant 2.
Term-Certain Annuity
Pays an income to the annuitant for the term of the policy. The buyer determines the policy life at time of purchase.
Frequently Asked Questions - Life Annuities
The WCB requires that I purchase an annuity, where do I apply?
Licensed life insurance advisors such as Life Hub are licensed to sell annuities. You can contact us to get started.
Can I use my locked RRSP and or pension funds to buy an annuity?
Yes this is one of the most popular reasons to buy an life annuity. A Guaranteed income for life is typically one of the objectives of the pension plan and the life annuity will accomplish this objective.
What are the downsides to a life annuity?
All investments can have disadvantage and annuities are no different. The disadvantages can be, a lack of flexibility afterwards, interest rate risk if rates rise after purchase. Opportunity cost with the capital in the future and an zero estate value on death after the guaranteed payment periods end.
What are the upsides to a life annuity?
Guaranteed income for life, no future investment risk, no need to monitor investment performance, no risk of outliving your income, protection through the insurers. A potentially higher income as the insurer gives an mortality bump to the income when it factors in the mortality gains on its block of business.
Why would I not buy an Annuity?
Everyone has their own reasons but someone with life shortening medical conditions might rule out this purchase. A hands on investor might not like the lost opportunity to use the capital. Concern for estate value is a primary objective. Periods of high inflation will erode the income value on inflation adjusted comparison.
Will a Life Annuity Fit In My Retirement Plan?
We can help you understand how a Life Annuity can fit in your retirement. Have a chat with us about your retirement situation and together will can find a solution to achieve a secure income for your golden years!
Wondering what your income could look like? We offer free quotes via our Annuity Form. Fill it out bellow.