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In addition to providing a guaranteed income, annuities can be used for 2 other financial planning goals:
- To provide money for your beneficiaries or estate
- To leave a gift to charity
1. Money for your estate: An insured annuity
An insured annuity is a life annuity combined with a life insurance policy. You get a steady stream of income for life – and your beneficiaries receive a lump sum amount at your death.
Here is how it works:
- Buy the annuity – You buy a prescribed life annuity with a lump sum from your non-registered money.
- Receive tax-efficient income – Some of the annuity income is interest income, which is fully taxable. The rest is not taxable. This generates higher after-tax income than investing your money in a fully taxable investment – like a GIC.
- Pay life insurance premiums – A portion of the annuity income is used to make premium payments on a life insurance policy with a value equal to the cost of the annuity.
- Provide cash for beneficiaries – At your death, your beneficiaries or estate receives a tax-free lump-sum payment from the insurance policy.
Get advice before you buy
Consult with a financial advisor before buying an insured annuity or charitable gift annuity. These are specialized strategies and are only advantageous in certain situations.
2. Money for charity: A charitable gift annuity
A charitable annuity can be an effective way to generate retirement income and support a charitable cause.
Here’s how it works:
- Make a lump-sum donation to a charity – The charity uses this money to buy an annuity from an insurance company on your behalf.
- Receive a tax receipt – You get a donation receipt for the difference between the purchase price of the annuity and the total income from the annuity that you’re expected to receive.
- Receive tax-efficient income – You receive guaranteed monthly payments, which are taxed either partially or not at all depending on your personal circumstances.
Guaranteed Minimum Withdrawal Benefit (GMWB) products
GMWB products are a type of annuity that provides guaranteed retirement income that can increase with investment gains in your portfolio and with certain bonus features. Learn more about GMWB products.
2 key points
- Insured annuity – lifetime income for you and a lump-sum payment to your beneficiaries at your death
- Charitable gift annuity – retirement income for you and support a charitable cause