2023-08-14 04:00:00
A little riddle: this annuity combines the advantages of a life annuity and permanent life insurance. What is it regarding? An insured annuity, which guarantees a stable income for life in addition to paying the capital to your heirs upon your death.
When you’re retired, you’re looking above all for stability and predictability. In other words, a regular income without having to worry regarding market upheavals that might reduce the returns on our investments.
“The insured annuity is one of the disbursement strategies to consider for retirement. It allows you to benefit from a guaranteed income for life, generally higher following taxes compared to traditional investments. Not only does it guarantee financial security protected from fluctuations, but the insured annuity can also offer attractive tax benefits,” says Sylvain De Champlain, financial planner and president of Groupe De Champlain.
An annuity and life insurance combined
There are different types of annuities. The life annuity allows you to receive an identical amount until the end of your life. It can be guaranteed for a fixed period, and if you die before the end of this period, your heirs will continue to receive it until the end of this period.
The certain annuity, on the other hand, pays a guaranteed amount for a fixed period. You die before? Again, it is your heirs who will receive the annuity.
As for the prescribed annuity, it offers privileged tax status for non-registered investments, since only the interest is taxable. In addition, the payments will always be made up of the same amount of interest and capital, which levels the taxable amount.
The insured annuity is the combination of a prescribed life annuity and life insurance. It allows you to preserve your capital while offering you a higher guaranteed income than those from traditional investments and an advantageous tax structure. What’s more, the capital is guaranteed and will be paid in full to your heirs upon your death, which is not the case with a life or certain annuity. In addition to the annuity, however, you will need to take out life insurance.
A privileged tax status
Sylvain De Champlain points out that investing his money in GICs may currently seem more advantageous, since their interest rates are higher than 4%, but on the other hand they are 100% taxable. “As for the insured annuity, the amounts withdrawn will consist of a large portion of capital and a small portion of interest. These will be the only taxable amounts,” he explains. Even if we add to this the cost of life insurance, in the end, the net amount collected will be more advantageous.
“Given the fact that the risk is zero for the insurer, since the insured also holds an annuity, it will be possible to take out life insurance when normally, our situation would mean that we would not be insurable. “, he adds.
Who is it for?
Sylvain De Champlain indicates that there are several disbursement tools for retirement, and that insured retirement is one of them. “It’s ideal for people who are concerned regarding market fluctuations and want to receive guaranteed income for the rest of their lives, while leaving the capital to their heirs,” he says. He points out that with the increase in life expectancy and longevity risk – otherwise the risk of outliving one’s savings – annuities are attractive products for those who want to ensure their financial security.
The ideal age to buy it is around 65-70 years old, because doing it earlier will reduce the amounts paid out, while buying it later will make life insurance more expensive.
The planner mentions that this type of annuity is however a thing to think regarding, because it does not offer flexibility and it will not be possible to modify the payments. “So it’s best to use it in a mixed strategy and keep cash in case you need more money. On $1 million, for example, devote $200,000 to $300,000 to your pension and keep the rest in other savings or investment vehicles,” he recommends.
ADVICE:
There can be significant differences in life insurance costs. Shop around with several companies or do business with an insurance broker. The contract of an insured annuity designates an heir to the capital. Consequently, this amount is exempt from seizure by creditors, even if the estate were declared bankrupt. The heirs will receive the capital more quickly, in one or two months, because it does not enter into the estate. In comparison, the liquidation of an estate can take several months or years, depending on the case. The insured annuity does not offer a higher amount than a life annuity, on the other hand its structure is more advantageous fiscally, because the amounts are placed in non-registered accounts.
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