Preferred tax treatment from Insured Annuities offer both flexible income options and security
A real alternative to GICs for investors fixed income needs
Compiled by David Newman, Fiscal Agents Insurance Ltd.
With files from Standard Life Assurance CO Canada
Money Management Newsletter, June 200 5
Not all investors looking for higher returns on fixed income portfolios, are prepared to change the nature of their investments to equities or market-linked notes - due mostly to the added risk, or poor liquidity. So what's an alternative answer?
Perhaps the flexibility of Insured Annuities can offer some relief. Insured Annuities are not a new idea, but with the pressures on cash flows, maintaining safety with built-in guarantees are having Canadian investors looking seriously at this alternative investment. Investors with increasing demands on income can arrange a spectrum of payment options that the normal GIC doesn't.
One of the most popular is to blend both the interest and principle into your monthly income payment.
What is an Insured Annuity?
The insured annuity uses two products: a "prescribed" annuity and life insurance. The prescribed annuity typically provides more after-tax cash flow than can be obtained from the interest earned under a GIC. This is due to its preferred tax treatment.
It is for conservative investors, with at least $100,000 of invested GIC-type assets who want to maximize income in a guaranteed investment - and who want to preserve the capital for their heirs.
The annuity is purchased with non-registered funds. The face amount of the life insurance typically equals the amount of the capital used to purchase the annuity.
The annuity gives you guaranteed cash flow during your lifetime. You use part of your annuity income to pay the insurance premiums. When you die, the insurance company pays the death benefit to your heirs, thereby replacing the capital used to purchase the annuity. If you choose the maximize estate option, the capital provided to your heirs can exceed the original capital invested.
Will you benefit from an Insured Annuity?
- You are insurable.
- You want to avoid high-risk investments.
- You wish to generate additional cash flow from non registered liquid assets.
- You want to pass on an estate to your heirs.
- You wish to maintain your cash flow but increase the estate you pass on to your heirs.
Insured Annuity vs. Guaranteed Investment Certificate (GIC)