Insured Annuity

This strategy has been designed for your retired or soon to be retired clients who have non-registered investments like GICs, Canada Savings Bonds, etc. It is designed to combine the benefits of an annuity with life insurance, thereby, generating a higher after-tax income than their current investments. Furthermore, the original value is maintained as an inheritance for your client’s heirs or the charity of their choice.

  1. Principal protection offered through permanent life insurance
    To start, your client purchases permanent life insurance, typically Term 100, for an amount that is equal to the investment that they intend to make towards a life annuity contract. The insurance provides a tax-free death benefit to their named beneficiary upon the client’s passing. The insurance can be individual or joint last-to-die, payable until last death.
  2. Low risk income producing investments
    In order to generate regular income, another portion of the non-registered portfolio is used to purchase a life annuity. The annuity is typically prescribed and there should be no guaranteed period. If jointly held, the annuity should be payable to the last death with a non-reduced amount. The value of the life insurance contract will typically match the deposit amount made to the life annuity.
  3. Tax-preferred income
    As an annuity payment includes both income and return of capital, only a small portion of the payment is taxable. A prescribed annuity provides the added benefit of stabilizing the taxable portion year over year. The net income provided by the life annuity will be used to fund the life insurance contract premium payments, with the remainder available to augment the client’s retirement income. Generally, this provides a greater net after-tax income than what would have been received from the original investments.

    It is important that the funding source of the life annuity be from non-registered funds in order to take full advantaged of the preferable tax treatment of this strategy.
  4. Wealth transfer
    Upon death, the proceeds of the life insurance policy are paid directly to your client’s beneficiary(ies) or chosen charity. This will allow these funds to bypass the estate and not be subject to probate. Furthermore, named beneficiaries of a life insurance contract remain confidential as they are not included in the will.
  5. Advantages

    • Payments received from a non-registered annuity are a combination of income and return of capital; only the income portion is taxable thereby reducing the overall taxable portion of the cash flow.
    • Death benefit is paid directly to the chosen beneficiaries, bypassing the estate and not subject to probate.
    • Life insurance premiums are paid from the annuity payments, reducing added out-of-pocket expenses for your client.
    • The prescribed annuity receives a level taxable portion each year providing predictable tax calculations.
    • Cash flow is increased as the life annuity rates are typically higher than other low risk investments such as GICs and Canada Savings Bonds because, in addition to containing an element of return (interest), they also include an element of life expectancy.

    Applicable products

    • Term to 100, individual or joint second-to-die

The Insured Annuity concept is ideal for clients who want to:

  • Increase their after-tax income
  • Provide a lump sum benefit to their heirs
  • Receive guaranteed cash flow from their investments

Targeted age: 50 to 80

At least one of the clients must be in good health in order to qualify for permanent life insurance.

Procedure to illustrate the insured annuity:

  1. Click the Sales Strategies tab.
  2. Open the Concepts section.
  3. Select Insured Annuity in the drop-down menu.
  4. Download the concept by clicking on Export. The data in the illustration will be transferred to a spreadsheet. You will have 60 minutes to open the spreadsheet and to access the data in the illustration. After this time, you will need to download the spreadsheet again.
  5. When the browser has finished downloading the spreadsheet, open the spreadsheet directly from the link in the browser or from your Downloads folder.
  6. When opening the spreadsheet, activate the contents and macros.
  7. The following entry screen will be displayed:
  8. Enter Annuity Information as per the annuity quote received.
  9. Confirm the fields and click on the PDF button.
  10. The Insured Annuity concept report will appear in PDF format.
  11. A copy of the report will automatically save in the directory entitled: "\Downloads\Desjardins". You will also have an option to manually save the document.
  12. When you have finished consulting the report return to the input screen and click Quit.
  13. Only the saved PDF report can be used to view the spreadsheet results. To illustrate the concept again, please produce a new illustration and download the concept from the Sales Strategies tab.

Sales approach

Here are a few questions to ask your client:

  • Are you receiving sufficient income from your secured investments?
  • Would you like to increase your after-tax income during retirement?
  • Have you earmarked a portion of your savings for your heirs or a charity?