Presentation on theme: "Insured Annuity Increase your after- tax Retirement Income Insurance Concepts."— Presentation transcript:
Insured Annuity Increase your after- tax Retirement Income Insurance Concepts
What is an Insured Annuity? An Insured Annuity is simply a combination of a prescribed life annuity (provides a guaranteed income stream to you for life) and an insurance policy (returns 100% of the capital used to purchase the annuity to your children, grandchildren or estate – tax free).
Is it right for you? Are you between the ages of 55 and 85? In good health? Looking for an alternative low risk investment, offering a higher after-tax yield? Have cash assets outside a registered plan? (RRSP, RIF etc.)
The Insured Annuity Advantages Increased income - can provide as much as up to 90% more income over a traditional GIC or equivalent, for life. These increases can also mean a GIC would need to pay a pre-tax rate of return of up to 10% on your investment.. Estate protection - an amount equal to your initial investment is paid to your beneficiaries or estate when you die – without estate or probate fees!
More advantages…. Lower taxable income – The taxable portion of your reportable income is decreased when using a prescribed life annuity. This means you will pay less tax on your annuity income, providing you the opportunity to maximize your government benefits. Minimized Investment Risk – both the life insurance and the annuity contracts are fully guaranteed, giving you complete peace of mind.
How is that possible? A part of the income from your Annuity represents reimbursed capital, which is tax-free. The balance represents interest earnings on your investment, which are subject to tax. Ultimately, the net (after-tax) return on your Annuity will be far greater than what you would receive from a GIC.
Let’s look at an example… Bill is 75 yrs, healthy non-smoker. Retired and recently widowed. Received death benefit for $500,000 from his wife’s insurance policy. Bill would like to use this money, both to draw an income and leave the capital for his children. The chart on the next page shows how Bill would compare investing in an Insured Annuity versus investing in a GIC.
Male age 75, non-smoker, $500,000 investment (non-registered) GIC Insured Annuity $500,000 Initial Capital $500,000 5% Annual Investment Rate N/A $25,000 Gross Annual Income $53,253 $25,000 Taxable Portion $4,907 ($9,750) Tax Payable (at a 39% marginal tax rate) ($1,914) $15,250 After-Tax Income $51,339 N/A Annual Insurance Premium $26,605 $15,250 Net Annual Income $24,734 N/A Equiv. Annual Pre-Tax Yield 8.11% N/A Difference in Annual Income $9,484 Increase Over GIC Yield This chart (July 2003) has been prepared to help you understand how insured annuities work. The values shown here are illustrative only and are not a guarantee of future earnings or returns. E.&O.E %
Capital returned to Estate is $500,000 $15,250 $24,734
GIC Investment – using Insured Annuity Income of $ 24,734 per year
Insured Life Annuity (back to back)
GIC Investment (using Insured Annuity net income)
To recap…….. Bill’s net annual income will be $24,734 after paying for his life insurance policy. His equivalent annual pre-tax yield is 8.11% Bill also benefits from a taxable income reduction of 80%. This income will continue until death. The full $500,000 from the life insurance would be payable at that time, to Bill’s beneficiaries, tax-free.
One word of caution….. When purchasing an insured annuity you give up the flexibility of reinvesting the GIC funds each term. If you feel that the higher equivalent rate of return compensates for this lack of flexibility, the insured annuity might be for you. As with any financial strategy, the Insured Annuity should be viewed in conjunction with all of your financial affairs. Actual annuity income & insurance cost will depend on your age, gender, insurability rating, current annuity rates and the amount deposited
The Insured Annuity Strategy Guaranteed income for life, Preferential tax treatment of annuity income, Replacement of your capital at death, Permanent life insurance protection, Tax free death benefit, Flexibility to change policy beneficiary and coverage amount, No probate fees on death benefit with named beneficiary, Maximize Government Benefits.
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