Insurance – Income Investing with Insured Annuities

When people think of retirement, they often ask themselves if they will have enough.  The fear of outliving their money is real and, in many cases, sends clients to the investment sidelines when markets dip.

Traditionally, investments such as T-Bills, GICs and bonds have been used to preserve capital and generate income to fund their lifestyles in retirement.  However, the after-tax return on these vehicles in this environment is barely enough to break even.

Consider an insured annuity to guarantee a higher income for life, minimize taxes payable throughout and flow the original capital to beneficiaries upon death.

This strategy involves two separate contracts: a non-registered prescribed life annuity and a permanent life insurance policy.

The prescribed life annuity, even in low rate environments, typically pays a higher income than traditional fixed income investments and guarantees it for as long as you live.  Each payment is a blend of capital and interest where only the interest portion is taxable.

The permanent insurance is typically a minimum funded universal life or a term to 100 policy.

 

Example…Male, 65/Female, 65

Joint Last to Die Annuity/Term to 100 Insurance Policy

 

Principal / Face Amount:              $500,000

GIC Rate:                                       2.5%

Tax Rate:                             50.40%

GIC Insured Annuity
Monthly Cash Flow $1,042 $2,008
Tax Payable $525 $209
Insurance Premium $0 $802
Net Monthly Cash Flow $517 $997
Net After Tax Yield 1.24% 2.39%
Equivalent GIC Rate 4.83%

 

This strategy can be used for individual, joint and corporate situations.   In some cases, a front to back strategy can be employed whereby the insurance is purchased several years before the annuity to guarantee lower lifetime premiums.  Once ready to begin receiving income, the client can then purchase the annuity with no worry about insurability.

 

If you have any questions or would like to learn more, please call Matthias at 778-400-2816.

 

 

Share on linkedin
Share on facebook
Share on twitter
Share on print
Share on email

Recent Posts

The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.