Annuities
An annuity serves as a financial product designed to provide a steady income stream for individuals, typically in retirement. This investment vehicle involves an individual making a lump-sum payment or a series of payments to an insurance company. In return, the insurance company guarantees regular payments to the annuitant, either for a specific period or for the rest of their life.
Annuities can be tailored to various needs, providing flexibility for retirees seeking financial stability and peace of mind.
Common Uses
Guaranteed Source of Income:
- An annuity offers a guaranteed source of income through a contract with an insurance company, providing financial stability and certainty regardless of market fluctuations or the risk of outliving financial resources.
Managing Longevity Risk:
- An annuity provides guaranteed payments throughout an individual’s life, addressing longevity risk in Canada’s increasing life expectancy landscape. This steady income stream ensures financial security during extended retirement years, sustaining a comfortable lifestyle.
Secure Stable Income During Retirement:
- An annuity provides a secure and stable income stream during retirement, shielding against market volatility and guaranteeing consistent payments, fostering financial stability and peace of mind.
Examples of Plans
Guaranteed Minimum Withdrawal Benefit (GMWB) Annuity:
- Allows for periodic withdrawals while ensuring a minimum income, even if the investment’s value decreases.
Indexed Annuity:
- Adjusts payments based on inflation or a predetermined index to counteract rising living costs.
Joint and Last Survivor Annuity:
- Ensures income for the lifetimes of two individuals, with payments continuing for the survivor.
Life Annuity:
- Provides regular income payments for the lifetime of the annuitant.
Prescribed Annuity:
- Structured to meet specific regulatory requirements, offering tax advantages.
Term Certain Annuity:
- Offers payments for a fixed term, regardless of the annuitant’s lifespan.
Variable Annuity:
- Allows for investment in a variety of funds, with payments tied to the performance of these investments.
Examples of Riders
Death Benefit Rider:
- Ensures a specified benefit will be paid to the beneficiary upon the annuitant’s death, typically a lump sum or ongoing payments.
Enhanced Death Benefit Rider:
- Provides a higher death benefit than the standard death benefit rider, typically based on market performance or account value.
Inflation Protection Rider:
- Adjusts annuity payments periodically to account for inflation, helping to maintain purchasing power over time.
Long-Term Care Rider:
- Allows annuity proceeds to be used to pay for long-term care expenses if the annuitant becomes chronically ill.
Terminal Illness Rider:
- Allows the annuitant to access a portion of the annuity’s value if diagnosed with a terminal illness, providing financial support during a difficult time.