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Helping Clients Reach Financial Security
"No Matter What"
 
Ken Armstrong 
Insurance & Financial Services
Milton, Ontario 
905-878-0951
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The Insured Annuity

In this situation we have a person who has sold his home, business, or cottage and down sized and with other investments had over $500,000 in GIC's
In Retirement, security of capital can be of prime concern and a very strong motivation for conservative investing.  Its good to know that here is a way to increase the amount of your after-tax income by lowering the taxable portion, yet potentially still receive a higher net return and preserve the capital for your heirs.  This method is actually an insurance concept call the insured annuity.
An insured annuity is a combination of two insurance products.  The first is a "prescribed annuity" that may provide a higher guaranteed income stream and is structured differently that a GIC, which could affect taxation.  It is purchased using non-regisitered funds.  The Second product is a life insurance policy (usually) term to age 100). The amount of insurance coverage equals the non registered capital used to purchase the annuity.
While you are alive, you would receive a guaranteed income from the annuity.  You use a portion of your annuity income to pay the insurance premiums and, upon your death, the insurance company pays the death benefit to your named heirs.  In addition, the insurance proceeds would be received ta free and may bypass probate.
May 2002
To give you a general idea of how this strategy may work.  A 70 year old male non-smoker has $500,000 invested in GIC @ 5% which generate a net annual income of $13,250, assuming the income is taxed @ 47%.  If he took that same $500,000 and purchased a life annuity, his after-tax income would be $45,110.  If he then purchased $500,000 of term to age 100 life insurance for an annual premium of $20,115, his net income would be $24,995.  The increase over the GIC yearly is $11,745 or 88.64%.  Also the equivalent pre-tax yield using the insured annuity concept is 9.43%

There are sever factor to be considered before determining if this strategy is appropriate for you.

Do a premium survey of what your costs would be. for Term 100 Coverage
Contact advisor for Annuity quote
 

Year
$500,000 in 
GIC @ 5%
Net Income *
Tax Free* Annuity Payment Annual
Annual  Deposit into account
Net Tax Free Income 
to YOU
= 9.73% ROE**
 Tax Free Dollars Required to Estate
1
$13,250
$45,110
$20,115
$24,995
$500,000
2
$13,250
$45,110
$20,115
$24,995
$500,000
3
$13,250
$45,110
$20,115
$24,995
$500,000
4
$13,250
$45,110
$20,115
$24,995
$500,000
5
$13,250
$45,110
$20,115
$24,995
$500,000
6 -10
$13,250
$45,110
$20,115
$24,995
$500,000
11-15
$13,250
$45,110
$20,115
$24,995
$500,000
16-30
$13,250
$45,110
$20,115
$24,995
$500,000

*  Net Income after tax paid @ 47%
**  Pre-tax yield on investment.