Helping Clients Reach Financial Security
"No Matter What"
The Insured Annuity
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.
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.
* Net Income after
tax paid @ 47%