Is an insured annuity right for you?
When you purchase a life annuity and a term 100 life insurance policy together, the result is called an insured annuity. The annuity provides a guaranteed lifetime income stream and the life insurance policy provides a tax-free cash payout to your beneficiaries upon your death. The annuity generates the cash flow to pay the life insurance premium and taxes, as well as provide a guaranteed, regular and higher income stream to yourself.
In these times of low GIC (Guaranteed Investment Rates), this option can provide tax advantages, tax-deferred growth and the highest possible guaranteed income for life. If you have invested in GICs only over the last few years, you will have seen your annual return decrease. This may have made it more difficult to use the interest payments only for cash flow, and you may have had to access some principal. If you are living off the interest, and wish to protect your capital for your heirs, this could be the perfect option for you. The main disadvantage of the insured annuity concept is not being able to access the lump sum of money you use to buy the annuity, and, you must be able to get approved for life insurance.
The solution is not using all of your capital to purchase the annuity, thereby achieving all of your goals: increasing your cash flow, having available funds ‘in case’, and, preserving your legacy.