Description

Retirees relying on GICs for a major portion of their income have a problem with today’s low interest rates their income is falling. Retirees need to find new ways to maximize their income while keeping risk at a minimum. One solution is the Insured Annuity concept. This program offers the following advantages:

• After-tax income is higher than after-tax GIC interest
• Income amount guaranteed for life, unlike GICs which are subject to future renewal dates
• Capital fully intact for heirs, exempt from probate fees and other estate settlement costs
• When capital is to be a charitable bequest, annual income can be enhanced further

The Insured Annuity is a combination of two insurance products – a prescribed annuity acquired with non-registered funds and a permanent life insurance policy. The annuity provides guaranteed lifetime income with the added benefit of preferential tax treatment. Retirees cannot outlive their capital. Each annuity payment represents return of non- taxable capital and taxable interest. The cash flow is higher than interest only with a GIC. Upon the client’s death, annuity payments and the contract terminate, unless an option for a minimum number of guaranteed payments had been selected at purchase. The original capital is preserved through the life insurance policy. As named beneficiaries, your client’s heirs receive the equivalent GIC capital through insurance proceeds, exempt from probate fees and other estate settlement costs.

An added benefit is reduced taxation for your client. The taxable portion of annuity payments is less than the taxable GIC interest. In cases where taxable income affects federal and provincial benefits, the Insured Annuity concept may provide additional benefits, e.g., restoration of full OAS pension benefits.

The recommended insurance plan is a Universal Life policy with the insurance amount equal to the capital for the prescribed annuity. Minimum deposits are paid to age 100 with level insurance costs. To avoid possible adverse tax consequences, it is recommended that the prescribed annuity be purchased from another insurance carrier. The after-tax annuity payments, less UL deposits, are higher than after-tax GIC interest. When capital is intended as a charitable bequest, the result can be even more favorable. When the charity is owner and beneficiary of Flex Account, deposits are a charitable donation and eligible for a tax credit.

An alternative to minimum UL deposits is to apply a portion of the capital as a single UL deposit to prepay ongoing insurance costs and to acquire the prescribed annuity with the balance. Your client is taking advantage of the tax-preferred status of UL investments to pay the insurance cost on a before-tax basis.

Ideal Client
• Single or couple at least age 65, healthy
• Desire guaranteed income from non-registered investments
• Unsatisfied with current income from fixed income investments
• No need for capital while living, earmarked for heirs
• Concerned that if they did encroach on capital, income will be reduced or they could outlive capital

Suggested Approach
• For a retired client receiving GIC interest:
  There is a way that you can invest risk free and receive a higher lifetime income than you are now receiving from your GICs.
• For a retired client dissatisfied with GICs renewing at lower rates:
  There is a way that you can lock-in an income higher than you are presently receiving with your GICs, and not be subject to future interest rate swings
• For a retired client relying on GIC interest with a charitable bequest within the will:
  There is a way to increase your retirement income, guaranteed for life, reduce your current taxes and still preserve the amount you wish to give as a bequest to charity.

For more information on how to personalize based on your own situation contact FSE Financial Group Broker at 403-253-7007