Reaching retirement goals with fixed income is more and more challenging. Why not consider an insured annuity?

April 2014


The combination of a life annuity and a life insurance contract may bring much higher yield of return than other fixed income products.


  • Guaranteed, tax efficient income for life
  • Guaranteed death benefit and estate preservation.
  • Potential to outperform the after tax rate of return of traditional fixed income investments

Who can benefit from this strategy?

An Insured Annuity can be a strategy to consider for someone over the age of 60, in good health, risk averse, who requires an income from their investments, and wants to leave a guaranteed death benefit to their heirs or favourite charity.

How does it work?

An Insured Annuity works by purchasing a prescribed life annuity contract and a permanent life insurance contract with a death benefit equal to the capital invested in the annuity. Generally, payments received from the annuity are used:

  1. to pay the life insurance premium
  2. to pay the tax on the annuity
  3. to supplement retirement income

At death, the annuity payments typically cease and the life insurance death benefit is paid to the estate or named beneficiary. As both components play an important role, let’s review them individually.

Insured Annuity

Margaret is a recently widowed 70-year-old female. Her assets include a house that is paid for, a small pension rolled over from her late husband, $250,000 in a Registered Retirement Income Fund and $1.5 Million in a  fixed income portfolio from which she is currently drawing the majority of her retirement income. Her goal is to ensure that she has enough funds to live on and still be able to leave a guaranteed amount to her three children.

One solution to consider is for Margaret to use a portion of her fixed income portfolio to purchase a $500,000 Insured Annuity. In this way, Margaret could guarantee a specified minimum amount for each child on her death and provide herself with additional after-tax guaranteed income while she is alive. 

Fixed income vs Insured Annuity investment


Fixed Income

Insured Annuity




Annual income*



Marginal tax rate



Tax due



Cash flow



Cost of insurance



Net annual cash flow



Amount of funds
available at death



* Annuity rates will fluctuate. This income is for illustration purposes only. The guaranteed income amount on the date of purchase may be different. Gross annual income from the fixed income investment is assumed to be 4% per year. 
Note: This scenario uses a non-guaranteed prescribed annuity.


As you can see above, the Insured Annuity gives Margaret a better income than fixed income investments in many respects. On death, the initial $500,000 deposited into the annuity contract will be paid out as a death benefit from the life insurance policy, tax free, to Margaret’s beneficiaries.
Looking for more information? Contact your advisor for a copy of our Insured Annuities education article.

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