What is a life annuity?
A life annuity provides you with a series of payments in
return for a lump sum paid up front. A lump sum of money is transferred directly from your
pension plan, LIRA
or RRIF to a life insurance company to purchase an annuity. In
return, the issuer pays you an annuity on a regular basis (monthly, quarterly,
semi-annually, or annually) for the remainder of your life.
Where can I purchase a life annuity?
The life annuity may be purchased from a life insurance
company licensed in any jurisdiction in Canada to carry on life insurance business.
How much will I receive?
The amount of your payment is based on the amount of the
lump sum, your age (and that of your spouse if applicable), the survivor benefits you
choose and the annuity rate in effect at the time of transfer. The annuity rate reflects
the insurance company's expectations of the rate of return on its assets.
The amount will vary by insurance company. It pays to ask
for a quotation from several insurance companies.
Will an insurance company pay less to a woman than a man
because women generally live longer?
Your gender cannot be taken into account in determining the
amount of the payment.
What if the life insurance company fails?
Your annuity is protected by the insurance industry,
through the Canadian Life and Health Insurance Compensation Corporation, in case of the
failure of the insurance company underwriting your annuity. However, you should be aware
of the limits of the protection. Currently, $2,000 per month in income from life and term
annuities is protected. You should ask your insurance company for more details of the
coverage.
If the amount of your annuity would exceed the limits of
coverage, you could consider splitting your purchase over more than one insurance company.
What happens when I die?
You may provide for the payment of a pension to a surviving
co-annuitant. You also may seek the guarantee of the payment of your annuity for a fixed
period even if you die prematurely. The following example illustrates some of the optional
forms of annuity:
You and your spouse are reviewing your retirement options
statement and are faced with selecting one of the following options:
- A single life annuity with no guarantee period that will pay
you $1,350 per month during your lifetime. Nothing would be payable on your death.
- A single life annuity with a guarantee period of 10 years
that will pay you $1,280 per month during your lifetime. If you die within 10 years after
retirement, your named beneficiary or estate would receive the same monthly pension,
$1,280, for the remainder of the 10 year period. No further payments would be made after
the 10 years expired.
- A 60 per cent joint and survivor annuity that will pay you
$1,150 per month during your lifetime, and then $690 per month to your spouse, on your
death, for the remainder of your spouse's lifetime.
As you and your spouse work through the options, you see
that the single life annuity provides the largest monthly pension as long as you are
alive, but offers no continuing income to your spouse if your spouse survives you.
The single life annuity with a guaranteed 10 years is
payable to you for the duration of your life, but if you live more than 10 years after
retirement, it will stop at the time of your death. However, if you die before the 10
years expire, the pension is payable to your spouse if he or she is named as beneficiary,
but only for the remainder of the 10 year guaranteed term.
The joint and survivor option provides the smallest monthly
payment to you throughout your life. However, upon your death a reduced amount is payable
to your spouse for your spouse's lifetime. You must select this option unless your spouse
signs a waiver.
If my spouse dies before me can I name another
co-annuitant? What if I marry or enter into a common law relationship after I start my
annuity?
The terms of the contract between you and the insurance
company will determine whether the contract can be altered or revoked. Direct these
questions to your life insurance company.
