Immediate Annuities - HOW, WHEN & WHY
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What is an Immediate Annuity? 

Think of it as a mortgage in reverse. 

In the case of a mortgage, the bank or trust company gives the client
the amount of money required to buy a house - say $200,000 and the
client in turn repays the $200,000 plus interest over a specified
period of time. 

An immediate annuity is just the reverse. A client gives the Life Insurance
Company $200,000 and the company in turn pays the client back the $200,000
plus interest for life (in the case of life annuities) or for a specified
period of time (in the case of term certain annuities). 

Why do people buy Immediate Annuities?

     Annuities supply a guaranteed income flow for life or if the owner of
     the contract so desires, his or her spouse's life as well. There is no
     management required with a Single Premium Immediate Annuity - the
     payments keep rolling in for as long as owner of the contract lives or
     for a specified period it's the owner's choice. Annuities are worry free
     - you don't have to worry about current interest rates or the ups and 
     downs in the stock market - the payment you receive each month is set at
     the start of the contract and continues throughout (unless of course you
     asked for some indexing of the payment, in which case the payments will
     go up). 

What are Immediate Annuity Payments used for? 

They could be used for some of the following:

     To pay for the day-to-day living expenses of retired Canadians. 
     For savings, -To fund a child or grandchild's education through
     a 2 Step investing approach, or -  To pay an insurance premium. 

Can Immediate Annuities be bought with Registered and Non-Registered Funds? 

	Yes. If the funds which purchase the annuity are registered,
	tax is paid annually only on the income received each year. 

	If the the funds which purchase the annuity are non-registered,
	the interest portion of the payments are taxed each year. 

What type of Annuities are Available? 

A) Life Annuities

   1.Without Guarantees
     You can have a life annuity with no gurantee on the number of payments
     you will receive - as long as you are alive you will receive payments.
     As soon as you die the payments cease.

   2.With Guarantees
     In this situation the payments are guaranteed for a specified period
     of time - even if you die. Guarantee periods can be from 5 to 25 years.
     If the funds which purchased the annuity were registered, the guarantee
     period cannot be greater-than to a client's age 90.

     Example
     If you had a guarantee period on your life annuity of 10 years, and you
     die in the second year of the contract, the insurance company will
     continue to make the payments to your spouse until the 10 years 
     are completed. 

B) Joint Life Annuities

     These annuities can be purchased with or without guarantees. 
     Payments can be reduced to the surviving spouse on death.

     Example
     A Joint Life annuity with a 0 years guarantee.
     If one spouse dies, the payments still continue until the death of
     the second spouse.

     A Joint Life annuity with guarantees.
     If you put a guarantee on a Joint Life annuity and both the husband
     and wife die before the end of the guarantee period, the annuity
     is "commuted" (aka; Lump-Summed) and paid-out to the beneficiaries.


C) Term Certain Annuities

     Term certain annuities have payments which are made for a specific
     period of time - even if you die.  The terms available are from 5
     to 25 years ( if the annuity is purchased with registered monies the
     term must run to the policy owner's age 90). Term Certain annuity
     payments can be level for the term or indexed (4% maximum if the funds
     are registered, no maximum if the funds are non-registered).


What is a Prescribed Annuity? 

These are Annuities purchased with non-registered funds. The payments are
made up of principal and interest. The owner of the annuity is taxed only
on the interest portion of each payment received during a calendar year.
The Prescribed Annuity effectively spreads the tax impact out over the life
of the contract by keeping the taxable portion - the interest portion,
level throughout. 
	(If you are a Senior the Net Results can seem like 2 to 4 Xs) 
	(the income that a bank would give you, but with only a tax-)
	(-able portion of the income, from 25% to 50% of that income!)

What is a Non Prescribed Annuity? 

Like the Prescribed Annuity discussed above, these are annuities purchased
with non-registered funds. Unlike the Prescribed annuity, the interest
portion of each payment is not kept level throughout the contract.
In fact, it is highest in the early years, declining yearly throughout the
life of the contract. 

Can the Life or Term Certain Annuity Payments
be altered once the Contract is started? 

Not usually. Indexing of the payments is allowed but must be chosen at
the time of purcahse. However, if the funds which purchase an annuity
are registered, the indexing is restricted to 4% each year. If the funds
which puchase the annuity are non-registered, the indexing level is
potentially unlimited.


Dave dpg@oath.com

