Term Certain Annuity (or Fixed-Term or Term Annuity)
A term certain annuity provides the annuitant with income for a specified term. If the annuitant dies before the end of the term, his or her designated beneficiary will continue to receive the annuity until the end of the period specified in the contract.
Example:
Mary, aged 68, purchases an annuity with a 20-year term. She dies at age 72, four years after purchasing the annuity. As the guaranteed payment term was 20 years, her designated beneficiary will receive the payments she would have been received over the next 16 years.
The following payment periods are offered for term certain annuities:
- A term certain annuity is usually offered for terms of between 5 to 25 years when constituted of non-registered funds. However, in the case of a prescribed annuity, the payment period cannot extend past the annuitant's 91st birthday.
- When the funds used to purchase an annuity come from an RRSP or a RRIF, the annuity is said to be "prescribed" and payments are made until the annuitant turns age 90.
Life Annuity
A life annuity can only be purchased from a life insurance company. It provides the annuitant with fixed guaranteed income at regular intervals until his or her death.
Example:
Mary, aged 68, purchases a life annuity with no options. If she dies at age 88, her annuity will then end.
If she's still alive at age 104, her annuity will continue to be paid until her death.
Impaired Risk Life Annuity
Impaired risk annuities are intended for individuals with shorter life expectancies due to a serious health problems. To purchase this type of annuity, clients must provide the medical information required by the insurer, which, after analysis of their medical file, will present a proposal.
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Note: This text is intended for information purposes only. In no event should it be considered as professional tax or legal advice.
Updated: October 2007
