Life Annuities

Life annuities for younger people just don,t work.

And by younger people I mean people below 65 at least. The rates for life annuities are a blend of age and long term interest rates. And if those long term interest rates are low, and they are today, your income is lowered when compounded with your younger age.

So if you are using registered funds, think RRIF,s not life annuities.

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Life annuities to provide a secure income at retirement were the first choice for most Canadians. Then along cam RRIF,s with their ability to invest in segregated fund, mutual funds, GIC,s and the like.

Now however, we see the life annuities world has come around again. With all the volatility in the markets, lying executives and grossly misleading statements from numerous governments, it is no wonder that people want the guarantee a life annuity brings.

Anyone who belies the Canadian or US government on inflation figures needs to sit down and think deeply. Both governments DO NOT INCLUDE either food or energy in their calculations. How can you leave out food if you eat every day? How can you leave out electricity? Where do we live? In the bush?

Get yourselves life annuities

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People who recognize the possibility of risk purchase life insurance policies. They want that risk managed by a company that will not only return their investment to them in the future but also pay them any extra earnings accrued through investment of their premiums.

Investment of Life Insurance Dividends

The investment of premiums is standard practice among most insurance companies. If the investments are properly managed, the life insurer obtains surplus profits resulting in dividends. Companies that distribute surplus funds as dividends to policyholders are called mutual companies.

Life insurance dividends come from the insurance company’s investment earnings, mortality savings and operational savings. Mortality savings occur when an insured client dies, and the death claim paid by the company is less than the premiums paid by the client. Operational savings result when the company pays less in terms of expenses necessary to keep the company running.

Why Life Insurance Dividends?

The life insurance company isn’t being generous. Policyholders receive dividends because the insurance company is entitled to a tax break through the sharing of profits: The dividends are subtracted from their income, and a lower income means paying fewer taxes.

Dividends can be converted into cash, allowed to accumulate, or used to pay premiums according to the policyholder’s wishes. Dividends can also pay off policy loans.

Typically, dividends are so small it is better to allow them to accumulate, although some individuals opt to convert them immediately. In most cases, individuals who borrow from their life insurance policy in the form of loans receive higher dividends when the company disburses them.

Life Insurance Dividends are Tax Exempt

Life insurance dividends are usually tax exempt unless the value of received dividends exceeds that of premiums paid. If life insurance dividends are converted to cash, the money is taxed; dividends are usually disbursed in the form of dividend certificates.

The majority of companies do not guarantee payment of life insurance dividends because they are dependent on how well the investments do in the market.

Individuals considering life insurance should ask questions about the life insurance dividends and be well informed to maximize benefits and get the most out of their insurance policy. Do the homework, understand the policy and wisely use any life insurance dividends.

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Life annuities for people with different health profiles offer a challenge to the parties involved.

Should a life annuity be bought on both lives if one party has a short life expectancy? Or should a single life annuity be purchased on the healthy partner for a higher income? And what if there is a large age difference?

The only way to answer these questions is to look at the actual income figures.

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Life annuities are now starting to increase in popularity with the recent turmoil. Recent retirees are now opting for a the guaranteed income that life annuities provide in place of market-oriented investment funds.

If you have your money in mutual funds, that is investing money with no floor guarantee, your monthly return will decrease if the market goes down and stays down. Of course it could go down and come back up quickly.

But if you are relying on RRIF type income, remember that life annuities provide guarantees.

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Life annuities provide the greatest security you can have when you are plder and sick and tired of the stock market gyrations.

As you grow up you are mentally ready for all sorts of changes and indeed welcome them. And that includes the ups and downs of the stock market with your mutual and segregated funds.

But now you are fed up with all the changes and want to invest in life annuities where your income is guaranteed each and every month on a pre-arranged date.

And that is what life annuities provide; security of income on a certain date each month.

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By understanding the basics of life insurance coverage, you are able to determine what type of policy works best for you and your family.

Who Needs Life Insurance?

Life insurance provides money to your beneficiaries in the event of your untimely death so they can maintain their standard of living. If you don’t have children, you can designate another family member such as a niece or nephew as the beneficiary, or you can donate the money to charity. A policy can even be taken out just to cover burial expenses.

Different Types of Life Insurance

Term Life Insurance: Covers a designated period of time. Once that period is over, the insurance lapses. As you age, the cost of renewal rises. If you want the longest period of coverage, you need a term life insurance policy to age 100.

Whole Life Insurance: Covers your entire lifetime and has a cash value. Premiums never increase. You can borrow against the cash value of the policy. If you stop making payments midway through the policy, the cash value pays the premiums until exhaustion.

This is up to 5 times more expensive than a term life insurance policy.

Universal Life Insurance: Premiums can be adjusted by the owner, which may change the face value of the policy. You can borrow against the cash value. Basically, it is a term life insurance policy with an investment portion such as a whole life insurance policy. In a whole life insurance policy, you do not choose an investment, that is done by the insurance company. With a Universal Life insurance policy however, you may, if you wish, choose the investments for the investment portion of your premium.

Two different reasons for Life Insurance: If you don’t have a lot of money to buy a good pension, a good term life insurance policy may be able to help. If your partner dies, these funds can form a capital amount to buy a pension.

Alternatively, you can insure the life of a healthy parent. In the normal course of events, your parent will predecease you, thus providing you with the necessary pension funds.

Thus you have solved a problem in which your parent has gladly helped.

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Do you take your life annuity now or wait till later?

First you have to define ” later “.If you can use the extra income that an annuity can provide, you need to decide whether to take an income now or wait and get a larger income at some later point in time.

While there are many things to consider, the main one may be to realise that you are only going to live as long as you are going to live; taking or not taking an annuity has nothing to do with it.

If you wait and get a larger income ” later ‘,you need to recoup all the payments you did not receive because you waited.

So there is a magic ” tipping point ” which is difficult to find for your life annuity.

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There are three ways in which a charity can benefit through the gift of life insurance. Under the “gift plan,” your client makes the charity the owner and beneficiary of an existing life insurance policy on his/her life with or without; its that simple. If your client no longer requires a policy that is rich in cash value, he or she can change the ownership and beneficiary designation to the charity.

Most countries allow full deduction of the premiums but you should consult an advisor/accountant for how the rules affect you.

The second method of gifting life insurance is called a “charity ownership”. Assume that a married couple gives $5000 to a specific charity each year, so over the next 10 years, they will have contributed $50,000 after tax. In this case the charity purchases the maximum possible life insurance policy on your client’s life with the annual premium.

Another charitable giving technique is called the “charitable bequest” which makes the charity the beneficiary of the life insurance policy. Because you remain the owner of the policy for the rest of your life, there may be no income tax deduction as there is in the case of the two previous plans.

All three plans may clearly offer something for everyone. As in the case with every financial strategy, you should be well informed about the different options that are available so you can select strategy that will work best with your choice of life insurance. For more information, see hughestrustco.com

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