CLHIA-ACCAP - Consumer Information

Questions about life annuities

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1 What is a life annuity? A life annuity is a contract between you and a life insurance company. It pays you a guaranteed periodic income for the rest of your lifetime and, therefore, is typically used for retirement purposes. These payments are based on your age and the interest rates at the time of your purchase. For some annuities, your gender and health status are also used to determine the income payable. How does an annuity work? Annuities pool investment and survival experience across a large group of people. You can purchase a life annuity with a lump sum, or gradually over time. The payments from a life annuity are a blend of interest, a return of your capital, and a transfer of capital from those who die earlier than statistically expected to those who live longer than expected. Some annuities only pay income for a fixed period. With a life annuity, payments continue to you for as long as you live. Life annuities usually include a guaranteed income payment period which can be as short as five years or can run to age 90. If you die within the guarantee period, a lump sum may be paid to your beneficiary or to your estate, or payments for the remainder of that period can be made to them. What are the advantages of a life annuity? A life annuity provides you with a guaranteed lifetime income. You cannot outlive a life annuity - payments will continue to you, at a guaranteed set amount, regardless of how long you live. Unlike managing your investments yourself to produce an income, the guaranteed income from a life annuity will continue to be paid, even if investment markets fall in value. In addition, annuities are protected by Assuris in the unlikely event of the failure of your life insurance company.

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