Page 233 - A Canuck's Guide to Financial Literacy 2020

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Annuities typically have an accumulation phase and a payout phase.

Payout Annuity

Payout annuities pay a stream of income which can be a blend of interest and principal. The
payments are based on the deposit to the contract and on a specified rate applied at the
time of the contract.

• Immediate Annuity - Payments begin immediately with a short period of time
between funding and the first payment.
• Deferred Annuities - Deferred annuities are annuities that payments begin at a set
date. Once annuity payments begin, they cannot be stopped before the end of the
payment period.
• Term Annuity - The annuity payments are for a specified term or number of years.
• Life Annuity - The annuity payments are for life and cannot be stopped.
• Impaired Annuity - An impaired annuity is issued when then annuitant has a
shortened life expectancy due to poor health or a serious life disease. Impaired
annuities typically have a higher payment due to the diagnosis. These types of
annuities are also referred to as enhanced or age rated annuities.

Example of Term Annuity
Michael, age 67 deposits, $300,000 to a 5-year term annuity. He receives approximately
$3,000 a month in his annuity payments. If the annuity was a 10-year term, he would
receive about 1500 per month.

When a term annuity ends so do the payments because the annuitant received the entire
principal deposited to the contract.

Accumulation Annuity

As the name suggest, an accumulation annuity is a form of savings with a maturity date.
Accumulation annuities are similar to GICs but have the benefits of a life insurance contract.
The end goal is investment growth with the funds used to buy a payout annuity or
withdrawn.