Whether by choice or circumstance, many people are most comfortable when investments produce consistent, guaranteed returns, like interest. Particularly for those 65+ who are past their working years and depend in part on fixed public pensions, predictable income is critically important for meeting living expenses. Even so, a time may come when more is needed to manage the household, or perhaps a new opportunity or travel adventure arises.

A move toward investing in marketable securities may lead to higher returns over the long-term, but markets fluctuate, which can be inconvenient and costly when consistent cash flow is required. Or efforts could be redoubled to find better guaranteed investment certificate (GIC) rates, but even that carries the risk that rates will not be as favourable when those term investments mature. So, is there a way to produce higher guaranteed returns without increasing risk?

Annuities are a type of insurance. For a principal payment, an insurer agrees to pay guaranteed lifetime income, commonly paid monthly. Compared to GICs that pay interest only, each annuity payment is part interest and part return of capital, also known as ROC. While interest is taxable for both GICs and annuities, ROC is not. Still, an annuitant may feel depleted for having committed the principal to the annuity. That’s where life insurance can step in to fill the void.

An annuity is acquired with non-registered money that would otherwise be destined for GICs. It can be arranged to pay for one person’s life or through to the later death of the couple. Concurrently, permanent life insurance is obtained for an amount equal to the capital used for the annuity. It will be either single-life or joint-last-to-die, aligning with the timing of the annuity. In sum, year-to-year cash is increased, while guaranteeing the capital transfer to heirs.