An annuity is an investment that provides an income stream for a stated
period of time in exchange for a lump sum payment (single premium). The income
ceases at the end of the stated period.
Types of annuity:
Annuity Certain – The stated period is a fixed duration (e.g., 10 years). Also referred to as Term Certain Annuity.
Life annuity – The income payments must be contingent on a person(s) being alive.
Guaranteed Investment Certificate
A deposit investment security sold by Canadian banks and trust companies.
They are often bought for retirement plans because they provide a low-risk fixed
rate of return. The principal is at risk only if the bank defaults.
A deposit held at a financial institution that has a fixed term. These are
generally short-term with maturities ranging anywhere from a month to a few
years. When a term deposit is purchased, the lender (the customer) understands
that the money can only be withdrawn after the term has ended or by giving a
predetermined number of days notice.
Term deposits are an extremely safe investment and are therefore very appealing to conservative, low-risk investors. By having the money tied up you'll generally get a higher rate with a term deposit compared with a demand deposit.
Segregated fund is a pool of money, invested in stocks, bonds or Treasury
Bills held solely for the benefit of the unit holders of the fund and which
cannot normally be touched by creditors. With a named beneficiary, your funds
normally will be protected from your creditors. At death, with a named
beneficiary, your funds go directly to your beneficiary, without probate fees.
Segregated fund capital is guaranteed by an insurer and achieves capital gains just like a mutual fund. The minimum rule is 75% of capital is guaranteed after ten years even if the fair market value (FMV) is below this 75%. Some insurance carriers will even guaranteed 100% of the capital after ten (10) years.
Because this is an insurance contract, the death benefit guaranteed is 75%-100% of your capital with no time restriction.
Segregated Funds also have the following features that mutual funds do not have:
With a named beneficiary, your funds go directly to your beneficiary, without probate fees.
You can periodically "lock in" the protection on the principal when the policy has escalated in value. This resets your 10-year guarantee period.[back to top]