Annuities and Life Insurance help with different financial concerns.

An annuity turns a lump sum into regular payments, often for life. It can help provide income if you live longer than your savings last.

Life insurance pays money to your chosen beneficiaries if you die while the policy is active. It can help protect people who depend on your income or support.

You pay an insurer a lump sum in exchange for regular income. Payments may start soon or later, and can be paid for life or for a set period.

A life annuity pays as long as you live. Payments usually stop when you die, unless you choose an option; such as continuing payments to a spouse or guaranteeing payments for a minimum period. These options generally mean a lower starting payment.

An annuity can make some retirement income more predictable, but you may have limited access to the lump sum after buying it. The contract may be difficult or impossible to change or cancel.

An annuity may be worth exploring if you are nearing or in retirement and want more predictable income. Ask yourself:

• Will CPP, OAS, a workplace pension, and other reliable income cover my regular expenses?

• Would steady payments make budgeting easier or help me feel more secure?

• Am I concerned about outliving my savings?

• Can I set aside money that I may not be able to access after buying the annuity?

• Should payments continue to a spouse or another person if I die?

• Could inflation reduce what fixed payments can buy over time?

If your reliable income does not cover essential expenses, an annuity may be one option to consider. 

If your income and savings already meet your needs, or you may need access to the money, it may be less suitable. 

Compare similar offers and understand the payment options, costs, and cancellation terms before deciding.

You pay premiums to keep a policy active. If the insured person dies while covered, the insurer pays a death benefit to the named beneficiaries. It may help replace income, pay debts or final expenses, or support dependants.

• Term Insurance: covers a set period. It generally has no cash value; coverage ends when the term ends unless the policy allows renewal or conversion.

• Permanent Insurance: is designed to provide coverage for life. Some policies build cash value, but features and costs vary. Taking money out or borrowing against the policy can reduce its value or death benefit and may have tax consequences.

Use these questions as a starting point:

• Does anyone depend on your income, care giving, or other support?

• Would a spouse, co-borrower, or family member struggle with debts or housing costs if you died?

• Do you have children, a dependent relative, or a business partner who could face a financial shortfall?

• Does your work involve a higher-than-usual risk of death? This may affect coverage options or cost, but does not by itself determine whether you need insurance.

• What savings, workplace benefits, or existing policies could help?

If your death would leave a financial gap for someone else, life insurance may be worth exploring. 

The amount depends on the gap; not simply on whether you have dependants or debt.

Annuity Life Insurance

You pay a lump sum for regular income.     You pay premiums for a possible death benefit.

Helps provide income while you live. Helps provide money to others after your death.

May limit access to the lump sum you paid. Term coverage has no cash value; some permanent policies build it.

Consider an annuity if predictable income is a priority and you want to reduce the risk of outliving your savings. Consider life insurance if someone may face financial hardship if you die.

They are not interchangeable, and you do not automatically need both. Your decision should reflect your goals, existing income and savings, obligations, policy terms, and ability to afford the product.

If you buy an eligible annuity with RRSP funds through the proper process, the funds used to purchase it generally are not taxed immediately; payments are generally taxable when you receive them.

Annuities are designed to provide income to you. Life insurance is designed to provide a benefit to others after your death.

1. Financial Consumer Agency of Canada, Annuities.

2. Financial Consumer Agency of Canada, Life insurance.

3. Canada Revenue Agency, Receiving income from an RRSP.