‘I’ll Take Guaranteed Life Income Over an Annuity’

They’re the same thing, but the name of the product matters more, Morningstar study finds.

Yan Barcelo 25 October, 2021 | 12:15AM
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Red umbrella

“People are more willing to purchase a guaranteed stream of income for life than an annuity; the product may be the same, but the title matters.” states a Morningstar study authored by Stan Treger.

With an annuity, a client signs a contract with an insurance company by which he gives an amount of capital to the insurer in exchange for a guaranteed revenue to the end of his days. This is not an investment in some fund or other which the client can retrieve at any time. The client gives their money to the insurer in exchange for revenue.  For example, the client hands over $100,000 dollars to the insurer, who then pays a steady yearly income of $5,000 or $6,000. There are countless variants (indexed to inflation or not, with an allowance to a surviving spouse or not, etc.), but this is the basic framework. At the client’s death, the money stays in the insurer’s coffers.

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People Prefer a Guaranteed Income Over an Annuity

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About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, writing for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.

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