Annuities | To self insure or not, that is the question

publication date: Feb 13, 2020
author/source: Harry Houtman

Annuities can be a very attractive gift for donors. Considering that all or almost all of the life-long income is tax free, the self-insured gift annuity is a great source of personal security AND a fabulous charitable gift at the end. Often it is hard to know where to start. 

This article focuses on Annuities with comparison of Prescribed Annuity Rates offered commercially, by charities which buy an annuity for a donor, and charities which manage the agreement themselves. “Prescribed” is a technical income tax term meaning that each payment received, life long, has the same amount of taxable and tax free component. These are acquired with tax paid money, not with RRSP or RRIF account money.

This chart uses $100,000.00 as the premium and uses three samples. Almost any age, age combination, and payment frequency can be quoted.

Commercial Life                     Charity Buying                       Charity Managing the

Insurance Comp.                     a contract for a donor             contract itself

                                                (re-insured)                              (self managed)

-0- receipt                                $20,000 receipt                       $20,000 receipt

Joint life, Ages                        $80,000 purchase                    manage all $100,000


$5,358 income per year          $4,286                                     $4,150

Taxable amount $596             $477                                        $617


Male Age75

$7,394                                     $5,915                                     $6,280

Taxable amount $148             $118                                        $-0-


Female Age 80

$7,958                                     $6,366                                     $6,950

Taxable amount -0-                 -0-                                            -0-


Canadian Money Saver Magazine provides an up to date monthly chart with 12 quotations. These Commercial rates are in the January 3 issue and were “obtained from highly rated Canadian insurers”. The commercial contracts have a 10 year guarantee so that payments continue for the full 10 years to family or estate if the person dies within the 10 years. The re-insured contract (column 2), the charity keeps $20,000 and issues a charitable receipt for $20,000 and gives the other $80,000 to a column 1 Insurance Company which makes the life long payments. Charity receives nothing further unless it names itself for the 10 year guarantee and has a small chance of receiving a few years of payments. For the self-managed (column 3) gift annuity, the charity issues the $20,000 official charitable receipt but must keep the full $100,000 invested as long as the donor is alive.

If the donor for either column takes into account the charitable receipt tax credit, it means a tax refund of at least $8,000 and as much as $10,700. The real investment is $92,000 or less. Traditionally, over the last 100 years, the self insured annuity was assumed to leave about half of the original capital for charitable work at the time of death. Currently, with over-all lower payment rates (think bonds and GIC,s), some charities with strong investment policies that can almost match the returns of the CPP investment board, some agreements are now leaving 85% or even 95% of the agreement for charitable work at the time of death.


Disclosure: Harry Houtman MA CFP is currently secretary of the CCAA board. Harry is also chairperson of the board of Link Charity. Find self-insuring charities at the website of the self regulating organization the Canadian Charitable Annuity Association. There are some non-members which also issue the self insured agreement. Check with your favourite charity.

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