Annuities in Canada: How They Work and Who They Suit
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Annuities in Canada turn a lump sum into a guaranteed income, often for life. You hand money to a life insurance company, and it pays you a regular amount every month. That trade removes market risk and the fear of outliving your savings, but it also removes access to your capital. This guide explains how annuities work, the main types, how Assuris protects your payments, and how an annuity compares with a RRIF. For the rest of your planning, see our retirement guides.
Every rule and limit below is current as of October 20, 2026. Annuity payouts change with interest rates, so this guide does not quote a rate. Ask several insurers or a licensed advisor for a same-day quote.
How annuities in Canada work
An annuity is a contract with an annuity provider, usually a life insurance company. You pay a premium, either as a lump sum or in several payments, and the insurer pays you a regular income in return. The Financial Consumer Agency of Canada (FCAC) describes it as "a guaranteed regular income" that people typically use in retirement.
Each payment blends three things. First, part of it is a return of your own capital. Next, part is interest. Finally, life annuities include a pooling effect: people who die earlier than expected help fund payments to those who live longer. That pooling is why a life annuity can pay more than you could safely withdraw on your own.
The FCAC gives a simple example. If you buy a life annuity for $100,000 at age 65 and receive $500 a month, you get your $100,000 back by age 82. If you live past 82, the $500 keeps coming for as long as you live.
What sets your monthly payment
The insurer prices your annuity on several factors. According to the FCAC, these include:
- Your age and health when you buy
- Your gender
- The amount you invest
- Interest rates on the day you buy
- The type of annuity and the options you add
- The insurer itself, including its costs and expected returns
Because interest rates drive the price, the same $100,000 can buy a different income from one month to the next. In general, adding options such as a guarantee period or a survivor benefit lowers your regular payment.
Types of annuities
Most Canadian annuities fall into a few families. You can often combine them, for example a joint life annuity with a 10-year guarantee.
Life annuity
A life annuity pays a guaranteed income for as long as you live. It is the only product that fully covers longevity risk, meaning the risk of running out of money in your 90s. The trade-off is clear: in most cases, payments stop when you die, and nothing goes to your estate unless you added an option.
Term-certain annuity
A term-certain annuity pays for a fixed period, such as 10 or 20 years. If you die during the term, the remaining payments go to your beneficiary or estate. The FCAC warns that you may outlive the term and stop receiving income before you die.
Joint and survivor annuity
A joint and survivor annuity covers two people, usually a couple. Payments continue as long as one of the two annuitants is alive. This option suits a spouse who would otherwise lose a large share of household income.
Guarantee period option
A guarantee period protects your heirs if you die early. If you die within the chosen period, payments continue to your beneficiary or estate until the period ends. The longer the guarantee, the lower your monthly payment.
Indexed annuity
Some insurers offer payments that rise each year, either by a set percentage or in line with inflation. Your first payment is lower than with a level annuity, but your purchasing power holds up better over a long retirement. Compare the starting payment and the indexing formula before you choose.
Variable and deferred annuities
A variable annuity invests part of your money in products such as equities, so part of your income moves with the markets. A deferred annuity lets you pay now and start receiving income later. The FCAC notes that deferred life annuities provide higher regular payments than immediate ones, because the insurer holds your money longer.
Who sells annuities and how Assuris protects you
Life insurance companies sell annuities, either directly or through licensed insurance advisors and brokers. Prices differ between insurers on the same day, so comparing several quotes is worth the effort.
The FCAC states that Canadian life insurance companies must be members of Assuris, a consumer protection organization. If your insurer fails, Assuris guarantees that you keep up to $5,000 a month, or 90% of your promised monthly income, whichever is higher. For example, an annuity paying $3,500 a month stays fully protected, while one paying $6,500 a month is protected at $5,850.
Annuity taxation basics
How the Canada Revenue Agency (CRA) taxes your annuity depends on the money you used to buy it.
- Registered money (RRSP, RRIF or pension): the full payment is taxable income in the year you receive it, because the money was never taxed going in.
- Non-registered money: part of each payment is a return of your own capital, which is not taxed again. Only the interest portion is taxable. Some contracts qualify as prescribed annuities, which spread the taxable interest evenly across the payments. Ask the insurer which treatment applies before you sign.
In the year you turn 71, the CRA requires you to choose an option for your RRSP. You can withdraw the money, transfer it to a RRIF, or use it to buy an annuity. Your RRSP issuer does not withhold tax on amounts transferred directly to a RRIF or used to buy an annuity. Our RRSP guide covers the conversion rules in detail.
Annuity payments bought with RRSP money can also qualify for the federal pension income amount. On its line 31400 page for the 2025 tax year, the CRA lists a maximum of $2,000 of eligible pension or annuity income, and annuity payments from an RRSP qualify if you are 65 or older at year-end.
Annuity vs RRIF
The real choice for most retirees is not annuity or nothing. It is how much to place in an annuity and how much to keep in a registered retirement income fund (RRIF). The two tools solve different problems.
A RRIF keeps your money invested and accessible. You choose the investments, you can withdraw more when you need it, and whatever is left passes to your heirs. However, you carry the market risk and the risk of drawing the account down too fast.
An annuity does the opposite. It locks in an income you cannot outlive, but you give up access to the capital and most of the estate value. Many retirees split the difference: they use an annuity to cover fixed costs such as housing and food, and keep a RRIF or a TFSA for flexible spending.
| Feature | Life annuity | RRIF |
|---|---|---|
| Income | Guaranteed for life | Depends on investments and withdrawals |
| Access to capital | Usually none after purchase | Yes, withdraw more at any time |
| Investment risk | Carried by the insurer | Carried by you |
| Money left for heirs | Only with a guarantee or survivor option | Remaining balance |
| Protection if the provider fails | Assuris: up to $5,000 a month or 90% | Depends on the holdings (CDIC for eligible deposits) |
| Taxation (registered money) | Payments fully taxable | Withdrawals fully taxable |
Is an annuity right for you?
An annuity is a one-way door. The FCAC is direct about it: once you buy an annuity, you typically cannot change the contract, switch to a different type, or get your money back. That makes the decision worth a second look.
Before you buy, list your fixed monthly costs and compare them with the guaranteed income you already have from the Canada Pension Plan, Old Age Security, and any workplace pension. If those sources already cover your needs, an annuity adds little. If there is a gap, an annuity can fill it for life.
- You fear outliving your savings: a life annuity pays for as long as you live.
- You want a fixed income for fixed costs: rent, food, and insurance premiums do not stop at 85.
- You prefer not to manage investments: the insurer carries the market and interest rate risk.
- You have no workplace pension: an annuity can work as a private replacement for one.
- You need access to the money: most annuity contracts cannot be cashed in once signed.
- Leaving an estate is your priority: a life annuity without options usually pays nothing to heirs.
- Your health is poor: a standard life annuity pays the most to people who live a long time.
- Your guaranteed income already covers your fixed costs: the annuity would add little security.
To see what the same capital could earn without locking it in, run the numbers in our GIC returns calculator or our compound interest calculator. A guaranteed investment certificate (GIC) also offers a guaranteed return, but for a set term and with your capital back at maturity.
Conclusion
Annuities in Canada are the closest thing to a personal pension you can buy. A life annuity pays you as long as you live, Assuris protects most of that income if your insurer fails, and registered money can move into an annuity without tax at the time of transfer. In exchange, you lose access to your capital and most of its estate value. For many retirees, the answer is a mix: an annuity for the bills that never stop, and invested savings for everything else.
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Frequently asked questions about annuities in Canada
How much does a $100,000 annuity pay per month in Canada?
It depends on your age, gender, health, the type of annuity, and interest rates on the day you buy. The Financial Consumer Agency of Canada uses an example of $500 a month for a $100,000 life annuity bought at 65, but that is an illustration, not a quote. Ask several insurers for same-day quotes, and compare the result with what the same money could earn in a GIC or in our GIC returns calculator.
What happens to my annuity when I die?
With a straight life annuity, payments usually stop at death and nothing goes to your estate. If you add a guarantee period and die within it, your beneficiary or estate receives the remaining payments. With a joint and survivor annuity, payments continue to your spouse for as long as they live. Each option lowers your monthly payment, so weigh the protection against the income you give up. Our seniors life insurance guide covers other ways to leave money to heirs.
Can I cash out an annuity after I buy it?
Usually not. The FCAC notes that once you buy an annuity, you typically cannot change the terms, switch to another type, or get your money back. That is the price of the guarantee. Keep an emergency fund and flexible savings, such as a TFSA, outside the annuity before you commit.
Is my annuity safe if the insurance company goes bankrupt?
Assuris protects annuities sold by its member insurers, and Canadian life insurance companies must be members. If your insurer fails, you keep up to $5,000 a month or 90% of your promised income, whichever is higher. An annuity paying $3,500 a month is therefore fully protected. If you need a larger income, splitting it between two insurers can keep each contract under the limit. Find more retirement planning guides in our retirement section.
Can I buy an annuity with my RRSP?
Yes. In the year you turn 71, the CRA requires you to withdraw your RRSP, transfer it to a RRIF, or use it to buy an annuity, and you can also buy one earlier. The RRSP issuer does not withhold tax on money used to buy an annuity. The payments are then fully taxable as income when you receive them. Our RRSP guide explains the deadlines.
Are annuity payments taxable?
Payments from an annuity bought with registered money are fully taxable. Payments from an annuity bought with non-registered money are only partly taxable, because part of each payment returns your own capital. Annuity payments from an RRSP can also qualify for the federal pension income amount of up to $2,000 if you are 65 or older. Use our income tax calculator to estimate the tax on your total retirement income.
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