GIC’s Offer Predictable Investment Returns – and Some Have Insurance Benefits Too
It’s a rather strange question to be sure, but after experiencing one of the worst economic downturns since the Great Depression, many investors are looking for safe investment products that are capable of producing predictable investment returns. For many, this means investing in guaranteed investment products, such as guaranteed interest Contracts issued by insurance companies (GIC’s) or Guarantees Investment Certificates issued by banks (bank GIC’s).
These guaranteed investment products that earns interest may not seem as appealing or exciting as investing in an emerging market mutual fund or commodity index – the variable chili peppers of the investment world. In fact, to some people, they are uninteresting investments in the same way that broccoli can seem uninteresting when compared to the latest gourmet food trend. We all know that broccoli is very good for you, and it is highly recommended by nutritionists everywhere. But, given the choice between a side of boiled broccoli and a side of roasted garlic “smashed” potatoes, it’s not unusual to find the better-for-you option politely left behind.
Nevertheless, with many stock market indexes reporting negative returns, a little certainty can go a long way towards providing you with more confidence when saving for your retirement. And there is a lot more to today’s insurance GIC’s than many people may realize, making them healthy additions to any well-balanced financial plan.
GIC’s – A Healthy Addition to Every Financial Plan
Diversifying your investments among equities, fixed-income investments and cash has been the cornerstone of sound financial planning strategies for some time. And GIC’s can be a great fit for many investors looking to add more certainty to the fixed-income portion of their portfolio.
GIC’s do offer one very important advantage when compared to other fixed-income investments: they offer a guaranteed interest rate, no matter what the financial markets are doing. This can help to reduce overall investment risk within your portfolio while you’re saving for your retirement years.
The Insurance Advantage
Many investors realize that you can purchase bank GIC’s at your local branch. But did you know you can buy similar investment products offering very competitive rates from insurance companies?
GIC’s issued by insurance companies offer three distinct features that set them apart from bank GIC’s: an estate planning benefit, more extensive potential protection from creditors and tax advantage for non-registered contracts. The estate planning benefit means that if you name a beneficiary other than your estate on the insurance GIC contract at the time of purchase, the proceeds (including interest) of your investment will bypass your estate if you pass away. This is significant because it means that your beneficiaries will receive the proceeds privately* and directly, without administrative charges, while avoiding potential probate** and estate fees.
Insurance-based GIC’s may also protect your personal savings from professional liability. As long as the GIC investment is made before an individual or business runs into financial difficulties, generally the proceeds of the GIC will be protected from creditors with the appropriately named beneficiary. This can be an attractive feature for owners of small businesses or those in any other profession where liabilities have the potential to threaten your personal savings.
* Not applicable in Saskatchewan
** Probate is not applicable in Quebec
For Clients age 65 and older, interest from a non-registered GIC is eligible for the pension income tax credit and pension income splitting.
Say “More Please” to Today’s GIC’s
If you are looking for ways to add more stability to your overall financial plan, speak to your advisor about adding insurance GIC’s to the fixed-income portion of your portfolio. Not only are insurance GIC’s a healthy addition to your financial plan, but with options that include cashable, non-cashable, laddered, escalating rate and equity-linked, today’s GIC’s are a lot more interesting too.