Most people have heard of investing in GICs through your local bank but not many have heard of guaranteed investments offered by Life Insurance companies that have many added benefits. This is important to know, especially considering that 8 in 10 Baby Boomers believe it is very important or somewhat important for income sources to be guaranteed for life.*
In this article, I will compare GICs offered by Life Insurance companies to GICs offered by Banks and Trust companies. I will also look at a GIC offered by only certain insurance companies that have the potential of providing a higher return on your investment while still providing you with a guarantee.
Insurance GIC vs. Bank / Trust GIC
The insurance GIC is also called an Accumulation Annuity. Here, you can name a beneficiary on non-registered assets, in addition to registered assets like RRSPs and TFSAs. (Banks and Trust companies cannot offer this benefit to non-registered assets) When you name a beneficiary, the assets will be paid directly to your beneficiary(ies) when you die, thus avoiding legal, executor, and probate fees. This will avoid the long delay of probate and you maintain privacy because probate becomes part of the public record.
Insurance GICs have tax advantages for those that are 65 years old or older. If you are not already taking advantage of the pension income tax credit on the first $2,000 of pension or RRIF income, the income from an Insurance GIC in a non-registered account, qualifies for this pension income tax credit. Also, if both spouses are age 65 or older, and one spouse is in a lower tax bracket than the other, an election can be made to have up to 50 percent of eligible income transferred to the lower-income spouse, thus creating real tax savings.
It is especially important for business owners to know that creditors can seize your bank GIC if it is outside of your RRSP or RRIF. However, if creditors can’t seize insurance GICs, whether inside or outside registered accounts, in certain circumstances.
Banks and Trust GIC investments are 100% protected by the Canadian Deposit Insurance Corporation up to the accumulated value of $100,000 per institution if a Bank or Trust becomes insolvent. Similarly, if an insurance company becomes insolvent, Assuris provides coverage for 100% of the accumulated value up to $100,000 at the time of writing this article.
Insurance Equity Indexed GICs
A few insurance companies offer Equity Index GICs that can create higher potential returns than traditional GICs while providing maturity and death benefit guarantees. The returns are tied in part to either a stock exchange index or it mirrors the performance of a mutual investment fund. Assuris also covers contributions to these GICs up to $100,000.
As you can see, there are many advantages to investing in Insurance GICs. Insurance companies also Segregated Funds which have many advantages over Mutual Funds, including maturity and death benefit guarantees, but that will be covered in another article.
If you would like to find out more, including the rates that are available, contact me at [email protected]
By Kevin Ballantyne, BBA, CBEC, CPA, CA
Financial Associate
Experior Financial Group Inc.
*Source: Boomers Expectations for Retirement 2019. Insured Retirement Institute 2019.