Like many savers and investors, I put some of my money in guaranteed investment certificates (GICs) because they give me stability and security in an uncertain world. GICs pay a guaranteed rate of return – usually more than what you would get from a savings account, but less than the potential returns from other investments such as mutual funds – after a fixed period, or term. (If you are from outside Canada, you may know them as "term deposits.") Unlike a deposit in a savings account, you can't withdraw your money from a GIC before the term is up, or you won't get the guaranteed rate.
Canadians usually buy GICs at banks or trust companies. But I did some homework and discovered that an insurance GIC (sometimes called "accumulation annuities") can include some important benefits that you don't get with a GIC from a bank.
Let me show you what I mean:
Bank or trust GICs |
Insurance GICs |
Why it's important |
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| Guaranteed interest rate | Provides income you can rely on. | ||
| A set term | Makes your investment predictable and manageable. | ||
| Guarantee you'll get your money back |
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Your money is safe in GICs, protected up to a $100,000 limit, even if the financial institution fails. |
| Interest qualifies for $2,000 Pension Income Tax Credit | Insurance GICs can help you save on taxes if you're over 65. | ||
| Provides a legacy | With an insurance GIC, you can name beneficiaries to inherit your money, even in Quebec. | ||
| Avoids costly probate and lengthy delays (when you name a beneficiary*) | Your money goes directly to your beneficiaries if you die, avoiding potentially expensive probate fees and lengthy delays. Also, your gift of the insurance GIC is private. (In contrast, bank GICs are part of your estate, which becomes public information when your will goes through probate.) | ||
| Your savings are protected from creditors | Creditors can seize your bank GIC (if it's outside your RRSP or RRIF), but can't seize your insurance GIC, whether inside or outside those accounts, in some circumstances and in some provinces – check with your lawyer. |
"Many Canadian savers and investors are unaware of insurance GICs," says Kristina Hay, Product Manager of Guaranteed Products at Sun Life Financial. "They're really a hidden gem that can provide helpful benefits to many, many people who want guaranteed income."
Insurance GICs really are "GICs with benefits." A financial advisor licensed to sell insurance products can provide you with advice on how to build them into your financial plan.
*You cannot designate a beneficiary on a GIC purchased in Quebec or on a non-registered GIC.
