Insurance GICs vs Bank GICs – Want to save on Taxes and have security with your GICs?
Not all GICs are created equally. If you are looking for security in investments and are looking at GIC’s you should know that insurance GICs have important, additional benefits. From saving on your taxes when you are a pensioner, to being able to name a beneficiary who will be able to avoid costly probate (now known as the Estate Administration Tax – EAT tax for short, since it eats away at your investments), and more!
Many savers and investors chose to put some of their money in Guaranteed Investment Certificates (GICs) because they give 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 or segregated funds – after a fixed period, or term. 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.
What is an insurance GIC?
Insurance GICs, also known as accumulation annuities, offer security for you and protection for your family and because they guarantee your principal and the rate of return, they can serve as an important component for your savings during your working years. All Insurance GICs are easily convertible into an income stream at retirement.
Insurance GICs also allow you to name a beneficiary to help avoid the cost and delays associated with probate and estate settlement.
Not everyone knows about the insurance GICs though, so many Canadians usually buy GICs at banks or trust companies. Let’s look into these “insurance GICs” a little further, they can include some really 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 | |
| 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 |
√ GIC terms up to 5 years |
√ GICs of any term |
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 |
X |
√ |
Insurance GICs can help you save on taxes if you’re over 65. |
| Provides a legacy |
X |
√ |
With an insurance GIC, you can name beneficiaries to inherit your money. |
| Avoids costly probate and lengthy delays (when you name a beneficiary*) |
X |
√ |
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 |
X |
√ |
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. |