Also known as term funds, accumulation annuities and other company specific acronyms you’ve likely never heard of them. Why? Banks don’t offer them as they fall under the life insurance umbrella and they don’t compensate particularly well to those that do vis a vis other products.
The easiest description would be that they are similar to a GIC in that they provide capital preservation and pay interest over a set term but with the added benefit of being able to name a beneficiary. In doing so, this provides the ability to bypass probate which may achieve efficiencies in time, various fees and even where privacy is desired. Under the right circumstances they may also provide creditor protection.
There is never a free lunch and the trade-off is a rate similar or slightly lower than a GIC offered at the bank. A popular strategy is to ladder maturity dates affording a somewhat higher overall return and simplicity in future decision making. Some are redeemable prior to maturity.
For some they are a useful tool and may enhance a well-thought out estate plan. GIAs can be used alongside segregated funds (insurance contracts with various guarantees linked to the performance of investments) as necessary. Further, they afford a level of control while still alive providing flexibility but with an eye on wealth transfer.
Do-it-yourself estate planning is fraught with all sorts of potential issues so best not to treat in insolation. In my experience very few even with a strong grasp on investing understand the full implications that even minor changes in registration of property can mean to their heirs so please consult a qualified professional before contemplating.
Murray Callaghan is a Certified Financial Planner with 15 years’ industry experience. He partners with external portfolio managers and insurance providers. Reach him at 250.286.9968 or visit his website at www.crwealthmanagement.ca.