Page 239 - A Canuck's Guide to Financial Literacy 2020

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Guaranteed Investment Accounts

For policy holders looking to protect their capital, they may turn their attention to
Guaranteed Investment Accounts. As we know, insurance policies offer a wide variety of
investment choices that could be overwhelming at times. For example, universal life policies
offer a range of fixed income and equity investment choices, allowing the policy holder to
establish an asset mix that they may be comfortable with. In contrast to permanent
insurance policies where the insurance company decides how the funds are invested.

Investment Choices

A policyholder of a life insurance contract can decide how he wants his premiums spread
out over a number of different investment choices. Whether the investment mix consists of
equities or bonds, the policyholder is able to adjust the mix over time and address their
ever-changing investment objectives or risk tolerance.

Investment choices vary depending on the insurance company and policy. In addition to
equity and fixed income choices, below are common low risk options.

Daily Interest Accounts

Daily Interest Accounts (DIA) are known to offer a minimum rate of interest based on a
specific benchmark such as a 1-year Government of Canada treasury bills. With a daily
interest account, your principal cannot fall below 0% rate of return, thus making your
principal guaranteed. Keep in mind that inflation may erode your purchasing power if your
funds are tied in the daily interest account for a long period of time.

Guaranteed Investment Accounts

Guaranteed Investment Accounts, also known as GIAs offer a fixed rate of interest for a
specific term. They closely resemble guaranteed investment certificates (GIC) but with
longer term. For example, terms for GIAs can be for 1, 3, 5, 10, or even 20-year terms.

At the end of the term once a GIA matures, the policyholder has choice to roll over the
funds into a policy's active investment account or renew the GIA. The interest rate offer is
tied to a specific benchmark such as to a yield of a Government of Canada bond or treasury
bills. With guaranteed investment accounts, your principal is protected and guaranteed but
be aware that a penalty may apply if funds are redeemed prior to maturity.

Term Deposit Accounts

A policyholder may also choose to invest in a term deposit account (TDAs). TDAs are long
term simple interest accounts that provide a reliable stream of income within a retirement
income fund or a life income fund. These accounts are recommended for retirees as they
provide a guaranteed income with interest deposited to your bank account on a monthly or
annual basis. Terms and offerings vary from insurer to insurer.