A GIF is a Guaranteed Investment Fund that offers long term investment growth potential with protective guarantees to help you minimize risk. They are a combination of an investment product like mutual funds which give exposure to a diversified portfolio of stocks or other assets that offer growth opportunities but include the features of an insurance policy in the form of a segregated fund contract.
That's why they are offered exclusively by insurers.
GIFs can be a really valuable retirement and estate planning tool offering big benefits. Whereas, the underlying investment can go up and down, the insurance contract provides guarantees. Either 75% or 100% of the capital invested in the GIF will be protected when it reaches maturity or upon death of the annuitant. So, unless you cash in a GIF before it matures, the initial investment remains secure. Some GIFs (not all) also provide the opportunity to reset what that guarantee amount is given that the market value of the GIF will vary over time.
Often GIFS will also offer guaranteed income whereas other investments like a mutual fund or common shares will deliver returns that vary over time and are not guaranteed. Additionally, in the case of non-registered GIFs, a portion of the guaranteed income from the GIF will be designated as a return of capital for tax purposes and the rest will be considered a capital gain. This is advantageous for lowering a taxpayer’s income for tax purposes particularly for those with multiple sources of income. It could help avoid clawback of certain tax credits or OAS (Old Age Security).
One of the most important features of a GIF is the fact that a beneficiary can be named because it is essentially an insurance product. That means that upon death, the contract will bypass the estate and the GIF can be transferred directly to the named beneficiary (or beneficiaries) without delay as well as legal or probate fees. That could be a big savings. The option of naming multiple beneficiaries is also a great feature as it can reduce the risk that I see when parents name one child a joint owner on an account and then rely on that child to distribute the account according to the parent's wishes. I've unfortunately seen some that are not distributed accordingly and instead end up in litigation.
GIFs also offer creditor protection which is why you will find many business owners or professionals that can face the risk of malpractice litigation or bankruptcy often prefer GIFs…just in case a "what if" scenario happens. GIFS are available to be held in RRSPs, RRIFs, LIRAs, LRIFs, TFSAs and non-registered accounts both personal and corporate
These big advantages that come with GIFs in the form of creditor protection, guarantees, estate planning and security do come at a higher cost than stock or mutual funds. The cost has come down significantly in recent years but they are still more expensive than mutual funds given the additional insurance features. GIFs can be a really valuable addition to a retirement and estate planning toolkit; they don’t need to make up the whole toolbox
Here’s a summary of some of the benefits of GIFs noted above and a few others:
• Named Beneficiary means probate and delay can be avoided
. Multiple named beneficiaries ensures that the beneficiaries
intended to receive an inheritance receive it
• Potential creditor protection
• Death benefit guarantees with possible resets along the way
• Maturity guarantees with possible resets along the way
• Guaranteed income for life on a tax preferred basis
• Deposit amounts are protected by Assuris (similar to CDIC for bank and trust
companies)
• Good liquidity (can be bought and sold like mutual funds)
• Better Privacy as segregated funds do not form part of the will and are therefore
not part of a public document
As a licensed insurance advisor, we are able to offer segregated funds from a number of different insurers that will suit you best. Connect with us for more information. We'd love to chat.
