How To Get An 8 Percent GIC Today

“How To Get An 8 Percent GIC Today – Risk FREE!”

An 8% GIC* Today?

How? Tell me more!

Welcome to the world of “The Insured Annuity Strategy”

But first a short backgrounder…

There is an old but extremely effective concept which is called an insured annuity.

Here’s how it works.

Essentially, the idea is that you give some of your money over to an insurance company; the insurance company then guarantees to pay you an income for life (called an “annuity income”), if you die early the insurance company keeps what remains of your money. End of story.

However, if you live for a long time, the insurance company has guaranteed to pay for life – even if you are 105!

You can not run out of money!

But what about your estate?

Well, to protect your estate (to leave something for a spouse, heirs or have money to pay your “estate taxes” when you die), you would buy permanent life insurance.

Why?

Because permanent life insurance it is with you forever – no matter what age you die – even if you are 105!

Yes, you can buy term renewable insurance, but NO term renewable term insurance runs past age 80! (And the insurance premiums become so expensive in later years that most people just drop it – just when they need it the most!)

So, if you had term insurance and you lived longer than say age 80, you will have spent allot of your money and the insurance company is off the hook to pay the death benefit.

Now on to annuities…

The pay out amounts that annuities will pay out change all the time and are based on interest rates, an investors age and actuarial life expectancy.

Some annuities are taxed less than others so let your independent insurance broker “shop the market” for you.

Many annuities even come with a built in refund feature for the first few years – if death is early.

Here’s a typical example
A male investor age 66, and a non-smoker, has $100,000 in non-registered funds and is in a 47% marginal tax bracket.

This individual is not at all happy with the current interest rate environment and is concerned about future interest rate cuts.

Additionally, this person needs an income stream of approximately 7% before tax but doesn’t want to erode the $100,000 principal.

Upon his death, his desire is that the $100,000 will go to his wife/heirs and/or/favorite charity/church.

He is risk adverse and, therefore, wants guarantees.

So what is he to do?

The Challenge
• 1 year GIC rate: 2.6%
• 10-20 year GIC rate: 4.2%
• Interest rates are expected to decline further.

He asks: “What are my options? Do I really have to take some risk?”

The Options Discussed
• Dividend mutual fund – distributions of 1-3% (occasional capital gain), involves risk;
• High income mutual fund – distributions of 7-10%, involves risk;
• Bond mutual fund – distributions of 1-2%, involves risk;
• Money market mutual fund – distributions too low, theoretically has risk;
• Fund of hedge funds (principal guarantee) – no risk to principal, distribution unknown;
• Insured annuity (principal guarantee) – no risk, 6-9% distribution, guaranteed for life.

“Six to nine percent guaranteed for life! Tell me more!”

The Solution: “The Insured Annuity Strategy”

Now, this is where it gets good!

In a nutshell, an insured annuity is the combination of a fully guaranteed single life annuity (prescribed annuity) with a fully guaranteed permanent life insurance policy.

This strategy can achieve exciting results!

A single life annuity produces a very desirable income. The income is fully guaranteed for the life of one individual. This income is considerable because it is a blend of interest and principal. The income is taxed favourably because the “return of principal” portion of each payment is not taxed. The income stream corresponds with your lifespan and, therefore, stops upon your death.

At this point, the annuity strategy on it’s own alone has but one flaw – there would be no funds payable to spouse/heirs and/or/favorite charity/church after your death.

Now let’s talk about the permanent life insurance element of this strategy.

The annuity income payment is great enough to purchase a fully guaranteed life insurance policy and yet still leave a sizable portion to the annuity purchaser.

The life insurance policy will provide a death benefit equal to that of the money used to purchase the annuity, which in this case is $100,000.

At a minimum, the insurance policy purchased should be a Term to age 100 (known as T-100).

A T-100 policy is fully guaranteed for life and is the lowest cost of all permanent life insurance policies.

The death benefit will be received tax-free by the beneficiary and avoids probate and executor fees.

Key Benefits
• Everything fully guaranteed for life;
• Income, after tax and cost of insurance, still much greater than current GICs;
• Principal fully payable to loved ones;
• Interest portion qualifies for the pension tax credit;
• Worry free.

Things to Consider
• Permanent – once implemented, can not be changed;
• Not liquid – no access to funds above income stream;
• Insurability – yes, you need to be insurable. If there are some health issues, the insurance will cost more but it may balance out as some annuities will have an increased payout due to those same health concerns.

Illustration:

How To Get An 8 Percent GIC - Risk FREE!

In order to produce the $4445 income of the insured annuity, you would need an 8.3% GIC!

That’s How To Get An 8 Percent GIC – Risk FREE!

In Summary

The investor is thrilled and relieved.

He has exceeded his income requirement and doesn’t have to worry about future interest rates because his income stream is guaranteed for life – and his wife/heirs and/or/favorite charity/church, receives full payment of his principal upon his death.

Now this investor can enjoy retirement worry free!

Note: Even though we have illustrated “The Insured Annuity” Strategy on one life it works equally well on 2 lives – both spouses lives.

The concept remains the same for 2 lives – as both spouses will have invested money with a life insurance company. The “joint life” annuity income will pay out on a “first to die” or “last to die” basis. (that decision is made by the investors before they deposit their money with the life insurance company).

Then a permanent life insurance policy is taken out on their lives: either on a “first to die” or “last to die” basis – to match up with the “joint life” annuity payout conditions.

And that’s it!

Simple, understandable, effective, and tax efficient…

Oh, and worry free!

Remember it’s your life; plan for it and then live life like you mean it!

* This strategy does not involve a GIC, except for comparison purposes.