Guaranteed Investment Contract
What Does Guaranteed Investment Contract Mean?
A Guaranteed Investment Contract (GIC) is a legal agreement between a person or entity and an insurance company, where the former provides financial assets to the latter. In return, the insurance company guarantees that these assets will be returned and will generate a profit based on a fixed schedule.
Insuranceopedia Explains Guaranteed Investment Contract
A Guaranteed Investment Contract (GIC) is considered a stable value investment, meaning it is typically low-risk. The assets provided to the contract issuer, usually an insurance company, are invested and returned with profit and interest on a specified date. The issuer also provides assurance to the investor by showcasing its assets, a history of successful GICs, and accounts that track the direction of the investment and its accrued interest. In structure, GICs sit close to fixed annuities, since both are contracts where you give an insurer money in exchange for guaranteed payments on a set timeline. The same principle of guaranteed insurer-backed growth also appears inside permanent life insurance policies, where the cash value component grows on terms the insurer commits to upfront.
While the yield from GICs is lower compared to stocks and bonds due to their conservative nature, the risks, if any, are much lower as well.
