Frequently Asked Questions
What is the goal of an insurance company offering a GIC?
The primary goal of an insurance company offering a Guaranteed Income Contract (GIC) is to earn more on the investment than the rate that has been guaranteed on the GIC. This is a risk taken by the insurance company, as they’re essentially betting on the performance of their investments to exceed the promised returns. GICs are a type of investment offered by insurance companies that provide a guaranteed return on the invested capital. They’re typically used as part of a retirement savings plan, such as a 403(b) or 401(k), and can be a safe and reliable source of income for retirees. The funds invested in a GIC are combined with the funds of other GIC customers in a general account, which is managed by the insurance company. General account GICs typically offer better returns than savings accounts, as they don’t require collateral and do not rely on the creditworthiness of the issuer. However, if the insurance company were to mismanage its funds or declare bankruptcy, the investors may not receive the return they contracted for, nor the original principal.
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