By: Kevin-Barry Henry, #1 Bestselling Author
Some guaranteed investment funds have provisions that will protect your estate from inflation. You want to take care of those you love, even after you’re gone. Inflation erodes the value of your estate over time. Market downturns have a negative impact on your savings. The estate settlement fees will be deducted from the amount your loved ones will receive. You need to be aware of these costs when you plan your estate.
You would have to be living under the proverbial rock to not have noticed that inflation is very much having an impact on the things we buy in Canada. Groceries, fuel for your car, building supplies, buying a car are all more expensive and may God help you if you are shopping for a home. Inflation is here, and although nobody has a crystal ball, it does not look like it will be leaving anytime soon.
Protect your estate from inflation
So how do you protect your estate from inflation?
Those of you who read this blog regularly (thank you) know how often I recommend Guaranteed Investment funds or perhaps you might know them by their more formal name, segregated funds and the value they bring to table.
A guaranteed investment fund is similar to a mutual fund but they are sold by life insurance companies not banks or brokerage firms, and because they are sold by insurance companies, they are able to offer features that mutual funds cannot. Things like guaranteeing your investment, bypassing probate and a death benefit guarantee that is paid directly to your chosen beneficiaries like a life insurance policy.
With your investment guaranteed and the ability to reset that guarantee when the market performs well, they are a no-brainer. They are a great solution if you are looking for growth potential with the security of growth protection.
You can read more articles about guaranteed investment funds here: Guaranteed Investment Funds
If you are anything like most Canadians, you want to make sure that your loved ones receive the full value of your investment. Guaranteed Investment Funds might be exactly what you are looking for.
What about inflation?
In the past decade or two, it has been easy to overlook the impact of inflation. It simply wasn’t a factor because inflation hovered around 1-3% and didn’t move very far from that comfort zone. As we all know, today is a very different story.
Which brings me to an until now overlooked feature of some select guaranteed investment funds: Inflation protection.
There are insurance companies (not all of the insurers have this, but some do) that have cleverly baked in a feature that will help protect your estate from inflation by guaranteeing up to 5% of the inflation risk. What that means is if your market value is below your deposit value and something happens to you, your beneficiaries will be paid up to 5% more than your deposit amount! Even if your account is negative. It is a wonderful feature.
Let’s look at an example which assumes a $100,000 deposit and an 8% market decline.
| GICs, Mutual Funds, Stocks, Bonds | Guaranteed Investment Funds with Inflation Protection | |
| Initial Deposit | $100,000 | $100,000 |
| Market Value | $92,000 | $92,000 |
| Guaranteed Investment Fund Death Benefit | _ | $121,899
($100,000 + Inflation) |
| Market Loss | $8,000 | $0 |
| Estate Settlement Fees (Probate fees, accounting fees, executor fees, legal fees, etc…) | $10,000 | $0 |
| Total Cost from Initial Deposit | $18,000 | $0 |
| Amount Paid to Beneficiaries | $82,000 | $121,899 |
| Difference to Your Heirs | + $39,899 |
The numbers don’t lie.
You want to take care of those you love, even after you’re gone. Inflation erodes the value of your estate over time. Market downturns have a negative impact on your savings. The estate settlement fees will be deducted from the amount your loved ones will receive. You need to be aware of these costs when you plan your estate.
Does your estate plan have an inflation provision?
If not, perhaps you should consider guaranteed investment funds that will protect your estate from inflation.
If you would like to find out more about which life insurance companies can help you protect your estate from inflation, you can reach out to me kbh@kbhenry.ca or book a free call here: BOOK FREE CALL
With Gratitude,
KB.
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