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Glossary Term: GUARANTEED INVESTMENT CONTRACT

Definition(s) for GUARANTEED INVESTMENT CONTRACT:


1. ) pertains to an investment offered by an insurance company that ensures the preservation of principal and a fixed rate of return. Many defined contribution plans, such as 401(k) and 403(b) plans, offer GICs as retirement options to employees. Although the insurance company takes all market, credit and interest rate risks on the investment portfolio, it can profit if its returns exceed the guaranteed amount. Only the insurance company backs the guarantee, not any government agency, so if the insurer fails, it is possible there could be a default on the contract. But overall GICs offer a stable way to achieve a fixed rate of return. This is often a choice for 401(k) plan participants. However, this is not a very good choice for those that are not close to retirement. A GIC is an agreement between an insurance company and a corporate profit-sharing or pension plan that guarantees a specific rate of return over the time span of the agreement. However, the specific rate of return will not be very competitive with the historic rate of returns for stocks.



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