Many Canadians are sold on the advantages of having investments; almost half of Canadians put some money into investments each year. Similarly, Canadians understand the importance of insurance, with almost 60% of them having a life insurance policy.

However, far fewer people understand how a strategy combining insurance with investments that provide an income can bring much greater financial security and a more robust financial plan. It can also make for better tax efficiencies and reduced risk, leading to investors having greater wealth over a longer period.

In this article, we’ll explain how the different types of investment income work, the kinds of insurance that provide financial protection, and how combining the two can reduce taxes, lower risk and build a better legacy. 

The main types of investment income

Investment income is the money you can make from owning stocks, bonds, mutual funds, exchange-traded funds (ETFs) and other investments. It can come in several forms:

Dividends: many companies pay their shareholders a dividend, which is usually in the form of a percentage of the investment owned. Dividends can be paid monthly, quarterly or annually, depending on the company involved.

Interest: bonds and guaranteed investment certificates (GICs) pay interest on the amount of money you invest in them (paid as a percentage of the amount invested). The amount of interest earned can vary greatly, depending on a variety of issues, such as the level of risk attached to the issuer of the bonds and the length of time involved (bonds and GICs have specific time periods — called terms — attached to them).

Read more