What are segregated funds?

Segregated funds protect you from market jitters because their built-in guarantees mean you can allocate your premiums knowing that your exposure to market downturns is limited.  Segregated funds are offered by insurance companies, and get their name from the fact that their holdings are kept separate from the insurance company's assets. Like a mutual fund, a segregated fund is a collection of stocks, bonds and other investments that provide you with an opportunity to "grow" your investment capital. However, a mutual fund is a security, while a segregated fund is an insurance product. Segregated funds provide additional features and benefits not available with mutual funds.

Guarantees

Guarantees are the backbone of segregated funds – they protect your capital and let you allocate your premiums with confidence. Recognizing that people’s needs vary, segregated funds offer products with a variety of guarantees and guarantee levels. You’ll want to examine your needs and pick the protection level that is right for you. Your advisor will be able to help.

Types of guarantees that are available from segregated funds are:

Maturity Benefit Guarantees (savings plans) -  Guarantee that when your policy matures, you’ll receive at least a set amount of the premiums paid to your policy (minus any money you surrender).

Payout Guarantees (retirement income plans) - Guarantee that you’ll receive income payments of at least a set amount of your premiums (less any scheduled retirement income payments made) over the lifetime of your policy.

Death Benefit Guarantee (savings & retirement income plans) - Guarantees that upon your death, your beneficiaries will receive at least part of or all of the premiums paid to your policy. This safeguards the amount your loved ones will receive on your death.

If you are under age 80 at the policy issue, your loved ones will receive 100% of the premiums paid, upon your death.

If you are age 80 or older at the policy issue, your loved ones will receive 75% of the premiums paid, upon your death.

Potential for Creditor Protection

A segregated fund can be protected if you go bankrupt and have designated a preferred class beneficiary. This is an important benefit for professionals and business owners who could be involved in an unexpected lawsuit or bankruptcy.

Since there are some circumstances where creditor protection may not apply, you should consult a legal advisor to find out if you are eligible for this kind of protection.

Resets

Resets take it up a notch: you get additional security. When the market does well, so do you. When it doesn't do well, your money is protected against significant losses. Frequency of resets and the types of guarantees that can be reset depend on the policy you choose.

Probate bypass opportunities

Probate is a legal process that certifies the validity of a will and essentially allows assets to be transferred at death to your heirs. Provincial governments raise money from this by charging probate fees, which are usually a percentage of your estate’s value. However, these fees aren’t charged on segregated funds because this asset doesn’t flow into your estate if you have a designated beneficiary in your policy. Since the funds do not pass through the estate, the distribution of funds to beneficiaries is typically much quicker, and confidential.

Consumer protection

Most insurance companies are members of Assuris - the insurance industry's consumer safety net.

The use of Segregated Funds create a terrific retirement savings and income planning option that allows you to participate in a turbulent market with a basic level of security of capital, which creates the security of mind.