“Segregated funds” are an investment product offered by Canadian insurance companies that combine the growth potential of mutual funds with the security of insurance protection. These funds are held in separate accounts from the insurance company’s general investment funds, hence the term “segregated.” Segregated funds are often included as an investment option within life insurance and certain types of annuities, providing policyholders with a way to invest in the financial markets while benefiting from insurance guarantees.
Key features of segregated funds include:
Maturity guarantees
Segregated funds guarantee a minimum portion of your deposits (less any withdrawals) at maturity and on death, set out in the contract. This guarantee provides a level of protection against market volatility.
Death benefit guarantees
In addition to maturity guarantees, segregated funds often include a death benefit guarantee, ensuring that a specified percentage of the invested capital is paid to the beneficiary upon the policyholder’s death, regardless of the market value of the investment at that time.
Creditor protection
Under certain conditions, investments in segregated funds may be protected from creditors, making them an attractive option for business owners and professionals seeking to safeguard their assets.
Probate bypass
Since the proceeds from segregated funds can be paid directly to named beneficiaries, they may bypass probate and estate administration fees, providing a quicker and potentially more private transfer of assets upon the policyholder’s death.
Diverse investment options
Segregated funds offer a range of investment choices, including equity funds, bond funds, and balanced funds, allowing policyholders to diversify their investments according to their risk tolerance and financial goals.
Professional management
These funds are managed by professional fund managers, providing investors with the expertise needed to navigate the complexities of the financial markets.