What is Segregated Fund?
Segregated Funds are investment funds governed by insurance contracts, issued and managed by insurance companies. Their assets are kept separate from the insurer’s other assets to protect investors’ interests. Since their introduction in Canada in the 1960s, segregated funds have grown significantly, with over 2,000 options available in the market today.
Key Features of Segregated Funds
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Capital Protection - A major advantage of segregated funds is principal protection. At the end of the investment term (e.g., 15 years) or upon the investor’s death, the insurance company guarantees the return of at least 75% or even 100% of the principal, regardless of market conditions.
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Investment Flexibility - Similar to mutual funds, segregated funds pool investors’ money and invest in stocks, bonds, or other securities. Investors can buy or sell fund units based on market conditions.
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Estate Planning - Investors can designate beneficiaries, allowing funds to be directly transferred to them upon death. This bypasses probate, saving time and reducing estate settlement costs.
With capital protection, investment flexibility, tax advantages, and estate planning benefits, segregated funds are an attractive option for investors looking for security and growth.
Segregated Fund Benefits
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Affordable premiums that remain unchanged, providing maximum coverage at a lower cost during a specified period.
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Before the term expires, the policyholder can convert part or all of the coverage into a longer-term policy or a permanent life insurance plan.
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Locks in the insured’s health risk, so if converted to a permanent policy in the future, there is no need for additional health underwriting (eliminating one of the biggest risks in insurance).
Segregated Funds vs. Mutual Funds
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