What is a segregated fund?
Segregated fund products, offered exclusively by insurance companies, provide the growth potential of market-based investing along with the benefits of an insurance contract. They first became popular over 20 years ago when interest rates fell. Prudent investors then considered them a safe alternative to GICs (guaranteed investment certificates). They continue to be a reassuring way to grow your assets while providing some protection against market downturns.
Sadiq Adatia, Chief Investment Officer, Sun Life Global Investments, says, “98% of Canadians surveyed in the 2015 Canadian Retirement Delay Index say it’s important to have some form of guaranteed income retired. Also, Canadians live longer than ever before, and many underestimate their longevity. Result: they underfund their retirement.”
“Segregated funds can provide greater peace of mind for those who want to participate in the market but are also looking for insurance guarantees,” he notes. These funds are particularly suitable for those who:
Want their investments to provide sufficient returns to meet their savings goals.
Seek a diverse range of quality investment options.
Build their savings but also want to protect themselves against market downturns.
Seek to take advantage of insurance’s benefits, including quick estate settlement and guarantees.
Are looking for a guaranteed income for life.
Segregated Funds vs Mutual Funds
Segregated fund products have some similar characteristics to mutual funds in that they offer a variety of assets and allow you to spread your investments in a variety of ways. They are also different because they provide the following unique benefits:
Maturity guarantee: Even if the value of your investments goes down, you’ll still get between 75% and 100% of the money you put into them, less any withdrawals you’ve made, either in 15 years or when you turn 100*.
Death benefit guarantee: Segregated fund products offer a death benefit guarantee ranging from 75% to 100% of their value, which can protect the value of your estate. The market value or death benefit guarantee, whichever is greater, will not be subject to probate and will be transferred directly to your beneficiaries*.
Opportunity for Creditor Protection: Small business owners and entrepreneurs can take advantage of the fact that, under provincial insurance legislation, segregated fund products can provide creditor protection in the event of bankruptcy.
Segregated funds also offer various investment options that can meet people’s needs, no matter where they are in life.
Competitive Fees: Segregated funds were generally more expensive than mutual funds in the past. But today, some segregated funds’ maturity or death guarantees cost less, and their management fees are not much higher than those of standard mutual funds.
Locking in market gains: Some segregated fund products offer the possibility of changing the maturity guarantee several times a year. So, if the value of your funds increases, you can lock in a more advantageous contract.
Guaranteed income options: Want to fund your retirement? Some segregated fund products are designed to work like an annuity and provide you with guaranteed income for life.
An advisor can help you learn more about segregated funds and find the right products for your needs and goals.
