Segregated Funds 

SEGREGATED FUNDS HAVE UNIQUE ADVANTAGES

Segregated funds have all the features of mutual funds, with some added benefits that can make them a better choice for investors, especially in today’s volatile markets.

Segregated funds can be used for non-registered investments, or any type of registered investments (TFSAs, RRSPs, RRIFs, LRSPs, LRIFs).

Key reasons to Buy a Segregated Fund

• Protect your capital with the Maturity and Death Benefit Guarantees
• Lock in growth by resets to Maturity and Death Benefit guarantees
• Bypass probate fees by having a named beneficiary
• Protect investments from creditors

At OAM we use Segregated Funds to give our clients peace of mind.

We deal with several of the major Life Insurance companies who provide Segregated Funds, and  are able to provide funds with MERs (Management Expense Ratios) that are comparable to mutual fund MERs. The result is equivalent returns with Maturity and Death Benefit guarantees. We have seen first hand with our clients how valuable the Death Benefit Guarantee feature can be in periods of down markets.

What is a Segregated Fund?

A segregated fund is similar to a mutual fund, in that investor money is pooled and managed by a professional money manager. It is different from a mutual fund in that it is an investment option within an insurance contract. This means it can offer additional features common to an insurance contract, such as guarantees and the ability to bypass probate.

Benefits of Segregated Fund Investment

• Maturity Benefit Guarantee

Most Segregated funds provide a maturity benefit guarantee of at least 75% of your net principal payable on a maturity date which is ten or more years after the date you invest your money. Some contracts offer a 100% maturity benefit guarantee after a minimum of 15 years. Segregated fund investors can be assured that no matter how poorly markets perform in the future, they have downside protection and can recover their invested capital.

• Death Benefit Guarantee

Although contracts vary between insurers, it is not uncommon for investors to receive a guarantee of 100% of their net principal upon death. This guarantee may appeal mainly to older investors, but now more people are recognizing the valuable insurance protection the death benefit guarantee provides during their saving years.

• Resetting Guarantees

Most segregated fund contracts allow you to reset your maturity and death benefit guarantees to lock in any gains in your contract. You may have to choose a new maturity date when you reset your guarantees.

• Ability to Bypass Probate

Since it is an insurance contract, the death benefit is paid directly to the named beneficiary rather than to the estate. This is an important estate planning feature because the investment bypasses probate, saving money and time. Probate fees and other estate administration costs can be costly and it can take months, even years, to probate a will. The transfer of funds to the named beneficiary is completely private and less likely to be challenged or contested than if it was done though a will.

• Potential Creditor Protection

Generally speaking, if you name a spouse, child, grandchild or parent as the beneficiary of your policy, your assets may be protected from seizure by creditors provided the policy was not set up to avoid financial difficulty. This feature is especially important for business owners and professionals.

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Roger Crandlemire, CFP | Contact us