Segregated Funds

A Segregated Fund is an investment or co-mingled fund offered by a Canadian life insurance company that invests in a portfolio of securities on behalf of several investors. It is held separate from the insurer’s general assets and provides various insurance benefits.

Segregated Funds offer many of the same investment opportunities and mandates provided by mutual funds but have one important difference, segregated funds are insurance contracts known as individual variable annuities and are, therefore, governed by the Insurance Act.

It is the insurance contract that provides a number of additional features and benefits that are not available with mutual funds.

Five Features of Segregated Funds

Death Benefit Guarantees
The death benefit guarantee protects a specific percentage of the value of an investment upon the death of the contract annuitant.

Maturity Guarantee
This guarantee protects a percentage of the value of an investment at the end of a specified term.

Waiver of Premium
An option for regular contributions. Like a life insurance policy it will pay your premium (contribution) for you if you become disabled. There is usually an additional fee for this.

Creditor Protection
Established under life insurance legislation, some segregated fund policies might be protected from creditors if one faces a lawsuit or bankruptcy during the policyholder’s lifetime. There must be a preferred beneficiary named on the contract. After the policyholder’s death, all beneficiaries are protected against claims made by the policyholder’s creditors.

Probate Bypass
In the event of death of the annuitant, the proceeds of an insurance contract pass directly to a named beneficiary without going through probate. The benefit is that the asset avoids probate and estate administration fees. Furthermore, the beneficiary will also receive the proceeds with a minimum of delay, a considerable benefit during a time of need.

To learn more about Segregated Funds, contact us.

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