Segregated Funds

The popular choice

With a number of great benefits, these funds offer investors a great option if they are allowed to mature.

Segregated funds may guarantee a specific return over the lifetime of the investment or upon maturation of the fund. Although there may be a guarantee to the investor of a segregated fund, there will also likely be penalties if the investor sells shares of the fund before their maturity. These guarantees come with costs to the investor – in this case, opportunity costs.

Many investors choose segregated fund policies, rather than analogous mutual funds, because the segregated fund policies offer:

  • Guarantees: The 75% statutory maturity and death benefit guarantees offer a “safety net” for many investors who are willing to pay a bit more in administrative fees and expenses for a security blanket.
  • Potential Creditor Protection: Because proceeds of a segregated fund policy are regulated by the Uniform Life Insurance Acts of the provinces, the interests of named beneficiaries may be protected from creditors, even if the policy owner should declare bankruptcy.
  • Estate Planning: Because proceeds of a segregated fund policy can be paid to a named beneficiary in the event of the death of the annuitant, they do bypass the deceased’s estate and, consequently, are not exposed to probate fees, executor’s and lawyer’s fees, and delays in the administration of the policy owner’s estate.
  • Disability waiver: Some insurance companies permit the policy owner to apply for a disability waiver rider, in respect of contractual deposits. In the event of total disability of the policy owner, this rider will continue to make the deposits on behalf of the policy owner, up to a prescribed maximum.
  • Tax Advantages: Segregated fund policies can flow through the tax status of investment income, allowing policy owners to take advantage of such features such as the dividend tax credit and reduced rates of taxation on capital gains.
  • Insurer Insolvency Protection: Depositors to segregated fund policies may be protected even in the event of the insolvency of the life insurer: first, because the segregated fund assets are not available to the insurer’s creditors and, second, because of the limited protection afforded by Assuris regarding the principal guarantees on death and maturity.