Whether your retirement is years away or just around the corner, it’s important to ensure your investments reflect your goals and risk tolerance. Exposure to the equity markets can add value to your portfolio during an upswing but can leave you vulnerable to loss if safety and security are important to you. Consider segregated funds – many Canadians have never heard of them yet they have been around for over 50 years.
A segregated fund or seg-fund for short is an investment fund that combines the growth of a mutual fund with the security, guarantees, and values of a life insurance policy.
How is a Seg-Fund like a mutual fund?
Contains a diversified selection of investments
available in a variety of asset mixes
TFSA and RRSP eligible
Managed by professional portfolio managers
Has the potential for capital growth and investment returns
What does a Seg Fund offer that a Mutual Fund DOES NOT?
Built-in guarantee to insure your capital
Typically 75% – 100% of your initial investment is protected
Using a segregated fund as an investment vehicle opens the door to a host of features for you and offers protection throughout your life and beyond. Most of these features are unique to insurance-based investment products and may not be available through traditional investments like a GIC or mutual fund. So what are some of these great features of a segregated fund?
Here are some seg-fund benefits:
With segregated funds, we have the ability to guarantee up to 100% of the invested amount upon death or maturity. Our clients can also reset their guarantee amount periodically throughout the holding period. For example, if our client deposits $100k into a segregated fund and after one year, it increases to $105k, they can lock-in the value at $105k and even if the market corrects, that $105k is guaranteed to them, regardless of what was originally invested. However, we want to make sure you know that like maturity and death guarantees, the frequency of resets can vary between carriers.
There are no probate fees payable upon death. All proceeds of the segregated fund can pass directly to the client’s named beneficiary – there is no estate to deal with and assets are not subject to probate. This provision is baked-in at contract level, not at the account level, as is the case for non-insurance based investment solutions. Proceeds are paid to the beneficiary without the stress and without the delay of probate.
No DSC (deferred sales charge) penalties. In some cases, a mutual fund is purchased on a DSC basis, meaning that the account holder is forced to pay a penalty if the assets are redeemed early, even upon death. With a segregated fund, the DSC penalty is waived upon death of the annuitant.
Segregated funds allow our clients strict confidentiality. Turns out, death is a matter of public record. In fact, anyone can gain access to your estate and beneficiary designations when a will is probated – a privacy breach that may make you feel more than a little uneasy. By investing in a segregated fund, your designations remain confidential.
Investments held through an insurance carrier can offer unique protection from creditors. During your client’s life, their investment is protected in the event of bankruptcy, lawsuit or any other unforeseen circumstance, provided that the beneficiary is an immediate family member (spouse, parent, grandchild, child). Upon death, the investment is paid directly to your client’s beneficiary, typically entirely bypassing the estate and any creditors who may have a claim to the estate. A major advantage for your client.