Segregated Funds are a life insurance company’s
version of a mutual fund. The term segregated is used because
the assets of the investment pool are kept separate from
the insurance company’s general assets.
Segregated funds are pools of investments
assets managed by professional investment personnel. They
fit in a wide variety of investment objectives by offering
a wide variety of investment options, including Canadian
and International equity funds, balanced, bond and money
market funds. (See types of mutual funds for more information.
Segregated funds offer a death benefit guarantee,
which is typically between 75% and 100% of net deposits,
regardless of the current value at time of redemption. They
also offer a minimum value at maturity guarantee, which
is also typically 75% of net deposits. Maturity usually
occurs 10 years from the original purchase date of the segregated
The accumulated value of a segregated fund
varies according to the performance of specific groups of
securities that are purchased by the segregated fund managers.
Although returns can fluctuate in the short term, in the
longer term (10 years or more), segregated funds have historically
delivered yields higher than GICs and deferred annuities.
Segregated funds can be purchased as a non-registered
investment or as an registered investment (i.e. RRSP).
Probate fees and delays can by bypassed on
the death of the investor if he or she has named a preferred
beneficiary. Upon death, the account may be passed directly
on to the named beneficiary.
By naming a preferred beneficiary, and the
nature of the insurance policy, segregated funds also offer
a degree of creditor protection making them ideal investment
solutions for sole proprietors and small business owners.
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