Segregated Funds: Growth With a Safety Net

A guide to segregated funds and how they protect your savings.

Why segregated funds

Segregated funds combine the growth potential of investment funds with the guarantees of an insurance contract. Only insurance companies offer them.

• 75–100% of your deposits can be guaranteed at maturity and at death, depending on the contract.
• 10 yrs is a typical minimum term before the maturity guarantee applies.
• $0 in probate when the contract pays a named beneficiary.

Sources: CLHIA, Segregated Fund Contracts; individual insurer contracts, which vary.

How they work

You invest

Choose from a range of funds, much like mutual funds.

Guarantees protect you

A set share of your deposits is guaranteed at maturity and at death, even if markets fall.

Resets lock in gains

Some contracts let you reset the guarantee to a higher market value.

Key benefits

1. Maturity guarantee. Get back at least 75% to 100% of your deposits at the end of the term, reduced for withdrawals.
2. Death benefit guarantee. Your beneficiaries receive at least the guaranteed amount, paid outside your estate.
3. Potential creditor protection. With certain beneficiaries named, the contract may be protected from creditors.

The guarantees have a cost. Fees are higher than for most mutual funds. The right level of guarantee depends on your age, goals and comfort with risk.

Who they suit

• Retirees: Protect income. Keep savings you’ll live on safe from a bad market at the wrong time.
• Business owners: Shield savings. Add potential protection from creditors to personal savings.
• Estate planners: Pass it on. Money goes to family quickly and privately, without probate.
• Cautious investors: Stay invested. Invest for growth with a floor under your deposits.

Ways to hold them

Segregated funds can be held in most types of accounts.

• Registered plans. RRSP, RRIF, TFSA, LIRA and LIF.
• Non-registered. Personal savings, with growth taxed each year.
• Income options. Some contracts offer a guaranteed income for life.

Speed matters at death. Because the money goes straight to your beneficiaries, they don’t wait for probate, and it isn’t subject to probate tax.

Getting started checklist

• Decide how much of your savings needs a guarantee.
• Choose a 75% or 100% guarantee level.
• Compare the fees with other options.
• Name beneficiaries rather than your estate.
• Ask about resets and lifetime income options.
• Note your contract’s maturity date.

Segregated fund or mutual fund?

Both invest in a pool of stocks and bonds. The difference is what sits around the investment.

• Segregated fund: An insurance contract with guarantees, possible creditor protection and a probate bypass.
• Mutual fund: Lower fees and no guarantees. Passes through your estate unless held in a plan with a beneficiary.

Getting started

1. Review your goals and time horizon.
2. Choose your funds and guarantee level.
3. Name your beneficiaries.
4. Check in each year and consider a reset.

Read the information folder. Every contract comes with an information folder and fund facts. I’ll walk you through them before you invest.

Let’s protect your savings

I’ll help you decide whether segregated funds belong in your plan and how much protection makes sense.

Book a conversation with Michael, or call the office at 506-406-6100 (cell 506-440-6196). Email: [email protected]. Ask for a printed copy of this brochure at your next meeting.

For general information only; not tax or legal advice. Guarantees depend on each contract and are reduced proportionally by withdrawals. Any amount allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value.