Segregated Funds Insurance | BrokerUnion

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Segregated funds combine the growth potential of investment funds with insurance protection. Unlike mutual funds, segregated funds provide a guarantee to protect part of the money you invest.

What are Mutual Funds and Segregated Funds?

Mutual funds let investors pool their money together in a fund that’s managed by a qualified investment firm. It’s a process that diversifies your investments, potentially limiting your exposure to market fluctuations. For many people, it’s a very attractive investment option because it’s cost-effective and can be customized to your unique risk tolerance. However, mutual funds offer no guarantees and are subject to market fluctuations.

Segregated (or also known as seg) funds are an investment product sold only by life insurance companies. They are individual insurance contracts that invest in one or more underlying assets, such as a mutual fund.

Unlike mutual funds, segregated funds provide a guarantee to protect part of the money you invest (75% to 100%). Even if the underlying fund loses money, you are guaranteed to get back some or all of your principal investment. Although, you must hold your investment for a certain length of time (usually 10 years) to benefit from the guarantee. And you pay an additional fee for this insurance protection.

3 Advantages of Segregated Funds

Principal guaranteed– Depending on the contract, 75% to 100% of your principal investment is guaranteed if you hold your fund for a certain length of time (usually 10 years). If the fund value rises, some segregated funds also let you “reset” the guaranteed amount to this higher value – but this will also reset the length of time that you must hold the fund (usually 10 years from date of reset).
Guaranteed death benefit– Depending on the contract, your beneficiaries will receive 75% to 100% of your contributions tax free after you pass. Any beneficiary named on the segregated fund will have the proceeds of the fund paid directly to them after your death, without having to deal with probate. Probate can be a lengthy and expensive process, so having the proceeds paid directly to your beneficiary can make a stressful situation much easier on your loved ones.
Potential creditor protection– This is a key feature for business owners in particular. If you’ve named a beneficiary to your policy, segregated funds also offer protection from creditors seizing your assets in case of bankruptcy or in the event of a lawsuit.