A segregated fund is the term used for the investment funds offered by life insurance companies. Like mutual funds, a segregated fund is a group of stocks, bonds, and other investments that are owned by a large number of investors and managed by a professional investment company. The unique aspects of segregated funds are the "insurance" features.
For example, you can name a designated beneficiary to any segregated fund contract - including with non-registered funds. Most insurers will also provide a death benefit guarantee: a guarantee of a minimum contract value to your beneficiary upon your death. These insurance components can make segregated funds a useful tool in your estate planning.
In Canada, investors must be provided with the most recent Information Folder before any segregated fund purchase. This document provides information not only about the funds themselves, but also details the insurance features of the contract.
Segregated fund contracts guarantee 75% to 100%% of your premiums (less withdrawals) when the contract matures, or on your death. When your investment reaches maturity or when you pass away, if your investment is worth less than its guaranteed value, the insurance protection will top you up.
When you invest in a segregated fund, your money is managed by a fund manager who will strategically buy and sell a wide variety of investments, such as stocks and bonds. With the added help of an advisor, you can make the best segregated fund contract that matches your risk and financial goals.
Money invested in segregated fund contracts may also be protected against seizure by creditors. This can be advantageous for business owners and professionals looking to protect against an unexpected lawsuit or bankruptcy. Wit such protection, after your passing, the death benefit will go to your beneficiaries, not creditors.
Segregated fund contracts purchased with non-registered money let you name beneficiaries, so the death benefit bypasses your estate and goes directly to them. You can also control how they receive the benefit: as a lump sum or in the form of a payout annuity. Your designated beneficiaries are a private matter and won't be disclosed.
Your trusted financial advisor will help you determine of segregated funds are a good fit with your financial goals.
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