Segregated Funds - Barry Sjolin

By: Barry Sjolin  09-12-2011
Keywords: mutual funds, Segregated Funds

Segregated funds are similar to mutual funds. Both offer investors an opportunity to ‘grow’ their investment capital (the money they invest), and provide access to professional fund management. Usually, both allow investors to diversify with different fund managers and fund types.

Segregated funds offer many of the same investment opportunities and mandates provided by mutual funds but have one important difference -- segregated funds are insurance contracts known as individual variable annuities and are, therefore, governed by the Insurance Act.

It is the insurance contract that provides a number of additional features and benefits that are not available with mutual funds.

Death Benefit Guarantee and Maturity Guarantee

Guarantees that are common to every segregated fund contract include a death benefit guarantee and a maturity guarantee.

  • The death benefit guarantee protects a specific percentage of the value of an investment upon the death of the contract annuitant.
  • The maturity guarantee protects a percentage of the value of an investment at the end of a specified term (typically 10 years).

The Ability To Bypass Probate

In the event of death of the annuitant, the proceeds of an insurance contract pass directly to a named beneficiary without going through probate. The benefit is that the asset avoids probate and estate administration fees. Furthermore, the beneficiary will also receive the proceeds without extended delays -- a considerable benefit during a time of need.

The Potential For Creditor Protection

In general, when the beneficiary is a parent, child, grandchild or spouse of the annuitant (for Quebec, ascendants and descendants of the owner), and the contract wasn't set up for the purpose of avoiding creditors, segregated fund assets may be protected from creditors.

This is a benefit to all small business owners, professionals and entrepreneur who want a cost-effective means of ensuring their personal financial assets are not subject to professional liability.

For more information, please give us a call 1.866.493.3083.

Keywords: mutual funds, Segregated Funds

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