Retirement, Investments & Banking

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Segregated Funds

Segregated Funds, or seg funds are investments offered by Canadian insurance companies. These investments are available to anyone that wishes to diversify their investments via stocks, bonds and other investments, but also provide some protections from investment risks.

Guaranteed Income Plans

Some insurers offer Guaranteed Income plans, which definitely provide some added peace-of-mind for people that don’t have Pension Plans, or their current Pension won’t provide enough of a lifetime guarantee. These plans can also provide guarantees for your spouse if desired.

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Fund Managers

Insurance companies often will use their own Fund Managers, and they also turn to well-known Fund Managers as Fidelity, Mackenzie, RBC, Franklin Templeton, CI, TD Asset Management, CIBC, etc.

Other insurers offer guaranteed resets, allowing you to “lock-in” your investment gains- applicable for the death benefit and maturity benefit guarantees (see 1. and 2. above.)

We’d be happy to talk to you about your RSPs, TFSA, RIF or non-registered account and provide you with a better idea about your future income!

Why Segregated Fund are so popular

Segregated funds are investment funds that are administered by a life insurer. These investments are held separately from the company assets, hence the name segregated. Seg funds are similar to mutual funds in that the investment can be diversified amongst stocks and bonds. Because seg funds are offered only by an insurance company, they are governed by insurance legislation.

This means that they offer guarantees that other types of investments can’t:

1. Maturity Benefit Guarantee

the insurance company guarantees that after 15 yrs, your investment will be worth at a minimum 75% or 100% of your initial investment. You decide which guarantee you prefer when you complete the initial application.

2. Death Benefit Guarantee

in the event an investment owner passes away, the insurance company guarantees to pay 75% or 100% of the initial investment in the event of market downturns. Similar to above, this guarantee can be a very valuable feature, especially if you consider the market turmoil as recently as 2008, 2011 and now in 2018.

3. Probate

a probate certificate is issued by the courts and grant an executor the authority to distribute assets of an estate, and is usually required before financial institutions, government agencies and others will release funds or act upon wishes of the will. This entire process takes time and there is a cost (officially called an estate administration tax) equal to almost 1.5% of your estate’s value. Segregated funds avoid probate fees and are paid directly to your beneficiaries.

4. Legal fees and Executor fees

the probate process costs range from 2%-5%. As mentioned segregated funds pass directly to your named beneficiaries, avoiding legal or executor fees, a savings of 2%-5%.

5. Creditor Protection

as long as certain qualifications are met, (ie. such as setting up the plan just prior to declaring bankruptcy) segregated fund investments may be protected from seizure from creditors.

6. Reset Option

some seg funds allow a reset option, allowing the contract holder to lock-in investment gains if the market value of a segregated fund contract increases. This resets the contract’s deposit value to equal the greater of the deposit value or current market value, restarts the contract term, and extends the maturity date. Contract holders are limited to a certain number of resets, usually one or two, in a given calendar year. (this enhances the maturity benefit guarantee and the death benefit guarantee).

7. Payout Annuities

sometimes called a payout option. Some insurers can structure a payout stream to your beneficiaries for a fixed period or for their lifetime. This can provide peace-of-mind, knowing that your beneficiaries are taken care of, and they don’t have to worry about making investment decisions.

8. Registered or Non-Registered

seg funds can be set up with non-registered funds, RSPs, RIFs or TFSAs.

9. Investment Management Fees (IMF)

typically there is a higher IMF for seg funds than for mutual funds, simply to cover the cost of all the guarantees mentioned. Depending on the insurer though, if your investment into a seg fund is over a certain threshold such as $250,000, the IMFs are reduced, which makes them very competitive with mutual funds. When you factor in the reduced probate, legal and executor fees previously mentioned, seg funds provide very good value.

At Our Financial Plans we can offer Segregated funds from most insurers, however our favourite are from Great West Life, Canada Life and Manulife Financial.

We have some great financial planning tools that can provide you confidence with your savings and investment plans.

To find out more, click on the Contact Us for a Consultation link and you can send us a message or give us a call to arrange an appointment.