While building a financial plan we’ll find a variety of investment plans that meets our savings goal but out of all segregated funds are a most advisable investment. Canadian insurance companies use segregated funds to offer both capital appreciate and death benefits to policyholders. Though segregated funds have features of a mutual fund, still it has maximum advantages over traditional mutual funds and represents market-based equity, bond or fixed-income investments. A segregated fund is an investment pool structured as a deferred annuity contract with life insurance benefits. Segregated funds combine the growth potential of investment funds with insurance protection and held it until maturity. Segregated funds are an investment product where the invested money is pooled with the money of the other people who have invested in that segregated fund. If one is looking for a little security, a segregated fund may just be the right investment choice to make. An investor can choose to invest in a segregated fund based on its investment objective and the underlying fund will strategically buy & sell a variety of investments, such as stocks and bonds.
Unlike mutual funds, segregated funds guarantees for maturity and death benefits, 75% or 100% of the principal amount, to help ensure your savings remain protected. The principal investment must remain in the policy for a specified period, usually 15 years to get the higher of the guaranteed value. This means that when the investment reaches its maturity date or death benefit (guarantee applies to death) the market value would apply. Even if the underlying fund loses money, it guarantees the policyholder to get back some or all of the principal invested. But in all Segregated funds tend to have less flexibility and additional fees than mutual funds. But of course, it’s worth paying this much to get guaranteed benefits. If one withdraws the money before the designated period (maturity level), it will lose the guarantee. In result will just receive the current market value of the principal investment, minus any fees. The policyholder can name a family member as a beneficiary of the segregated fund policy, who will receive the proceeds of the fund after the death of the policyholder. This protection is particularly beneficial for freelancers or small business owners since it can protect personal assets from professional liability. Segregated funds are market-based investments, the larger portion of the amount invested in stocks, bonds or other securities to increase the principal amount. Policyholders can expect to pay a slightly higher total expense ratio on segregated funds because of their more complex structure. Segregated funds offer better guarantees than traditional insurance or annuity products, they do come with higher fees and expenses. Their lots of ways to invest with segregated funds i.e. in the form of estate protection to pass on their money while saving on potential estate fees & taxes and it includes:
- Non-Registered Savings Plan
- Tax-Free Savings Account (TFSA)
- Retirement Savings Plan (RSP)
- Retirement Income Fund (RIF)
- Locked-In Retirement Account (LIRA)
- Life Income Fund (LIF)
- Segregated funds have unique features that protect investment throughout life.
- The segregated fund offers insurance protection to preserve savings.
- Segregated fund protects the savings from dips in the market.
- The Segregated fund is a pool of money spread across different investments.
- Segregated funds offer creditor protection from unexpected lawsuits or bankruptcy.
- Segregated funds offer bypass probate and associated fees by naming a beneficiary
- Segregated funds make quick payment transfer to beneficiaries
- If the fund value rises, some segregated funds also let the “reset” the guaranteed amount to this higher value.
- The beneficiaries will receive 75% to 100% of the tax-free contributions.
- Guarantees that protect 100% of the investment
- Automatic monthly locking-in of market gains to potentially increase the guaranteed benefit on the principal investment.