Segregated Funds

How does a segregated fund work?

Insurance companies sell investment funds called segregated funds. In some ways, these investments are similar to mutual funds, in the way that  they are a collection of funds that a client invests in with professional fund managers minding them. 

A segregated fund offers some additional features that mutual funds do not, including a death benefit and in some cases, a guaranteed base income.. If a segregated fund policy is purchased with non-registered funds, it lets you as the investor name your beneficiaries. That way, when you pass away, the money can be paid directly to your loved ones and bypass any probate fees.

Another benefit to Segregated funds is that Individual insurance contracts purchased through segregated funds are invested in underlying assets like mutual funds, helping your contract appreciate in value over time. However, there is also a chance the funds could incur losses, so these funds include a guarantee to protect part of the investment. Another benefit of segregated funds that even if an underlying fund that your segregated investment is based on loses money, you will still return some (or even all) of your principal investment.

Are segregated funds as safe as equity funds?

Yes, segregated fund investments are safe from market disruptions given their nature and guarantee. On the other hand, a mutual fund or an equity fund policy may perform better than a segregated fund  or could experience fluctuations due to conditions in the market.

What is the difference between a mutual fund and a segregated fund?

Unlike mutual funds, a segregated fund offers insurance benefits and insurance guarantees. Your contributions are guaranteed, but they do come with higher fees and are generally less flexible than mutual funds. A segregated fund is not as volatile and comes with very low risk. Keep in mind with all investments you still have the shares, it is the value that goes up or down.  

So if the value of your fund goes down, it is important not to panic and pull out.  Buy low and sell high.  Always talk to your Experior broker to find out if moving it around is a good idea before making any moves.  Mutual funds as investments offer more potential gains but also come with the added risk of incurring losses on your investment. The most common kind of segregated fund consists of a portfolio that is managed by a life insurance company like Manulife, Empire Life or Industrial Alliance.

Benefits of working with an experienced Experior associate

A crucially important factor in the industry is that an experienced properly licensed associate walks through a financial needs analysis with their clients so no details are overlooked. We  offer additional products that are interrelated to financial planning to ensure that Experior clients are able to capitalize on and enjoy a well-rounded financial plan for the future. 

An Experior associate can help you plan for your retirement, find a life insurance policy with a great insurance company, show you where to take advantage of savings, ensure you maintain top performance and value for your investment options, and even find you specialty funds to invest in. We can secure your coverage with our vast resources and fund options to help you manage your risk. We do not charge fees for our services and you can be confident that our associates will help you build a solid plan for your retirement and beyond. The right insurance company can make all the difference to an investor, both in life insurance and in other financial services. We recommend that you speak with an Experior Financial Group Insurance associate today!

FAQ

Yes, a segregated fund investment is guaranteed for 75% and up to 100% of your contribution. That way, you can be sure you won’t lose any of your hard earned investment.

  • Guaranteed funds, you won’t lose all your money  on your investment regardless of market volatility
  • Upon death, your investment can pass on to your beneficiary without probate expense.
  • The ability to lock in your gains it’s called a reset-Your agent can explain this to you for sure. 
  • Creditor protection on your investment in the event of bankruptcy or a potential lawsuit. We never know what tomorrow brings and so this is a great benefit.

There are strict penalties for early withdrawal from a segregated fund; While it can be done, it is not recommended. There may also be penalties incurred for early withdrawal from savings and there will also be capital gains to contend with. Depending on the value of your fund, that could mean a lot of taxes. It is always advised to speak with your Experior Expert to help you decide the best route if you need some funds.

Speak with an Experior Financial Group Associate today to start with a complete financial needs analysis. The Experior associate will help you determine your needs and goals, and will  invest with the best products for your unique situation. Experior can help you determine if segregated funds are the best investment vehicle for you and we’ll deal with the insurance companies on your behalf.

After your death, the segregated fund comes with a death benefit guarantee and is passed on to the beneficiaries. They can offer protection from probate fees unlike a mutual fund.

No, upon death in Canada, the beneficiaries of a segregated fund investment are not taxed and there are no fees associated with inheriting this type of fund. The deemed disposition (capital Gain) is in the estate. However if the Seg fund is joint owned, then there is no deemed disposition on the death of a joint owner. Only an RRSP seg fund that is rolled to a spouse does not incur a deemed disposition at the death of the owner. 

While your tax advisor can elaborate in more detail, only 50% of the fund’s realized capital gains are reported for tax purposes; and

Eligible dividends are taxed based on a grossed up value of 38% of the actual dividend amount, with an enhanced dividend tax credit available of roughly 25.02% (combined federal-Ontario 2019 rate) of the grossed up amount.

While your tax advisor can elaborate in more detail, only 50% of the fund’s realized capital gains are reported for tax purposes; and

Eligible dividends are taxed based on a grossed up value of 38% of the actual dividend amount, with an enhanced dividend tax credit available of roughly 25.02% (combined federal-Ontario 2019 rate) of the grossed up amount.

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