SEGREGATED FUNDS

Segregated funds are an insurance instrument where the assets of the fund are kept apart from the other assets of the issuing company. In essence, they are similar to mutual funds in that they have the same type of professional management and investment options. A life insurance policy is attached to the investment.

Investments in segregated funds can range from income funds, such as bond and money market funds, to growth funds, such as Canadian equity and international equity funds. Segregated funds provide investors with maturity and death guarantees in addition to a reset option which allows individuals to lock in gains. These funds guarantee the principle over a set period of time up to 100%.

As segregated funds are considered an insurance product rather that an investment product, they are generally protected from creditors when a spouse, parent, child or grandchild is named as the designated beneficiary. An individual should consult with their financial advisor as segregated funds are not always creditor proof.

If a withdrawal is made prior to maturity it may result in an amount less than the principle, depending on the volatility of the fund chosen.

Segregated funds are eligible investments for both non-registered and registered monies. They offer investors a guarantee of principle up to 100% and the ability to lock in market gains with the reset option. In addition to these benefits, segregated funds provide estate planning advantages to investors such as avoiding probate fees when a beneficiary is named.

Investing in insurance contracts is one of the best ways to protect personal assets from creditors. The Insurance Acts with respect to common law provinces in Canada, state in general terms that, money which is held in insurance contracts are free from seizure as long as a preferred or irrevocable beneficiary is named. Creditor protection is not guaranteed. You should talk to a financial expert to determine the most effective way to protect your investments.