(Funds backed by insurance)
Segregated Funds (Funds backed by insurance)
A segregated fund is a type of investment vehicle commonly used by Canadian insurance companies to manage individual, variable annuity insurance products. A segregated fund offers investment capital appreciation and life insurance benefits.
The individual insurance contracts bought through segregated funds invest in underlying assets like mutual funds, thereby helping the contract value to appreciate over time. However, since investing always involves an element of risk, there is a chance you could incur losses. That’s why segregated funds include a guarantee to protect part of the money invested, covering at least 75% of it, and sometimes even 100%.
The key difference between segregated funds and mutual funds is that segregated funds are sold by insurance companies and usually include guarantees that protect your initial investment. Segregated funds also tend to have less flexibility and added insurance fees than mutual funds.
Another reason people choose segregated funds is because they offer creditor protection. So, if you’re facing a potential bankruptcy, creditor protection ensures that the funds in your segregated fund are not seized by creditors. However, this is only possible if you’ve named a family member as a beneficiary of the segregated fund policy. A beneficiary is a family member you’ve chosen to receive the proceeds of your fund after your death. This protection is particularly beneficial for professionals or small business owners, since it can protect your personal assets from professional liability.