What is a segregated fund?
Could segregated funds help lower your investment fees? Find out how seg funds work and what benefits they offer.
Why are mortgages so expensive in Canada?
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A segregated fund, or seg fund, is a type of pooled investment fund offered by life insurance companies. It is also a life insurance contract—segregated funds sold to individuals have an insurance component with a “maturity guarantee,” which guarantees some or all of their original investment, typically 75% to 100%, if they hold the contract for a specific period, usually 10 years, no matter how the fund performs. This limits a contract holder’s potential loss to the guaranteed amount.
Some funds also have a death benefit that pays the guaranteed amount to beneficiaries upon the death of the annuitant (the person whose life is insured). Contract holders can designate one or more beneficiaries. Seg funds can be held in registered accounts such as a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA); when they are held outside a registered account, the contract holder and annuitant can be different people.
Most segregated funds owned through group retirement plans do not have the guaranteed amount feature or death benefit; as a result, their management expense ratios (MERs), the fees charged to investors, are usually lower.
If a life insurance company fails, segregated funds are protected by Assuris, a non-profit consumer agency, which will transfer funds to a solvent company.
Example: “One advantage of segregated funds is that money can be passed directly to a beneficiary without going through the probate process, saving time and avoiding probate fees. Seg funds also offer creditor protection in some circumstances if a contract holder goes bankrupt.”
Read more on segregated funds:
- Segregated funds: Are the investment guarantees worth it?
When someone offers you a guarantee, it’s usually in their best interest, not yours - Converting a segregated fund to a RRIF
If you hold a segregated fund and want to convert it to a registered retirement income fund, this is what’s involved. - The problem with investing $150,000 in seg funds
Often the math doesn’t add up.
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