What's a Segregated Fund?

May-June 2008

THEY'RE CALLED SEGREGATED FUNDS because the assets of these funds are kept separate from the life insurance company’s other assets. Segregated funds are investment funds offered by insurance companies. Segregated funds, like mutual funds, pool investors’ money together under the direction of a team of professional investment managers to achieve growth. They are insurance contracts that offer the potential for growth with the following benefits: probate protection; the potential for creditor protection; and capital guarantees not available with mutual funds.

While the cost of the guarantees generally means segregated funds cost more than similar mutual funds, the added capital protection they provide is ideal for some investors. One of the benefits of segregated fund contracts is “potential creditor protection.” But what exactly does that mean? Creditor protection can never be guaranteed. According to legislation, this protection is null and void if contracts are purchased by individuals who know about current or potential claims against them. Future court decisions may also change how certain legislation surrounding protection is applied. Currently, Quebec legislation does not allow for creditor protection at all. Potential creditor protection occurs when the beneficiary of a segregated fund contract is a spouse, child, parent or grandparent of the annuitant.

Who Might Find Them Attractive?
Segregated fund contracts are most appropriate for:
• people who aren’t interested in managing their own investments daily
• investors who are attracted to some guarantees of their original deposit (less a proportional reduction for any withdrawals)
• self-employed individuals and certain professionals, such as engineers, doctors, etc., who have a high degree of potential creditor and liability risks
• more affluent investors looking to preserve their wealth

If you would like to learn more about segregated funds and if they are appropriate for you, please contact your financial advisor or Kell Sewell at 705-761-1395, Kelland.sewell@freedom55financial.com.

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