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Segregated Funds vs. Mutual Funds

What is a segregated Fund?

Segregated funds are a Canadian insurance product and are only offered to Canadians.

Segregated funds are very similar to mutual funds. A large pool of money is invested in stocks, bonds, or other securities with the goal of growing the value of the entire pool.

But segregated funds are actually structured as insurance contracts, so they have some benefits that mutual funds do not including maturity and death benefit guarantees, the ability to bypass estate probate and potential creditor protection.

What is the advantage of a segregated fund?

Guarantees - Segregated funds guarantee 75% to 100% of your contributions (minus withdrawals) when the contract matures, or on your death. The value of the contract is not guaranteed at other times.

By passing Probate:

Many people don't realize that probate is a public process and can cost a significant amount of money. Segregated fund assets can be paid directly to your named beneficiary, thus avoiding the cost and complications of probate. By avoiding probate, you keep your financial affairs private and more of your proceeds passdirectly to your named beneficiaries.

Potential creditor protection

Are you concerned with protecting your money in case of a possible future bankruptcy, however unlikely this may be? As an insurance contract, assets held in your segregated fund may be protected from creditors in the event of a bankruptcy. Under provincial laws, the interests of insurance beneficiaries may override the claims of creditors.

If the beneficiary you’ve named qualifies, segregated funds are generally protected against seizure by creditors. This can be a big advantage for business owners and professionals wanting to protect against an unexpected lawsuit or bankruptcy.