Segregated Funds

Investment growth potential with insurance protection

Segregated funds combine professionally managed investments with certain guarantees and features available through an insurance contract.

Like mutual funds, segregated funds can provide access to a broad range of investments, including fixed income, Canadian and global equities, balanced portfolios and other investment strategies. Unlike mutual funds, segregated funds are issued by life insurance companies as individual variable insurance contracts and include insurance features that can provide additional protection for your investment and your beneficiaries.

Depending on the insurer, segregated fund contracts may also be referred to as Guaranteed Investment Funds (GIFs) or by other product names.

Explore the benefits of segregated funds and speak with your financial advisor about whether they may be appropriate for you.

What is a Segregated Fund?

A segregated fund is an investment held within an insurance contract issued by a life insurance company.

Your money is allocated among professionally managed investment funds based on your objectives, time horizon and comfort with investment risk. The market value of your investment will rise and fall based on the performance of the funds you select.

The insurance contract adds features that are not generally available with conventional mutual funds, including:

• Maturity benefit guarantees

• Death benefit guarantees

• Beneficiary designations

• Potential estate-planning advantages

• Potential creditor protection in qualifying circumstances

• Reset options with certain contracts

Guarantee levels, investment choices, fees and other features vary by insurer and contract.

Built-In Investment Guarantees

One of the distinguishing features of a segregated fund contract is protection against some of the impact of market declines at specified times.

Maturity Benefit Guarantee

Segregated fund contracts provide a guarantee of a specified percentage of eligible deposits at a defined maturity date.

Depending on the contract, the maturity guarantee is generally 75% and may be higher.

For example, if a contract provides a 75% maturity guarantee and the market value has fallen below the applicable guaranteed amount at the maturity date, the insurer provides the applicable guarantee according to the terms of the contract.

If the market value is higher than the guaranteed amount, you receive the market value.

Maturity dates, guarantee levels and the treatment of additional deposits and withdrawals vary by contract.

Death Benefit Guarantee

Segregated fund contracts also provide a death benefit guarantee.

If the annuitant dies when the market value of the investment is below the applicable guaranteed death benefit, the insurer provides the applicable guaranteed amount according to the contract.

Depending on the contract selected, death benefit guarantees may range from 75% to 100% of eligible deposits, adjusted for withdrawals and other applicable transactions.

If the market value is greater than the guaranteed amount, the higher market value generally applies.

The Opportunity to Lock In Investment Growth

Resets

Some segregated fund contracts provide a reset feature.

A reset can allow increases in the market value of your investment to establish a higher guaranteed amount for the maturity benefit, death benefit or both, depending on the contract.

For example, if an investment originally valued at $100,000 grows to $125,000, an available reset may allow some or all of the higher value to become the new basis for calculating a future guarantee.

A reset may also establish a new maturity date or affect other contract provisions. Your advisor can help determine whether and when using a reset is appropriate.

Estate Planning Advantages

Segregated fund contracts can offer valuable estate-planning features because they are insurance contracts.

Name Your Beneficiaries

Where permitted, you can designate one or more beneficiaries directly on the contract.

Upon the death of the annuitant, proceeds can generally be paid directly to a validly named beneficiary rather than passing through the estate.

This can provide several potential advantages:

• Faster settlement — proceeds can generally be paid without waiting for the estate administration process to be completed.

• Reduced estate costs — proceeds paid directly to a beneficiary may avoid probate or estate administration fees that would otherwise apply.

• Greater privacy — assets passing directly to a beneficiary may not form part of the probated estate and its associated public record.

• Certainty of beneficiary designation — proceeds are distributed according to the beneficiary designation, subject to applicable law and the contract.

Estate and probate treatment varies by province and depends on the ownership and beneficiary arrangements.

Potential Creditor Protection

Because segregated funds are insurance contracts, they may provide creditor-protection advantages in certain circumstances.

Potential protection can be particularly relevant to business owners, self-employed individuals and professionals who may face business or professional liability.

Creditor protection is not automatic. Whether protection is available depends on factors including the beneficiary designation, applicable provincial legislation and the circumstances under which the investment was made.

Transactions made for the purpose of defeating legitimate creditor claims may not be protected.

If creditor protection is an important part of your planning, appropriate legal and financial advice should be obtained.

A Wide Range of Investment Choices

Segregated funds are not limited to conservative investments.

Depending on the insurer and contract, investment choices can include:

• Money market and fixed-income funds

• Canadian equity funds

• U.S. and global equity funds

• Balanced and asset-allocation funds

• Dividend and income funds

• Specialty investment mandates

• Portfolio solutions managed according to different investor profiles

This makes it possible to select investments based on your objectives and investor profile while retaining the insurance features of the segregated fund contract.

Registered and Non-Registered Investing

Segregated fund contracts may be available for both registered and non-registered investing.

Depending on the insurer and contract, this can include:

• Tax-Free Savings Accounts (TFSAs)

• Registered Retirement Savings Plans (RRSPs)

• Registered Retirement Income Funds (RRIFs)

• Locked-In Retirement Accounts (LIRAs)

• Life Income Funds (LIFs)

• Registered Education Savings Plans (RESPs), where available

• Registered Disability Savings Plans (RDSPs), where available

• Non-registered investments

Product and plan availability varies among insurance companies.

Segregated Funds vs. Mutual Funds

Segregated funds and mutual funds have similarities: both can provide professional investment management, diversification and access to different asset classes.

The important distinction is that a segregated fund is held through an insurance contract.

The additional insurance features and guarantees associated with segregated funds may result in different or higher costs than comparable investment funds. Fees, guarantees and features should therefore be considered together when comparing your options.

Who Might Consider Segregated Funds?

Segregated funds may be worth discussing with your financial advisor if you:

• Want access to market-based investments while maintaining specified guarantees at maturity or death

• Are approaching or already in retirement

• Want to designate beneficiaries directly

• Are interested in simplifying the transfer of assets to beneficiaries

• Have estate-planning objectives

• Own a business or are self-employed and have potential creditor concerns

• Want the opportunity to protect some investment gains through available reset features

• Prefer professionally managed investment solutions

Segregated funds are not appropriate for every investor. The benefits of the guarantees and insurance features should be weighed against investment risk, fees, liquidity requirements and your time horizon.

Finding the Right Segregated Fund

Segregated fund contracts differ considerably between insurance companies.

Your financial advisor can help you compare:

• Investment choices

• Maturity and death benefit guarantee levels

• Guarantee periods

• Reset provisions

• Fees and costs

• Withdrawal provisions

• Beneficiary and estate-planning features

• Registered plan options

• Your investment objectives and investor profile

Global Pacific works with leading Canadian life insurance companies offering a range of segregated fund solutions.

Is a Segregated Fund Right for You?

The value of a segregated fund is not simply its investment performance. Its insurance guarantees, beneficiary provisions and potential estate-planning benefits can also be important considerations.

Your financial advisor can help you determine whether these features provide value for your particular circumstances and compare the solutions available from participating insurance companies.

Speak with Your Advisor

Don't have an advisor? Contact Global Pacific to connect with a licensed financial advisor.

Important Information

Segregated funds are individual variable insurance contracts issued by life insurance companies. Any amount allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value.

Maturity and death benefit guarantees, reset provisions and other features are subject to the terms and conditions of the applicable contract. Withdrawals and certain other transactions may reduce applicable guarantees.

Creditor protection is not guaranteed and depends on applicable legislation, beneficiary designations and individual circumstances. Estate and probate treatment also varies by jurisdiction and individual circumstances.

Fees and expenses vary by insurer, contract and investment option and may be higher than those associated with other investment products.

The information provided is for general educational purposes only and should not be considered financial, investment, insurance, tax or legal advice. Please review the applicable Information Folder, Fund Facts and contract documentation and consult your financial advisor and other qualified professionals regarding your individual circumstances.