A segregated fund (seg fund) is an investment, a type of insurance product, and estate planning tool all in one. Here’s a quick rundown of the basics.
A seg fund is a type of investment that lets you participate in the markets. Like mutual funds, seg funds pool investors’ money together. Pooling creates economies of scale to give you investment opportunities that might not be available to you as an individual investor.
Seg fund products also have an insurance component and are formally referred to as individual variable insurance contracts. The insurance component of the contract provides additional features like estate planning advantages, potential creditor protection, and death benefit and maturity guarantees that can help protect your initial investment against market drops.
Because your seg fund contract is a type of insurance contract, you get to name a beneficiary (or more than one) who receives the fund assets as an inheritance when you pass away. The money in the fund bypasses your estate and goes directly to your beneficiary without going through probate[1] — the legal process that certifies a will and transfers assets to heirs. Here’s why that’s such a good thing:
Just as with mutual funds, you can choose from equity, fixed income, and balanced seg funds, as well as managed portfolios that give you professional asset allocation. And, like mutual funds, you can choose to hold seg funds in a non-registered account or a tax-advantaged registered plan:
A specialized segregated fund RESP contract can be useful to people who are saving for a child’s education.
Your advisor will work with you to help you choose the type of investment and plan that’s right for you based on your goals and life stage. Keep in mind that, like all investment options, there are costs associated with segregated fund contracts. These include but are not limited to management fees, insurance fees, operating costs, and sales tax. Some contracts may also include a charge for early withdrawal.
Speak to your advisor if you’d like more information on how segregated funds can help you take advantage of market growth, protect your wealth, and pass it on to the next generation.
© 2020 Manulife. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts as well as the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. www.manulife.ca/accessibility
[1] The probate process and fees don’t apply in Quebec. There’s a verification process for non-notarial wills but not for notarial wills.
[2] In Saskatchewan, jointly held property and insurance policies with a named beneficiary are included on the application for probate but don’t flow through the estate and aren’t subject to probate fees.