The truth about segregated funds
Segregated fund policies can be a valuable tool for investors. They offer growth potential while helping secure investments with insurance protection.
Segregated fund policies are ideal for many types of investors, including those looking to protect a portfolio from market volatility, are in the estate planning process or own a business.
That said, there are some common misunderstandings about segregated funds policies. Let’s review some of these myths and explain why segregated funds are a compelling option for investors.
Myth 1: Segregated fund policies are only for retirees
Though their principal protection and estate planning benefits make them a great choice for those close to or in retirement, they also offer growth potential through a variety of asset classes, including equities making them suitable for a wide range of clients including risk-conscious younger investors.
Myth 2: Segregated fund policies lack investment flexibility
More comprehensive segregated fund line-ups now include several management styles, broader geographic coverages and most major asset classes. Investors can build strong, diversified portfolios that can adapt to various market conditions.
Myth 3: Segregated fund policies cost too much
It’s true that segregated funds do have higher fees than mutual funds. However, it’s important to consider the added value those higher fees provide.
Segregated fund policies offer maturity and death benefit guarantees and the opportunity to lock in investment growth through regular resets.
Myth 4: Segregated fund policies have no tax benefits
Segregated funds allow net capital gains and losses to flow through to policyholders. As a result, the policyholder can choose when to claim capital losses rather than the fund. These losses can be carried back 3 years or carried forward to future years.
Tax information is tracked and reported by Canada Life for the policyholder, helping to simplify your annual tax-filing process.
Segregated fund policies are also ideal for anyone looking to protect their estate, secure a smooth estate transition and avoid unnecessary fees such as probate tax and legal fees.
Myth 5: Segregated fund policies are too complicated
Segregated fund policies have unique but straightforward features. Your advisor can provide clear guidance on how they may fit into your situation. Understanding the basics can help clear up their structure and advantages.
Myth 6: Only wealthy people can invest in segregated fund policies
Segregated fund policies are available in various investment amounts to suit different financial capacities. Canada Life offers segregated fund policies with minimum investment thresholds.
Myth 7: Segregated fund policies don’t perform as well as mutual funds
Depending on the underlying investments, performance for many segregated funds is comparable to mutual funds.
Canada Life offers more ways to invest in segregated funds, including managed portfolios and ETF portfolios.
Discover how Canada Life segregated funds ranked #1 in 2023 for earning the most FundGrade A+ awardsOpens a new website in a new window, providing protection, privacy and diversification.
A summary of segregated fund policy benefits
- Guarantee: A segregated fund policy must guarantee a return of at least 75% upon death or maturity (policyholders have the flexibility to choose a 100% guarantee option).
- Estate planning: Segregated fund policies allow the private transfer of the money to a designated beneficiary outside of the deceased’s estate.
- Creditor protection: Assets held in a segregated fund policy – registered or unregistered – are potentially protected from creditors when an appropriate designated beneficiary is named.
- Reset option: Some segregated fund policies provide the option of locking in investment gains by resetting the contract’s guarantee value to the current market value. Others also allow the maturity date to be pushed out.
- Privacy: Your designated beneficiaries (if you decide to have them) are a private matter and won’t be disclosed. Note: In Saskatchewan, executors must disclose all known life insurance policies owned by the deceased, including segregated fund policies. They must list the insurance company, policy number, designated beneficiaries and the value at the date of death.