What are Segregated Funds?

You may have heard of Mutual Funds before. Mutual funds are a form of a pooled investment which inside may hold a series of bonds, stocks, other funds, or a series of other investment vehicles. Each fund will have an associated risk level associated with it from low to high risk. 

What you may not heard of are segregated funds. Essentially, what segregated funds are, is the insurance company's answer to mutual funds. The purpose behind segregated funds is the same as mutual funds, they provide a diversified investment vehicle that can be tailored based on risk tolerance. It's possible to have a mutual fund and segregated fund which both contain the exact same investment holdings, however, they work differently.

The first major different is that segregated funds (as I mentioned) are an insurance product. One of the big features of segregated funds is the potential for creditor protection. This feature may be specifically appealing to those who are self employed or professionals who may work independently because it could provide protection should a bankruptcy occur.

Another appealing benefit to segregated fund policies is their death benefit guarantees. Depending on the type of contract you have entered into, you may find that up to 100% of a segregated fund, minus any withdrawals are guaranteed if you die or if a certain time period has elapsed. There are also options which would reset the death benefit guarantee at certain intervals as it grows over time. This guarantees your original investment AND locks in the growth of your investment. This is a huge benefit that a lot of clients see value in as no matter where the markets are, they are always guaranteed that their principal amount will be there.

One last benefit of a segregated fund policy, is that since there are named beneficiaries, and since you are essentially locked into an insurance contract, when you do pass away, your investment bypasses probate. This allows your beneficiary to have access to your funds in a timely manner. Mutual funds on the other hand work differently. They are not an insurance based product, and do not have the same features of these segregated fund policies.

I would like the opportunity to sit down with you and see if segregated funds are right for you. Do they fit your current situation? Do you already have segregated funds? Call me today at (905) 475-0122, ext. 411 or contact me by email at Scott.Loney@Freedom55Financial.com or by leaving a message in the box to the right.