Why today’s segregated funds are worth another look

Why today’s segregated funds are worth another look

You have insurance on your house and your car, doesn’t it also make sense to insure your investments? What if you were approaching retirement and there was another devastating dip in the stock market, wiping out half your savings, what would you do?

Segregated funds, offered only by life insurance companies, are guaranteed to protect 75% to 100% of the money you invest—even if the underlying investment loses its value. For conservative investors, segregated funds offer peace of mind.

Historically, the stock market has had many dramatic downturns. These funds combine the growth potential of investment funds with the security of insurance protection. Segregated funds guarantee either 75% or 100% of your initial investment (client choice) upon maturity of the investment contract, which is usually 10 years from the start. So, if you are within 10 to 15 years of retirement, a portion of your investments should be in segregated funds. Your Financial Advisor can help you understand the different features, which can vary from company to company.

Your money will be invested into an underlying asset just like a mutual fund.

Another feature is the guaranteed death benefit payable to your beneficiary. This means that if you were to pass away in a down market with your investment’s current value lower than your original investment, the insurance company will pay your beneficiaries the lost value. The guarantee is usually 100% of your original investment, guaranteed on the day of your death.

Naming a beneficiary on a segregated fund allows for the distribution of the funds privately, which means that funds can be transferred to a beneficiary outside of the Will and is not included in the calculation of probate fees.

Business owners can also use segregated funds to protect their investments from creditors. This is especially valuable if they face the prospect of having assets seized from a lawsuit or creditors.

One objection has always been that seg funds had high fees or Management Expense Ratio’s (MERs). However, these fees have come down dramatically over the last few years. Today, you can purchase a segregated fund at fees of less than 1%.

If you are considering this type of investment, you don’t need to commit your entire portfolio. You can start small, perhaps a quarter of your savings, and once you see it works as well as mutual funds, you could do more.

Contact your Financial Advisor to learn which funds offer the best features and fee structure for your needs.

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