Quick answer
Segregated funds are investment contracts issued by Canadian life insurers. They guarantee that at least 75% or 100% of your deposits come back at the maturity date, usually 10 years, or at death, whichever comes first, even if markets fall. Because they're insurance contracts, the death benefit goes straight to a named beneficiary, usually avoiding probate, and they may be protected from creditors. Fees are higher than comparable mutual funds, and Assuris protects guarantees up to $100,000 or 90% if the insurer fails.
The Guarantees, in Plain Words
Maturity guarantee. Hold the contract to its maturity date, typically 10 years from the deposit, and you get back at least the guaranteed share of what you put in, or the market value if that's higher.
Death benefit guarantee. If you die before maturity, your beneficiary gets at least the guaranteed share, or the market value if higher. Many contracts offer 75% at maturity and 100% at death, a common choice for estate planning.
Resets. Some contracts let you lock in market gains, raising the guaranteed amount, usually restarting the maturity clock.
Withdrawals reduce the guarantee in proportion, and money taken out before maturity gets market value, not the guarantee.
Business owners and professionals who want possible creditor protection; people who want money to pass quickly to family outside the estate; and cautious investors close to retirement who'd sleep better with a floor under their savings.
Young investors with long horizons who won't touch the money for decades. The guarantee rarely matters over 25 years, and the extra fees compound.
Segregated Fund Guarantee Calculator
Ignores withdrawals and resets. Fee cost assumes the deposit grows 5% a year before fees for 10 years. Contract terms vary by insurer.
Segregated Funds: Your Questions
What is a segregated fund?
An investment contract from a life insurer that invests like a mutual fund but guarantees part or all of your deposits at maturity or death.
How much of my money is guaranteed?
Usually 75% or 100% of deposits, depending on the contract you choose, at the maturity date (often 10 years) or on death.
Do segregated funds avoid probate?
When a beneficiary is named, the death benefit is paid directly to them, outside the estate, which usually avoids probate fees and delays.
Are segregated funds protected from creditors?
They may be, especially when a family-class beneficiary is named. It depends on the situation and isn't guaranteed; get legal advice if it matters to you.
What if the insurance company fails?
Assuris protects segregated fund guarantees: you keep up to $100,000 or 90% of the guaranteed amount, whichever is higher.
Why are segregated fund fees higher?
The fee pays for the insurance guarantees. Expect a management expense ratio noticeably higher than a comparable mutual fund, more for 100% guarantees.
Pankaj Bhatia, PFA, CHS
Pankaj is a licensed insurance advisor with offices in Mississauga and Cambridge, Ontario, and a member of Advocis. He helps families compare Super Visa and visitor plans from Canadian insurers and sorts out claims and refunds when plans change.
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