Segregated funds are a type of investment sold by life insurance companies. They work a lot like mutual funds, but with added insurance features.
A segregated fund is an investment that is combined with an insurance contract. Like a mutual fund, your money is pooled with other investors and managed by professionals in a mix stocks, bonds and other assets. But because it’s offered through an insurance company, it comes with added protection and guarantees.
Segregated funds are designed for people who want to invest but also want peace of mind. They’re especially popular with those who are planning for retirement or want to protect their estate.
Benefits include:
Principal guarantees: You’re protected from market losses if you hold the fund until maturity or death. Even if the fund loses money, a portion of your original investment—usually between 75% and 100%—is guaranteed. This means you’ll get back at least part of your original investment—even if the market drops.
Direct Beneficiary Designation: Segregated funds can help simplify the process of passing money to your beneficiaries. When you name a beneficiary on a segregated fund contract, the money skips probate and goes straight to them when you pass away. It isn’t subject to probate fees or delays.
Creditor protection: In many cases, segregated funds are shielded from creditors. If you go bankrupt or face legal claims, your investment may be protected, unless you opened the fund specifically to avoid paying debts.
Segregated funds tend to have higher fees than mutual funds. These fees cover the cost of the insurance guarantees and other features. Only licensed insurance advisors or registered investment advisors who are authorized to sell insurance products can offer segregated funds.
Before investing, make sure you understand:
The length of the guarantee period
The fees and how they affect your returns
Whether the fund fits your financial goals and timeline