What does it mean?

Investments

The first thing we need to point out is that every type of investment has a purpose, they are designed to work best for a given scenario, a certain income level, a certain tax bracket.

The products offered for investing are like buckets, each bucket is best fitted for a certain individual. What we put in the buckets is what will make the difference on how much growth we could achieve.

The buckets could have one or more of the following investment vehicles:

  • Cash
  • Guaranteed Investment
  • Certificates (GICs)
  • Mutual funds and segregated funds
  • Securities listed on a designated stock exchange, which encompasses:
    • Stocks (shares of corporations)
    • Exchange-traded funds (ETFs)
    • Bonds (government and corporate)
    • Warrants and options
    • Units of real estate investment trusts (REITs)
  • Canada Savings Bonds and provincial savings bonds
  • Certain shares of small business corporations

As an insurance broker, I'm allowed to offer my clients one product that can't be sold by financial advisors or banks. SEGREGATED FUNDS.

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How does a segregated fund work?

Insurance companies sell investment funds called segregated funds. In some ways, these investments are similar to mutual funds, in the way that  they are a collection of funds that a client invests in with professional fund managers minding them. 

A segregated fund offers some additional features that mutual funds do not, including a death benefit and in some cases, a guaranteed base income. If a segregated fund policy is purchased with non-registered funds, it lets you as the investor name your beneficiaries. That way, when you pass away, the money can be paid directly to your loved ones and bypass any probate fees.

Another benefit to Segregated funds is that Individual insurance contracts purchased through segregated funds are invested in underlying assets like mutual funds, helping your contract appreciate in value over time. However, there is also a chance the funds could incur losses, so these funds include a guarantee to protect part of the investment. Another benefit of segregated funds is that even if an underlying fund that your segregated investment is based on loses money, you will still return some (or even all) of your principal investment.

Are segregated funds as safe as equity funds? ​

Yes, segregated fund investments are safe from market disruptions given their nature and guarantee. On the other hand, a mutual fund or an equity fund policy may perform better than a segregated fund or could experience fluctuations due to conditions in the market.

What is the difference between a mutual fund and a segregated fund?​

Unlike mutual funds, a segregated fund offers insurance benefits and insurance guarantees. Your contributions are guaranteed, but they do come with higher fees and are generally less flexible than mutual funds. A segregated fund is not as volatile and comes with very low risk. Keep in mind with all investments you still have the shares, it is the value that goes up or down.

So if the value of your fund goes down, it is important not to panic and pull out.  Always talk to me to find out if moving it around is a good idea before making any moves. Mutual funds as investments offer more potential gains but also come with the added risk of incurring losses on your investment. The most common kind of segregated fund consists of a portfolio that is managed by a life insurance company like Manulife, Empire Life, or Industrial Alliance.

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As an independent insurance broker, I will find the best product for your needs. We will compare carriers and options until we find the perfect fit for your case.
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FREQUENTLY ASKED QUESTIONS

Are segregated funds guaranteed?Are segregated funds guaranteed?

Yes, a segregated fund investment is guaranteed for 75% and up to 100% of your contribution. That way, you can be sure you won’t lose any of your hard-earned investment.

What are the benefits of segregated funds?

  • Guaranteed funds, you won’t lose all your money on your investment regardless of market volatility
  • Upon death, your investment can pass on to your beneficiary without probate expense.
  • The ability to lock in your gains it’s called a reset-Your agent can explain this to you for sure.
  • Creditor protection on your investment in the event of bankruptcy or a potential lawsuit. We never know what tomorrow brings and so this is a great benefit.

How do I buy segregated funds in Canada?

Call me today to start with a complete financial needs analysis. I will help you determine your needs and goals and will invest with the best products for your unique situation. I can help you determine if segregated funds are the best investment vehicle for you and we’ll deal with the insurance companies on your behalf.

How are segregated funds taxed in Canada?

No, upon death in Canada, the beneficiaries of a segregated fund investment are not taxed and there are no fees associated with inheriting this type of fund. The deemed disposition (capital Gain) is in the estate. However, if the

While your tax advisor can elaborate in more detail, only 50% of the fund’s realized capital gains are reported for tax purposes; and

Eligible dividends are taxed based on a grossed up value of 38% of the actual dividend amount, with an enhanced dividend tax credit available of roughly 25.02% (combined federal-Ontario 2019 rate) of the grossed up amount.

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