Segregated Funds
Segregated Funds are still one of the best kept secrets in the investment industry today. Like mutual funds, Segregated Funds are professionally managed pools of money. The investment manager is responsible for the day to day management of the fund, including the buying and selling of various securities on your behalf. In fact, many Segregated Funds are made to be the mirror image of many popular mutual funds. That is with a few important differences.
Segregated Funds are insurance contracts sold by insurance companies and they offer 2 important guarantees. These are the Maturity Benefit Guarantee & Death Benefit Guarantee.
Maturity Guarantee
Segregated Fund contracts have a maturity date. In most cases this is 10 years after the first deposit. The Maturity Benefit Guarantee provides a minimum of 75% of the original investment upon the policy's maturity. Some contracts, however, offer a 100% guarantee on the original sum invested. As a policy holder, you would receive the higher of the market value, or the Maturity Benefit Guarantee upon the maturity date.
For example, in 2010 Frank invests $100,000 in a Segregated Fund Contract. The Segregated Fund has a Maturity Benefit Guarantee of 100%, or $100,000. Frank's contract will mature after 10 years, in 2020. Frank is an aggressive investor and chooses to invest his money in a high risk investment option. Unfortunately, Frank's aggressive stance doesn't pay off and his investment is worth only $68,000 in 2020. Because Frank's Segregated Fund provides a guarantee of 100% of his original investment, he will receive $100,000 upon maturity instead of only $68,000.
Death Benefit Guarantee
The second important benefit provided by a Segregated Fund is the Death Benefit Guarantee. The Death Benefit Guarantee provided in most contracts is 100% of the initial investment and is triggered upon death.
To continue with the previous example, in 2010 Frank invests $100,000 in a Segregated Fund Contract. His contract provides a 100% Death Benefit Guarantee, or $100,000. Frank passes away unexpectedly in 2015 when his fund is worth $78,000. Because the fund is worth less than the Death Benefit Guarantee, Frank's beneficiary receives $100,000 instead of only $78,000.
Creditor Protection
Because a Segregated Fund is a form of insurance, the money held within the contract can be creditor proof if a beneficiary is named. In the event of litigation, the money held within your contract would be protected from those who wish to gain rights to those assets. For this reason, Segregated Funds are particularly attractive for business owners and professionals who face these risks as a daily part of their business.
Avoidance of Probate
When a beneficiary is named, the proceeds of a Segregated Fund on death will bypass your estate, avoiding probate, accounting and legal fees.
Privacy
Upon your death, the value of your Segregated Fund is paid to your beneficiary in a timely and private manner. These funds do not form part of your estate, and therefore can be kept private. Other assets which do form your estate will become public record after your death. Segregated Funds ensure that your family's most private financial details can be kept that way.
To learn more about Segregated Funds, please contact us.
