Segregated Funds | SK Financial

Overview

A segregated fund is a type of pool investment which guarantees a specific percentage of return upon maturity. These are similar to mutual funds but are offered through insurance companies.

The term “segregated” is used because the funds are kept separate from the issuing companies other investment funds. Your net premiums are invested in the segregated funds of the insurer. These funds are subsequently invested in securities such as stocks, bonds, and money market investments. The primary difference between a segregated fund and a mutual fund is that there is a principal guarantee on maturity or death. Additionally, the funds are protected from creditors.

The primary difference between a segregated fund and a mutual fund is that there is a principal guarantee on maturity or death. Additionally, the funds are protected from creditors. The estate value is protected at death, and the beneficiaries receive either the guaranteed death benefit or the market value depending on whichever is greater. Hence, segregated funds are considered to be one of the best options for investment.

Advantages

Principal is Guaranteed75 to 100 percent of your principal investment is guaranteed (depending on your contract) if you hold your fund for a specific length of time.

Guaranteed Death BenefitBeneficiaries will receive 75 to 100 percent of your contributions tax-free if you pass away. (depending on the contract)

Possible Creditor ProtectionIf you're a business owner, creditor protection is an essential feature of segregated funds for you.

Disadvantages

Locked In FundsYour money must be kept in the fund until maturity (which is usually ten years) to get the guarantee.

Early Withdrawal PenaltiesYou may have to pay a penalty if you withdraw your investment before maturity.

Higher FeesIn most cases, segregated funds have higher fees than mutual funds in order to cover costs of the insurance features.

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