Protection from market downturns. When investing in segregated funds, your money is protected from long-term market downturns with the maturity and death benefit guarantees.
Segregated funds combine the growth potential of regular investment funds with the added protection against long-term losses through the addition of an insurance policy. Segregated funds are only available through insurance companies and provide you with maturity and death benefit guarantees.
You can choose between a 75% or 100% guarantee on your money, however you must hold the segregated fund for a minimum of 10 years to receive the 75% guarantee; or 15 years if you want the 100% guarantee. When your policy matures you are guaranteed to receive a minimum of 75% (or 100%) of the amount you invested; or the current market value whichever the greater. You can redeem your funds sooner if desired, however you will only get the market value of your funds and your guaranteed amount will be reduced by the amount you withdrew.
In either case, if you were to die, your beneficiaries will receive 100% of the original amount invested or the current market value whichever the greater (minus any withdrawals). Many seniors choose segregated funds for this estate preservation feature; they can invest in the market to achieve growth potential, without putting their family’s inheritance at undue risk.
Ability to reset benefit guarantees. With many segregated funds you can reset your benefit guarantees twice each year. So, if the market value of your segregated fund is higher than what you invested; you can reset your maturity and death benefit guarantees based on the higher value. However, in doing so you will reset your 10 or 15 year holding period for your maturity guarantee.
Potential creditor protection. As part of an insurance policy, your segregated fund investments may be protected from creditors if you name your spouse, child, parent or grandchild as the beneficiary of your policy or if you name an irrevocable beneficiary (a beneficiary that cannot be changed). This is a great feature for business owners who have a greater potential of being sued or going bankrupt.
Opportunity to bypass probate. With non-registered segregated funds, the death benefit is paid directly to your named beneficiary rather than to your estate. This means that the value of your segregated fund investments may bypass probate, a costly and lengthy process, allowing your named beneficiary to receive the proceeds faster.
All this protection sounds great; but it does come at a cost, seg-funds generally have a higher MER (2.5-3%) because of the built-in insurance policy. Furthermore, very few mutual funds are sitting in a minus 25% position after ten years if properly managed.
If you think segregated funds should be a part of your investment portfolio or just want more information, give me a call.
Have a great weekend,
Tracey
Source: file:///Users/paige/Downloads/INS-1743953-TRIIPSSKeyTakeaways-EN-web (1).pdf
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Products or services related to investments, investment recommendations, financial planning, retirement planning, and investment reviews are provided through our mutual fund dealer Security Financial Services and Investment Corp. 4665 Yonge Street, Suite 309, Toronto, ON M2N 0B4 t 416.964.0440