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Segregated Funds Are Enjoying Renewed Popularity

on Monday, 15 June 2015. Posted in Investments, Blog

Life insurance companies’ segregated (or seg) fund offerings augment traditional mutual funds with insurance contracts. Combined advantages boast potential investment growth plus insurance protection with guaranteed principal and death benefits.

This March’s $243 million net sales set the highest monthly record since February 2012, reports Desjardins Securities. That compares to $144.1 million for March 2014. As investors seek portfolio stability, seg fund sales may continue climbing. Total net assets were $113.1 billion by March 2015, up from the previous March’s $104.3 billion, according to Investor Economics.

Making Wise Financial Decisions

First, we’ll detail the benefits of reemerging segregated funds. After reviewing them, you’re bound to have questions. Give us a call to schedule a consultation. An Alliance Financial Group advisor will advise you on building, conserving, and maintaining wealth through investing. One of our experts will be glad to explain our seg fund products and help you select the best options to meet your current and future monetary needs.

Investments Offer High Returns

Wonder why segregated funds are experiencing such a big comeback? A recent poll found that 98 percent of Canadians believe having some guaranteed income source during retirement is important. Even if your mutual fund loses money, your insurance protection guarantees to return most to all of your invested principal after a specific period (10 years typically). When your fund value increases, some seg funds allow you to reset your guaranteed figure to that higher number. Some contracts, like those with guaranteed minimal withdrawals, also provide annual bonuses that might add 3-5 percent to principal amounts when you don’t remove any funds.

Depending on policy specifics, seg funds guarantee to pay you 75-100 percent of your deposited money on maturity dates. Or upon your passing, your heirs will receive that amount tax free. If you specified your beneficiaries by name in your contract, direct payments aren’t subject to probate fees, saving them up to 6 percent of your investment.

Creditor protection may be a big benefit for individuals and business owners under some conditions. Most entrepreneurs, directors, and officers are unaware that creditor claims put their own personal assets at risk. To create the potential for creditor protection, list a family-class beneficiary in your insurance contract. That designation includes your spouse, children, grandchildren, or parents in all provinces but Quebec.

This smart financial strategy may stop creditors from seizing your assets and ensure immediate transfers to your chosen beneficiaries. Your survivors will appreciate your wise choices to protect them after you’re gone. They may need quick access to your investments to cover your funeral expenses, any outstanding debts, and continue paying bills in your absence. Leaving all of these benefits to your heirs brings peace of mind to everyone involved.

New Solutions Boost Advantages

Select investors focus on certain segregated fund features as potential drawbacks. Management-expense ratios (MERs) add basis points above standard mutual fund costs, increasing pricing to cover insurance contracts. Resetting your guaranteed amount also restarts the standard 10-year duration, extending your fund-holding period. Because you must lock in your investment, cashing out before your maturity date voids that guarantee. You’ll receive your investment’s current market value minus any fees and possible penalties.

Despite those aspects, countless people have seen seg funds’ major benefits outweigh any limitations greatly. And insurance companies have begun making adjustments to alleviate fee pressures and bring new wealth management benefits. BMO Insurance’s option for resetting your death guarantee comes with reduced basis points. You can lock market gains into your principal guarantee at three-year intervals. Empire Life Insurance Company addressed marketplace desires and demands for more affordable solutions by introducing its 75/75 reduced-cost plan with a maturity guarantee plus a death benefit ― each at 75 percent.

Other insurance companies are joining the trend by adding to or enhancing their segregated fund lineups. Sun Life Financial’s flexible Guaranteed Investment Fund (GIF) Solutions cater to various life stages. Standard Life Canada’s 13 new seg funds bring its total to 50, broadening its range of innovative funds, features, and guarantees.

Comparing Personal and Group Seg Funds

If an insurance company administers your employer’s retirement, savings, or pension plan, available fund options tend to be segregated. Unlike retail funds you buy individually, they don’t carry insurance guarantees with higher fees. But since they’re insurance contracts, benefits include potential protection from creditor claims and named beneficiaries avoiding probate fees.

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