PINKNEY FINANCIAL SERVICES

Segregated Funds

Investment & Savings

Segregated Funds

Segregated Funds

A segregated fund otherwise know as “Seg Fund” or “Seg” is an insurance product offered by Insurance companies and is equivalent to a mutual fund. These pooled investments provide unique estate planning options, including guarantees, settlement options, simplified tax reporting and estate bypass.

Key Features of a Segregated Fund

  • Structure: Seg funds are offered by insurance companies and are structured as individual insurance contracts. They combine the growth potential of investment funds with the security features of insurance products.
  • Principal Protection: One of the main features of seg funds are the guarantee of principal protection. Typically, they guarantee to return a certain percentage (e.g., 75% or 100%) of the initial investment, upon maturity or death. This means that even if the underlying investments perform poorly, the investor will receive at least the guaranteed amount back.
  • Maturity: Seg funds have a maturity date or reset periods that vary among different insurance companies. At maturity, the investor receives the market value of the seg fund, which could be higher than the guaranteed amount if the underlying investments performed well.
  • Death Benefit Guarantee: Seg funds also come with a death benefit guarantee. If the investor dies before the maturity date, the beneficiary will receive either the market value of the investment or the guaranteed amount, whichever is higher.  Upon death of the annuitant, the beneficiaries receive the funds tax-free and without probate.
  • Creditor Protection: In Canada, seg funds have certain creditor protection advantages. They are generally protected from creditors in the event of bankruptcy or insolvency, provided that the beneficiary is a named family member or a beneficiary under a family class designation.
  • Fees: Like mutual funds, seg funds have management fees and other associated costs. These fees can be higher compared to traditional mutual funds due to the additional insurance features.
  • Tax Efficiency: Seg funds offer potential tax advantages, especially for non-registered investments. The ability to reset the cost basis upon death can help reduce the tax burden on capital gains.

Segregated funds may be suitable for individuals seeking both investment growth and capital protection.

 

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For 26 years Pinkney Financial Services has been a very important part of my financial future. I’m most grateful for everything they have done for me over these many years.
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Retired Edmonton Public Teacher

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