Segregated Funds

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SEGREGATED FUNDS

Segregated funds are investment products offered exclusively by insurance companies and combine elements of both traditional investments and insurance protection.

They are often compared to mutual funds because they invest in similar underlying portfolios, such as equities, bonds, and balanced strategies, but they come with added insurance benefits that set them apart.

Similarities to Mutual Funds

Professional Management: Both segregated funds and mutual funds invest in professionally managed portfolios.

Diversification: They provide access to a broad mix of asset classes, helping reduce investment risk.

Market-Based Returns: Your investment value fluctuates based on market performance, just like mutual funds.

Wide Range of Options: Investors can choose conservative, balanced, or growth-oriented portfolios depending on their goals.

Key Differences

Insurance Guarantees: Segregated funds include a maturity and death benefit guarantee, typically 75% to 100% of your deposits, regardless of market performance (provided certain conditions are met).

Creditor Protection: When properly structured, segregated funds may offer protection from creditors, making them attractive for business owners and incorporated professionals.

Estate Bypass: Because they are insurance policies, segregated funds allow you to name a beneficiary, which means the proceeds can be paid directly to them, bypassing probate and speeding up the settlement process in case of death.

Fees: Management fees for segregated funds are generally higher than mutual funds, but they offer the benefit of insurance guarantees.

Advantages

Peace of Mind: Insurance guarantees help protect your capital at maturity or upon death, even during market downturns.

Efficient Estate Planning: Bypassing probate can save time, preserve privacy, and reduce administrative costs for your beneficiaries.

Potential Creditor Protection: A valuable option for self-employed individuals or business owners who want an extra safeguard for their investments.

Flexible Resets: Ability to lock in growth helps preserve gains and increase the guaranteed amount.

Tax Advantages: Similar to mutual funds, segregated funds can generate tax-efficient returns depending on the underlying investments.

Accounts Possibilities for Segregated Funds

Disability insurance provides ongoing income replacement if you become unable to work due to illness or injury. It helps ensure you can continue covering living expenses, such as mortgage payments, utilities, and daily living costs, even when you are temporarily or permanently disabled.

Segregated funds can be held in a variety of registered and non-registered accounts, giving individuals flexibility to structure their investments according to their goals and tax situation.

The most common option is a Non-Registered Account, which does not have contribution limits or withdrawal restrictions. This type of account is ideal for those who have already maximized their registered accounts and want access to features such as creditor protection or probate bypass, which segregated funds naturally provide.

Segregated funds can also be held inside Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). When held in an RRSP, segregated funds grow tax-deferred until retirement, allowing you to combine the long-term tax benefits of an RRSP with the added insurance guarantees of a seg fund contract. As you transition into retirement, those RRSP holdings can be converted into a RRIF, where segregated funds continue providing market exposure and insurance protection while supporting scheduled retirement income withdrawals.

For individuals with locked-in pension money, segregated funds can be held within LIRAs (Locked-In Retirement Accounts) or LIFs (Life Income Funds). These accounts operate similarly to RRSP and RRIF structures but follow pension legislation rules, including withdrawal limits. Holding seg funds in a LIRA or LIF allows individuals to preserve creditor protection and estate benefits while staying invested through retirement.

Segregated funds can also be held inside a First Home Savings Account (FHSA), a registered plan designed to help first-time homebuyers save for a down payment. By holding segregated funds within an FHSA, you can combine the tax advantages with the insurance benefits unique to seg funds, helping first-time buyers grow their savings with peace of mind while maintaining efficient estate planning options.

Finally, segregated funds are commonly available within Tax-Free Savings Accounts (TFSAs). This option is appealing for those seeking tax-free growth along with the added advantages of maturity and death benefit guarantees. A TFSA segregated fund account can support short- or long-term goals while avoiding taxation on withdrawals and enabling efficient estate transfers.

To learn more about Registered and Non-registered accounts, please visit our Types of Investment Accounts page.

Interested in knowing what would fit best for you?

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Mutual funds, exempt market products and exchange traded funds are offered through Investia Financial Services Inc. The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed on this website have not been approved by and are not those of Investia Financial Services Inc. This website is not deemed to be used as a solicitation in a jurisdiction where this Investia representative is not registered.