Choosing Wisely: Understanding Segregated vs. Mutual Funds

Segregated Funds and Mutual Funds often have many of the same benefits, such as:

• Investment professionals manage both.
• You can generally redeem your investments and get your current market value anytime.
• You can use them in your RRSP, RRIF, RESP, RDSP, TFSA or non-registered account.

There are fundamental differences, including:

• Contract
• Fees
• Guarantees
• Resets
• Creditor Protection
• Probate

• Contract
  • Segregated Funds: Policy owner, Annuitant and Life Insurance company
  • Mutual Funds: Account holder, Mutual fund and Investment Company
• Fees
  • Segregated Funds: Management Expense Ratio & Insurance Fee (Typically higher)
  • Mutual Funds: Management Expense Ratio

• Why is this important?

  Since Life insurance companies offer segregated funds, they are individual insurance contracts. Which means…

  • Maturity Guarantees
  • Death Benefit Guarantees
  • Maturity and death benefit resets
  • Potential Creditor Protection (depends on the setup)
  • Ability to Bypass Probate

  Mutual Funds do not have these features, with the exception of possible creditor protection of RRSP, RRIF dependent on provincial legislation.

• What are these features?

  Maturity and Death Benefit Guarantees mean the insurance company must guarantee at least 75% of the premium paid into the contract for at least 15 years upon maturity or your death.

  Resets means you have the ability to reset the maturity and death benefit guarantee at a higher market value of the investment.

  Potential Creditor Protection is available when you name a beneficiary within the family class; certain restrictions are associated with this.

  Bypass Probate: since you name a beneficiary to receive the proceeds on your death, the proceeds are paid directly to your beneficiary, which means it bypasses your estate and can avoid probate fees.

  Let's Talk