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Segregated Funds Segregated Funds Insurance Concepts.

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Presentation on theme: "Segregated Funds Segregated Funds Insurance Concepts."— Presentation transcript:

1 Segregated Funds Segregated Funds Insurance Concepts

2 Segregated Funds Definition Similar to Mutual Funds, Seg Funds are actually Deferred Annuity Contracts issued by Life Insurance Companies. Unlike Mutual Funds, Seg Funds offer guarantees at maturity and death, and they include some other benefits such as Creditor Protection (in certain situations) and bypass Probate

3 The term “Mutual Fund” is often used generically, to cover a wide variety of funds where the investment capital from a large number of investors is “pooled” together and invested into specific stocks, bonds, mortgages, etc. Insurance Companies have been offering Segregated Funds since 1961, with some similarities and many important differences.

4 Differences…….. BenefitSeg Funds Mutual Funds Maturity Guarantee YesNo Death benefit Guarantee YesNo Creditor Proof YesNo Probate Protection YesNo Insurance Protection YesNo

5 Differences…… Mutual Funds Seg Funds Regulated by Provincial Securities regulators Regulated by Provincial Insurance officials Offered through a prospectusOffered through an information folder

6 At death, proceeds of a Segregated Fund can pass directly to a named beneficiary, and are not subject to creditors’ claims, probate, lawyer’s or executor’s fees. As long as a preferred beneficiary is designated, creditor protection exists during the policy holder’s lifetime even if a bankruptcy occurs, provided there is no intent to delay, hinder or defraud creditors. Mutual Funds don’t have this protection, since at death, they become part of the deceased’s estate and are subject to taxes, legal, executor and probate fees.

7 Guarantees….. Seg Funds offer guarantees at maturity (10 years from the date of purchase) or death, 75% -100% of the original deposits, less any withdrawals, are guaranteed. Up to $60,000 is covered by CompCorp, the insurance company protection association for member companies. Mutual Funds are not covered in like manner under the CDIC, the equivalent bank insurance coverage for deposits at the bank.

8 Peace of mind These guarantees which can range between 75% and 100% depending on the Seg fund purchased, will provide you with the peace of mind knowing that the value of your principal is protected, while still benefiting from potential market growth. From income products to equities, money market and balanced funds, Seg funds can play a role in the diversification of your portfolio. Due to the insurance guarantee, the management fees of the Seg funds are generally higher than those of comparable Mutual Funds

9 Taxes…… If you purchase non-registered mutual funds toward the end of a calendar year, you could pay tax for a year’s worth of capital gains even if you did not own units for the whole year. With Seg Funds, income is allocated monthly so you don’t have to pay tax on gains that arose before you owned the units.

10 Important tax consideration….. Important tax consideration….. Non-registered Seg Funds have an additional advantage over mutual funds. If a segregated fund has a loss in a given year, the unit holders can offset such losses against any capital gains made on other investments. Tax rules allow the allocation of capital gains or losses without cashing in the units held. Mutual funds do not have the ability to allocate. They distribute gains or losses and a loss cannot be distributed. The only way to declare a loss is to sell the units held.

11 Subject to the applicable death and maturity guarantees, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value according to the fluctuations in the market value of the assets in the segregated funds.

12 Why Seg Funds? Are you looking for a more secure way to invest? Then you may want to consider Seg Funds as a safe alternative to mutual funds or other types of investments.The insurance guarantee provides security in the event of either death or financial down turn due to poor return on investment. Segregated Funds Segregated Funds

13 Case Study Royal Bank v. North American Life Saskatchewan-based Dr. Ramgotra transferred his RRSPs to North American Life from Royal Bank, converted the funds to a RRIF, and started receiving regular payments. He named his wife as beneficiary under the contract. A little over two years later, Dr. Ramgotra went bankrupt. Royal Bank claimed that, because Dr. Ramgotra had transferred the funds within five years of going bankrupt, the funds should still be subject to his creditors because "the interest of the settlor did not pass" (basically, that he was really just moving around his own money).

14 Case Study cont… Dr. Ramgotra and North American Life argued that, because of the preferred beneficiary designation there was indeed a transfer of interest and, besides that, the funds were in an insurance contract (a protected asset class under the Saskatchewan Insurance Act). The case went all the way to the Supreme Court of Canada and, much to the relief of insurance and financial planners, it was decided that the funds were legally out of the creditors' reach.

15 What does this outcome mean to your estate? Prior to Dr. Ramgotra's case, there had been concerns about whether or not insurance products with preferred beneficiaries would be afforded protection from creditors. This case helped to dispel those doubts. While the laws do vary from province to province, it appears that business owners who use insurance products to save for retirement and transmit assets to heirs will be "safe" under insurance legislation.

16 About Investment Choice some things to consider…… 1. Is my capital guaranteed? 2. Is there any growth potential? 3. Is there investment flexibility? 4. Can I lock in capital growth without disposition? 5. Can I make investment changes without incurring fees? 6. Can I diversify to minimize or reduce risk? 7. Can I get higher returns than fixed income investments?

17 some things to consider…… 8. Can my investments be protected from creditors? 9. Can my investments be paid directly to my beneficiaries avoiding delays and probate fees? 10. Can my portfolio be managed on my behalf in the event of my incapacity to do so? 11. Do I see value in working with an investment advisor that understands my wants and desires and has the creativity to help me realize them? The answer? Segregated funds !!!!!!!!!!!

18 Recommendation….. We strongly recommend that you complete a Risk Profile Questionnaire for your peace of mind for any Mutual/Seg Funds that you own.

19 Segregated Funds Segregated Funds Please contact us at for more information or comments about our Thank You

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