Segregated fund policies vs. mutual funds – What is the difference?
Depending on your financial objectives, segregated fund policies and mutual funds offer distinctly different features and benefits. Are you interested in preserving funds to pass on to your beneficiaries and estate bypass? Are you interested in potentially higher rates of return, guarantees, concerned about risk, or looking for the best tax reduction investment product? So many options are available to explore with both products, and to help maximize the benefits of each, your financial security advisor and investment representative will help to identify your financial security goals, and offer suggestions that best suit your unique situation.
This illustration simplifies basic differences between segregated fund policies and mutual funds:
Segregated fund policies
- A segregated fund policy is an individual variable insurance contract based on the life of the insured persons.
- Ensures assets pass quickly and discreetly to named beneficiaries, without hassle, bypassing the estate and costs of estate administration, commonly known as probate. There are no trustee fees with a segregated fund policy.
- The benefit of privacy with segregated funds, is that they are not disclosed as part of the estate administration process (except in Saskatchewan).
- Segregated fund policies offer access to and protection of capital and growth. With preferred pricing, clients can get these benefits at a lower cost.
- Within the London Life Freedom Funds family, units can be exchanged between investment funds at no cost.
- Transferring registered savings policies is seamless to retirement income policies without early redemption charges.
- Two different guarantees, the maturity and death benefit guarantees. The maturity guarantee is 75% of all premiums contributed to investment funds. The death benefit will be the greater of the market value of all units contributed or 100% of all premiums contributed to segregated funds.
- You benefit from having experienced professionals managing your investment, who continually research and monitor markets, trends, and the companies in which they invest.
- Choose from many different funds to suit your goals and tolerance. Your financial security advisor can tailor a portfolio of funds just for you.
Who would be the best candidates to invest in a segregated fund policy?
- Those who own a business, and are exposed to a high degree of potential creditor and liability risks, and may benefit from creditor protection under certain circumstances
- Those who have saved and saved, and want protection for their savings, or are more conservative and attracted to some guarantees, such as a lifetime income benefit
- Those who are concerned with equity markets
- Retirees who want to pass on the legacy of their estate to beneficiaries and who are seeking estate bypass strategies, as well as those who are looking to preserve wealth
- Those who are not interested in daily management of their investments
- Those who are wanting to maintain or create privacy
- Mutual Funds are a pooled investment in a trust or a corporation.
- There are no annuitants or beneficiaries to receive death benefits, although if held in a registered plan, there may be a beneficiary for the registered plan.
- The unit holder, or shareholder, actually owns an interest in the trust or corporation.
- Assets of mutual funds are kept separate from the assets of the fund management company.
- Regulated by the provincial securities legislation. Representatives must be registered with a mutual fund dealer and authorized to sell. A prospectus must be provided within 48 hours of the sale.
- Mutual funds clients also have the right of withdrawals and the right of rescission.
- There is no statutory creditor protection for non-registered mutual funds.
- Registered investments are now exempt from seizure of claims or creditors in case of personal bankruptcy, except for those contributions made in the previous 12 months.
Who would be the best candidate to invest in mutual funds?
- Investors sensitive to the potentially higher fees associated with segregated fund policies
- Those not interested in daily management of their investments
- Younger investors who do not have estate planning concerns
- Corporations or charitable organizations looking to invest cash, without needing the ability to bypass estate fees or creditor protection
- Those looking for tax-efficient options for non-registered funds
- Those needing to supplement pension income and reduce old age security (OAS) clawback
- Those who want to supplement income and provide liquidity for major purchases
- Those wanting a switching strategy: fund a short-term need and preserve the investment; or, switching strategy: fund a longer term need and preserve the investment
- Those who want to establish a charitable giving program account to reduce taxes
- Those who wish to fund a life insurance policy
Custom tailored solutions to meet your financial security goals:
Insurance products, including segregated fund policies are offered through Specialty Wealth & Financial Inc., and Ron King offers mutual funds through Quadrus Investment Services Ltd.
Make your investment decisions wisely. Important information about mutual funds is found in the Fund Facts. You can obtain a copy of this from your investment representative. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Unit values and investment returns will fluctuate.
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