6 Benefits of Using Segregated Funds

Introduction to Segregated Funds

You might’ve heard the terms segregated funds or seg funds being tossed around… but what are they? What makes them worthwhile investments? Why are they increasingly considered better than mutual funds?

Let’s break down those questions a little bit, because we hear them all too often. What are segregated funds? Well, segregated funds are essentially investment policies sold by Canadian insurance companies. They’re also not traded on the public market and need to be purchased directly from the insurance companies themselves.

Segregated funds are similar to mutual funds, but there are also some important differences between them. They’re both types of investment policies that rely on funds that are composed of various different investments.

Because segregated funds are the insurance world’s take on mutual funds, however, they offer certain benefits that mutual funds don’t.

Savvy Canadian investors are increasingly choosing segregated funds to invest in their short and long-term futures. However, many Canadians aren’t aware of the extent of benefits that segregated fund policies provide. In fact, a 2016 study found that 60% of respondents didn’t know that segregated funds provided both opportunities for growth and guarantees on investment capital.

If you want to avoid being left in the dark and learn about a great way to invest, keep reading to learn about the benefits of using segregated funds.


#1 Maturity & Death Benefit Guarantees

One of the most attractive benefits of segregated funds is their maturity and death benefit guarantees.

It’s also one of the main reasons that in-the-know Canadians are choosing them over mutual funds. They just don’t have to worry as much. Let’s unpack that a little bit.

As we’ve learned above, segregated funds are similar to mutual funds but have some key differences. Unlike mutual funds, segregated funds are purchased directly from insurance companies.

This gives insurance companies the ability to offer investors guarantees that are unheard of in the context of traditional mutual fund policies.

Insurance companies provide investors with maturity guarantees of 75% to 100%. Investments reach maturity after a predetermined amount of time, which normally ranges from 10 to 15 years.

This means that after your investment reaches maturity, you’re guaranteed to receive 75% to 100% of your investment capital back, depending on the policy you choose. Death benefits are similar and guarantee that your chosen beneficiary will receive 75% to 100% of your invested capital in the event of your death.

This is an understandably interesting benefit to investors that don’t want to worry about the stability of their investment capital. It also gives them an edge over mutual funds.


#2 Easier Estate Transfers

Another reason that segregated funds have become popular is the fact that they make simple estate transfers possible.

If you have a segregated fund, you’ll be asked to name a beneficiary like a partner, child, or close family member when you sign up for your policy. As mentioned above, your investment will be paid out in the event of your death in accordance with your death benefit guarantee.

This is important because it allows your beneficiary to bypass the probate process and receive their payout more quickly. Probate processes are often lengthy, emotional, and expensive, so many are eager to help their loved ones avoid them altogether.

Although the estate transfer process is far from an enjoyable conversation topic, you can see why segregated funds are increasingly considered effective estate planning solutions.


#3 Growth Opportunities & Reset Features

You might be thinking that it’s great that segregated funds allow you to protect your investment capital— but what about growing it?

Many people are reluctant to enter into a policy that doesn’t present them with flexibility or future possibilities of growth. Believe it or not, however, segregated funds also provide policyholders with opportunities to build their wealth.

Segregated fund policies are based on diverse groups of investments. Skilled fund managers decide on and manage those investments, so their values can change depending on the market. As a result of this, some segregated funds provide reset features that allow investors to capitalize on market increases.

What does this mean? Well, if the market value of your policy increases, you can increase the amount of your guarantee to reflect that increase. You’ll keep the guarantee you already had as a result of your initial investment, plus the applicable value increase. Pretty great, right?

Something to be mindful of in relation to reset features is that using them often resets the clock when it comes to maturity guarantees. Put simply, you might have to wait 10-15 years from the date of your reset to access your investment.

Reset features are great tools to maximize the value of your investment, but you should always reflect carefully before using them.


#4 Financial Portfolio Diversification Opportunities

A diverse financial portfolio is absolutely key for the smart investor. Any financial advisor worth their salt will tell you that intelligent, diverse investments significantly reduce risk while allowing you to work towards your medium and long-term financial goals.

Diverse financial portfolios include fixtures like assets, domestic and international stocks, bonds, short-term investments, and various types of funds.

Mutual funds used to be considered standard, but segregated funds also provide an interesting alternative. Investors are increasingly seeing segregated funds as mutual funds without the risk and opting for them instead.

Because diverse financial portfolios are designed to be low risk, they’re often perceived as being low reward as a result. This isn’t necessarily the case.

Segregated funds policies are great mechanisms to combat this misconception as they provide opportunities for safe investments with attractive wealth building possibilities.

Overall, segregated funds are strong contenders for those looking to diversify their investments safely and smartly.


#5 Protection Against Creditors

Some segregated fund policies can protect your investment capital from seizure if you end up in a lawsuit or filing for bankruptcy.

This is a particularly interesting benefit for freelancers, small and medium-sized business owners, and other professionals who want to separate their personal and professional assets.

If this is something you’d like to take advantage of, we’d highly recommend consulting with a financial advisor before choosing the segregated fund that’s right for you.

Generally speaking, however, segregated fund policies often provide protection against creditors when you assign your spouse or child as your beneficiary. This is because family claims are prioritized above those of creditors when it comes to asset seizure.


#6 Maintaining Your Privacy

This last benefit also ties into making estate transfer as straightforward and private a process as possible. Segregated funds maintain the confidentiality of estate planning decisions, as well as the investor and their beneficiary(ies) in the event of their death.

Why does this matter? Well, it’s a matter of confidentiality. When someone passes away, all their assets become their estate, which is distributed according to their last will and testament.

In Canada, however, the contents of wills can become public if they are probated. The probate process means that there’s no confidentiality guarantee with regards to the deceased party’s affairs.

Segregated funds can help avoid this! In the event of your death, your investment capital will be paid out to the beneficiary named in your policy directly.

That means that it won’t form part of your estate and will be transferred to your chosen beneficiary without becoming public. Your confidentiality, as well as that of your beneficiary, will also be protected.



When it comes to investing in the future, it’s difficult to know where to start. There are more options out there than ever, and they all come with their own advantages and disadvantages.

Segregated funds are relatively new investment mechanisms, but they come with some seriously impressive benefits. Because they have to be purchased from insurance companies directly, segregated fund policies offer benefits and guarantees that are unheard of in the context of mutual funds.

All in all, segregated funds are typically less flexible and have higher fees than mutual funds, but also offer much more significant guarantees and protection over investment capital. Those are some seriously important qualities to investors.

They offer maturity and death benefit guarantees, facilitate easy estate transfers, provide wealth-building opportunities, are great assets to diverse financial portfolios, can protect against creditor seizure, and maintain investor and beneficiary confidentiality… and that’s just the tip of the iceberg.

If those sound like benefits that might be advantageous to you and your future, reach out to a financial advisor and ask them to help you choose which segregated fund policy might be right for you.

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