Tuesday, August 31, 2010

Segregated Funds – an investment guarantee you can count on in any market condition

Market losses are on everyone’s mind in these volatile economic times. But there is an investment that guarantees to pay you back 75-100% of the money you originally invested, even if current market conditions significantly reduce the actual value of the investment. And, in addition to protecting your capital against losses, this investment also provides life insurance protection for your heirs.

That investment is a Segregated Fund. Here’s how it works:
  • A Segregated Fund is an investment wrapped in a life insurance policy.
  • Like mutual funds, a Segregated Fund pools money from investors and invests in a variety of individual securities
  • If you leave your money invested in a Segregated Fund for the duration of the contract and do not make any withdrawals over that time, you’re usually guaranteed to receive whichever is greater of the investment’s current market value or its guaranteed minimum. More frequent guarantee periods may be available on some contracts
  • In addition to the maturity guarantee, Segregate Funds offer a guaranteed death benefit. If you die before the contract matures, your heirs will receive the Segregated Fund’s market value or the guaranteed minimum if that is higher. The proceeds from a Segregated Fund can be held either inside or outside an RSP or RIF to avoid probate costs, since they are generally not considered part of a person’s estate. This can also speed-up payment to your heirs
  • If you are a business owner, self-employed or a professional and require creditor protection, a Segregated Fund may help protect your assets from creditors. Claims made by former spouses and the Canada Revenue Agency are not protected regardless of who has been named as beneficiary
  • If you are transitioning to retirement, a Segregated Fund may help preserve your nest egg
Keep in mind that creditor protection is not certain in all cases. Talk to your lawyer about the potential for creditor protection in your province. It’s also a good idea to talk to your professional advisor to determine whether a Segregated Fund is right for you in the context of your overall financial plan.

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