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Facts on segregated fund contracts

Key points to note on segregated fund contracts

This document has been designed specifically for new investors to know more on segregated fund contracts and make wise decisions in investing.

Key Points to Remember

  • Only life insurance companies and licensed life insurance agents provide segregated fund contracts.
  • This investment provides guaranteed protection to your investment.
  • Along with guarantee on the investment it also provides potential creditor protection.
  • You can select and provide the name of a beneficiary person.

What is a Segregated Fund Contract?

Segregated Fund Contracts, as the name suggests is a separated (or segregated) part of the general assets owned by a company with only access to its value for specific investors.

Segregated fund contracts are only available for purchase in life insurance companies or licensed life insurance agents. When a customer buys a contract (which we refer to as segregated fund contract) also known as Individual Variable Insurance Contract or IVIC, that will provide the customer with certain defined contractual benefits and rights.

A segregated Fund contract is designed to provide a regular income to the contract owner from a pre-defined date in the future. Such income is classified as annuities and hence, segregated fund contracts can also be referred to as an annuity contract or a deferred annuity contract. 

The financial contributions made by the contract owner will be invested in the segregated funds chosen by the investor. The investor will have the option to select on how the annuity payments should be credited, i.e. as a single payment or a series of payments and regular intervals such as monthly, quarterly or annually.

The Advantages of Buying a Segregated Fund Contract

In simple words, a segregated fund contract provides its owner to benefit in two ways. The first one, to enjoy the perks of having a contract with a life insurance company and secondly, the growth potential of the fund invested in. Let us see the benefits in detail.

Investment protection guarantee.

Guaranteed benefits on the unexpected demise of the contract owner.

Potential creditor protection

The right to designate a nominee or beneficiary for the investment funds.

Additional advantages in estate and tax planning.

Bonus options to reset your guarantee amount to a higher amount.

Guaranteed income benefits based on the selected segregated fund contract.

Diversification of the funds to reduce risks through a selection of growth, income and balanced funds.

Owners can switch between funds offered with the particular contract without any fees.

The benefit of liquidity, to instantly redeem your investment, either a portion of the complete investment.

Features of Segregated Fund Contracts

Segregated Fund Contracts comes with an array of features and advantages, making it a feasible investment option to choose for a financially stable future. Here are three major features that a segregated fund contract offers.

Guaranteed Maturity Benefits

This type of guarantee takes effect on a specified maturity date (not less than 10 years) from the day the segregated fund contract is issued. The amount credited on maturity will be equal to 75 to 100 per cent of the contributions (considering previous withdrawals and the type of contract selected). In certain contracts, additional contributions will be dedicated with a separate maturity date.

Guaranteed Death Benefits

In the circumstance where the contract owner passes away unexpectedly, the benefits of the contract will then be passed onto the beneficiary mentioned in the contract. The processed amount will be between 75 to 100 per cent of the investment amount and also based on any previous withdrawals. The benefits provided to the beneficiary will not be subject to any executive, lawyer or probate fees.

Potential Creditor Protection

In a case where the beneficiary added in the fund contract is the nearest relative such as spouse, parent, child or grandchild and when the beneficiary is designated irrevocably or during the contract’s registration, creditors do not have the right to seize the segregated fund contract, as long as the fund contract owner has not entered into the contract for the primary purpose of shielding assets from creditors. As per the law, the court has deemed the purchase of segregated fund contracts while the contract owner is impoverished to produce an attempt to shield assets, and has disallowed the creditor protection in such cases.

Additional features in segregated fund contracts

Being insured with segregated fund contracts with us also comes with an array of benefits along with some bonus features. Let us discuss them here.


The Reset feature allows the contract owner to reset the guarantee for the fund contract on a periodical basis. This is to lock-in any increase in the market value for the segregated fund purchased. Resetting the contract eventually will extend the maturity date of the contributions involved in the contract.

Guaranteed Minimum Withdrawal Benefits

The Guaranteed Minimum Withdrawal Benefit or in short also known as the GMWB, guarantees the contract owner to receive at least the contributions made (excluding the withdrawals made till then) in the form of regular income payments in the future based on the type of contract opted for, I.e; for a specified time frame or the rest of your lifetime. The features of Guaranteed Minimum Withdrawal Benefit (GMWB) may vary such as the following.

Investment options for You

We provide an array of options for segregated fund contacts to invest in. Choose the right type of segregated find contract that will be suitable to add to as part of your savings for the future. The broad classification of segregated fund contracts include: Growth, Income, and Balanced funds,
All the different types of segregated fund contracts also come with well-diversified portfolios. The segregated fund contract makes for an investment with a fixed income and earning interests at pre-defined interest rates.

Checklist to purchase a segregated fund contract

Once you are all set to buy a segregated fund contract, here are a few points you must keep in check.

  • The type of fund contract to choose as per your requirement.
  • The different guarantee options you will need or want to add to your fund contract.
  • A beneficiary for the asset, for any unexpected scenario of death or absence of the contract owner.
  • Any additional options or features to add to the fund contract.
  • Ask all the relevant details you need to clarify regarding the segregated fund contract chosen before applying.

Before the time or during the time of buying the segregated fund contract, you will be provided with an information manual or folder with the following details.

  • The key advantages of the selected kind of fund contract.
  • The different options for investments open to you based on the selected fund contract.
  • Vital details regarding the fund such as its type, past market performances, costs and fees.
  • You will be asked to fill an application with an insurance advisor and duly sign it after verification and clarification on all the details.
  • Red through the policy contract, which in most cases will be attached along with the application form for purchasing the segregated fund contract.

Once the application form is filled, signed and submitted, you will receive a policy contract. This contract sets out all the terms of the agreement between both parties, the insurance company or licensed insurance agent, and the contract owner. The policy contract also mentions all the rights of the contract owners regarding future contributions, early withdrawals, and guaranteed death and maturity benefits. 

Charges & fees of segregated fund contracts

Management of the purchased funds and its transactions comes with a designated fee. This is majorly known as Management and Operating Expenses Ratio (in short as MER) which the percentage of the investment amount that goes into the annual expenses of the fund. These expenses include fees for investment managers, accountants, administrators, etc, and the compensation to the advisors. The charges for the guarantee of the funds is also included under this category. In certain cases, this will be included as a separate fee. One must have to pay a higher MER for better guarantee features and volatile funds.


Please note that extra fee may be charged for riders (optional benefits).


As you may already know, transaction fees or loads is the amount deducted at the payment source when making a transaction. The are three main categories of loads, which are,

(I) Front-end loads (initial sales fees)

  • The initial sales fees are typically deducted from the contributed amount to front-end load funds.
  • Less of the contributed amount is invested in the front-end funds.

(II) Back-end loads (deferred sales fees)

  • A deferred sales charge is deducted from the back-end load funds (during the initial years of the contract).
  • This refers to that you receive a lesser amount compared to that of the contributed amount.

(III) No-load funds

  • Such funds do not charge the investor with any front-end or back-end loads.
  • The carry higher trailing commissions which may reflect in higher rates of MER.
Your licensed insurance advisor

Your licensed insurance advisor

It is always a good practice to buy segregated fund contracts or any type of insurance (such as bonds, stocks, mutual funds and even casualty insurance schemes) from a reputed and legally licensed advisor or agent. Every province or territory in the country has licensed agents to sell segregated fund contracts. Only these agents are designated to sell the fund contracts to the residents in a particular region. The agent may be part of a licensed life insurance company or even work independently.

The advisor will provide you with a written disclosure on the company or brands he or she represents and any conflict of interests regarding payment as well. They are professionally qualified to analyze and suggest to you the right investment options for retirement plans, real estate plans or insurance requirements. The advisor will also give appropriate recommendations based on your requirements and budget and provide ongoing services such as changes in beneficiary details, regular revision and updates of the strategies followed in your investment and rebalancing your portfolio.

The financial details you will receive during the time of purchase will provide your information on the trailing commissions. The details include detailing on hoe a segregated fund issuer calculates the trailing commission and the services you will receive upon investing in the segregated fund contract. Your advisor will also provide a detailed comparison with similar funds for a clearer picture.

Contract management

Switching between Different Funds

During the time of purchase, you can choose from any of the segregated funds available within the selected contract. Such contracts provide the contract owner with the ability to switch from one segregated fund to another without incurring any sales charges or changes in the guarantee levels.

You may consult your advisor for specific details on switching the funds. Even though this feature does not incur any sales fees, it may have tax changes. Make sure to clarify these points with your advisor before switching the fund. Tax consequences are not valid for contract owners whose segregated fund contract is in a registered account such as an RRSP.

Redeem the Segregated Fund Investment

One major pro of investing in a segregated fund contract is its liquidity and ease in the redemption of the contributed investment. The contract owner can redeem or liquidate the investment amount fully or partially at any desired time. Consult with your advisor on the changes in the guarantees that can be caused with partial withdrawals. The benefits of the contract also have a dependency on the timing of your withdrawals. For example, if you redeem your contract’s value at the maturity date or the death of the insured person, you or the beneficiary will receive the greater of:

  • The guaranteed amount as per the fund contract, or
  • The market value of the investment on the date of redemption, less any withdrawal charges that may apply.

In simple words, you will be paid no less than what you invested and guaranteed contractually, but can be more depending on how well the fund performed in the economy.

Withdrawals may not be applicable for the contractual guarantees, Hence It is advisable to consult with your advisor prior withdrawal. The value of the investment based on market values can differ and can affect the amount you receive at maturity. The final amount will also have deductions such as applicable fees.

Responsibilities of life insurers

  • Life insurers develop information for the insured to stay updated on their products during purchase and continuously.
  • Regular training and supervision of licensed agents for selling segregated fund contracts and provide the best service to the customers.
  • Manage the investment and administration of the assets of the segregated funds.
  • Set aside financial reserves to cover the contractual guarantees as required by regulation.

Consumer protection

Life insurance companies including companies that provide segregated fund contracts are licensed and regulated to do business in their operating provinces or territories by the respective governments. The federal government is responsible for regular inspections and prudential oversight of life insurance companies for ensuring that they work properly and abide by the regulations set by the government bodies.

We also protect all the Canadian policyholders in any event for the life insurance company closed down. We provide coverage for segregated fund policies that include death and maturity guarantees. Policyholders will be able to retain the greater of, $60,000 or 85% of the guaranteed amount.

Consumer Assistance

For assistance with any queries or complaints regarding segregated fund issuer, products or services

Segregated Funds              

Segregated Funds, similar to Mutual funds, are type of an investment account. But unlike mutual funds, Segregated Funds are more of an insurance type investment vehicle where your principal is guaranteed 75% to 100% and some contracts offer guaranteed bonus of 5 % which can provide you cushion at the time less return coming to the portfolio from market and be utilized at the time of retirement. As segregated fund offers guarantee on account of income and take the risk of any loss, so they charge fees in terms of Management expenses which is little higher than the fees charged in Mutual fund. The clients are given the option to pay fees according to various options available like in Back End Fees option, the fees to be charged decreases over time. Along with Back End Fees option, it also features Low Load and Front End Load fees option. Re-balancing services are provided by some companies. Segregated Funds offer various benefits over time which has been described below: • Guaranteed Maturity Benefits: In case the market collapses just when your segregated funds are close to maturity date, even then you will be guaranteed at least 75 percent of the capital invested by you. However, it can be more than 75 percent, but not less than 75 percent. Even if the market value is zero, your risk of loss will be 25 percent maximum and not beyond that. Whereas in mutual funds the risk of loss is almost 100 percent depending upon the market value of investment at the time of maturity. • Guaranteed Death Benefits: In case of death of account holder before the maturity, a specific amount of return is guaranteed to the beneficiary (named by account holder) who will be paid regardless of market value of the investment at the time of death of account holder. There is also a 100 percent death benefit option made available in which account holder is guaranteed 100 percent return to the beneficiary regardless to the market value of the investment. • Name a Beneficiary: In Segregated Funds, you are given the option to name a beneficiary. It works more like an insurance policy where you estate is kept safe as the proceeds go directly to beneficiary which adds a control feature to your estate. • Potential Credit Protection: Segregated Funds offer potential credit protection. • Income for Life: Under segregated funds, you are given an option to defer your maturity benefits over time which provides income for life. Adding to it is the progressive nature of income you earn. • Reset Option: An option is given to reset your investment scheme at any time during the period of investment. In other words, you can add the income you have earned to the capital amount to increase your portfolio amount. However, this option comes with two disadvantages: You can reset your investment scheme only a certain number of times and using the reset option increases your time of maturity of the investment. • Long-Term Protection from Creditors: The investment in segregated funds is kept safe from creditors in case of bankruptcy of account holder. The beneficiary mentioned in the investment scheme will have the first right over annuity. The only condition is that the investment must have been two years old. • Withdrawal Option: Account holders are given an option to withdraw from their account 10 percent (20 percent in case of retirement scheme) of the investment per annum without any penalty.