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27 Aug 2013

Why Small Business Owners should invest in Segregated Funds

Segregated funds are similar to mutual funds, but are sold only by life insurance companies.

The funds are called Segregated Funds because they are kept separate from the rest of the insurance companies assets. In other words, these funds are kept separate from insurance premiums collected so that policyholders and contract holders are protected. 

Your investment funds won’t be used to pay claims and insurance premiums won’t be used to pay investment returns.

Why should  anyone, especially self-employed professionals and small business owners consider investing in Segregated funds?

1. The maturity guarantee

Segregated funds have a maturity date, normally 10 years and if you hold the investment until the maturity date, you are guaranteed to get back a  percentage of your investment (normally 75%, however some funds guarantee 100% if held to maturity).

The maturity guarantee is written into your contract and regardless of what the markets do, you have some level of protection, in fact at the maturity date you will get the market value or the maturity guarantee, whichever is higher. The folks who had segregated funds maturing in 2008 when the markets tanked were and are probably still smiling today.

Segregated funds can be good for long-term investors who want to build a pension fund and enjoy the growth potential that lies in investing in equity mutual funds without the risk of losing everything.

Mutual funds sold by banks do not have maturity guarantees – you can lose everything

2. Death benefit guarantee

Segregated funds pay a guaranteed amount to your beneficiary if you die. Your beneficiary gets this amount even if the value of the investments in your segregated fund is less. The death benefit guarantee is usually 100% of your investment. Mutual funds don’t have this guarantee.

3. Creditor Protection

You just never know what can happen and that’s why this feature is very important, especially if you own a small business or are close to retirement.

Money held in a life insurance product (including segregated funds) are creditor protected (provided the reason for opening the fund is not to avoid an impending bankruptcy) and can’t be garnished.

Mutual funds aren’t creditor protected.

4. Versatility

You can hold your RRSP, Tax Free Savings Account, GIC, Non-Registered Accounts in a segregated fund and enjoy higher interest rates and all the protections that your bank won’t offer you.

Why should you consider investing in segregated funds?  Because it makes sense.

Give me a call and let me guide you through the investment options that will help you meet your financial objectives while minimizing risk.

Read 1644 times Last modified on Sunday, 23 October 2016 22:03
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