What Is a Segregated Fund in Canada?

A segregated fund is an investment contract issued by a life insurance company in Canada. It can look similar to a mutual fund because the money is invested in portfolios that may hold stocks, bonds, or balanced investments.

The important difference is that a segregated fund is an insurance contract. That means it may include features such as maturity guarantees, death benefit guarantees, named beneficiaries, and estate planning advantages that ordinary mutual funds do not provide.

How does a segregated fund work?

When you put money into a segregated fund contract, the insurer allocates your deposit to one or more investment options. The value can go up or down with the market, so it is not the same as a GIC or savings account.

In Ontario, segregated funds are commonly discussed for retirement planning, non-registered estate planning, RRSPs, RRIFs, TFSAs, and other insurance-based investment contracts. Ottawa families may see names such as Manulife, Sun Life, Canada Life, Empire Life, or iA Financial Group when comparing options.

What guarantees can segregated funds include?

Many contracts include a maturity guarantee and a death benefit guarantee. Depending on the contract, this may be 75% or 100% of eligible deposits after a set period or on death. Older contracts may have different features from newer ones.

A guarantee does not mean the account value cannot fall. It means the insurer may top up the value at a specific maturity date or death benefit date if the guarantee rules are met. Withdrawals, fees, resets, market losses, and contract changes can affect the final guarantee amount.

How are segregated funds different from GICs and mutual funds?

A GIC is usually a deposit or fixed-interest investment. Eligible GIC deposits at CDIC member institutions may be protected by CDIC up to $100,000 per insured category, per member institution. A segregated fund is not CDIC insured because it is issued by an insurance company.

A mutual fund is an investment fund without the same insurance contract features. Segregated funds may cost more than comparable mutual funds because of the guarantees, insurance features, and contract administration. The extra cost should be weighed against the planning value of the features.

When might a segregated fund be worth considering?

A segregated fund may be worth reviewing when someone wants market exposure but also values beneficiary designations, possible estate settlement advantages, creditor protection considerations in some cases, or death benefit guarantees.

They are not automatically better than mutual funds, GICs, or other investments. The right answer depends on the client, time horizon, risk tolerance, account type, fees, tax situation, and estate goals.

If you are in Ottawa or elsewhere in Ontario and want to understand whether a segregated fund contract has a useful role in your plan, GEP Insurance can review the basics with you in plain language.

Ottawa And Ontario Examples

• An Ottawa family with work benefits, an older life policy, and mortgage insurance may need a plain-English review to see where the gaps are.
• A household that recently changed jobs, bought a home, or had children may need to update coverage even if policies are already in place.

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