If there is one positive that I have gotten out of the COVID condition we have been in since mid-March, it is that I have had time to think about what I do to help people. As an insurance professional dealing with Income Replacement, Critical Illness and Life Insurances, as well as Segregated Funds, I have refreshed my knowledge of how these products truly help my clients. For example, let us have a look at Segregated Funds.
I believe that most people do not understand what Segregated Funds are, so here is how I explain them to my clients. Segregated Funds are the Insurance Companies’ equivalent to mutual funds, but because they are governed by the Insurance Act of Canada instead of the Bank Act, they have significant enhancements over mutual funds, some of which are:
- These funds are “Segregated” from the operating capital of the insurance company, so if the insurance company goes bankrupt, as Confederation Life did back in the early 1990’s, the clients who hold these funds do not lose anything; their investments are actually purchased by other insurance companies through a bidding process and then add to the new company’s line of business. They simply become clients of that new company and their investments remain intact.
- On the death of the Segregated Fund holder, the invested funds will by-pass Probate and go directly to the beneficiary immediately. With mutual funds, the estate becomes the beneficiary and those funds become locked (even from making investment changes) until Probate has been completed. This one simple feature can easily save the Estate up to 10% (or more) of the estate value.
- Unlike mutual funds that become part of the estate on death and therefore must go through the Will (which is a public document), Segregated Funds protect your privacy and that of your heirs. One of my wealthy, high net worth clients decided to place significant amounts of her investable assets in different Segregated Funds for her chosen heirs so that no one knows what the other received, unless of course the heirs decided to share that information.
- Segregated Funds have maturity and death benefit guarantees. Each 10 years that the Segregated Fund stays in effect, the fund value is reviewed and must at least equal to the chosen guarantee of the deposits (less withdrawals). If they are not, the values change to reflect those guarantees and then keep growing from there. The same thing happens on death. In March of 2008, one of my clients deposited $250,000 into a Segregated Fund where he insisted on investing in an Asian Index fund. Then October of 2008 happened, and the markets crashed! In December of 2008 he needed $10,000. In March of 2009 he had a heart attack, at which time the fund value was approximately $95,000. However, because of the Death Benefit Guarantee, his wife received a cheque for about $240,000.
- Segregated Funds can be creditor proof. There are some conditions on this feature that can be explained in more depth and depend on the client’s circumstances.
- For all these advantages and more, you pay only 30 basis points more, over and above the corresponding mutual fund management fee…my clients all think that this is worth it.
Interested? Want more information? Lets talk! I am open for business.
Email me at firstname.lastname@example.org or call me at 905-430-7921.