A Guide To Canadian Segregated Funds
When I first became involved with segregated funds in 1986, these funds were almost exclusively transactions between Canadian insurance companies and large pension fund managers. By the mid 1990's, the existence of these products was still not well known. In fact, up until 1997, limited numbers of articles would show up in the financial sections of various newspapers describing segregated funds as little known but important investment vehicles. Segregated funds were yet to catch the eye of the public.
The term "Mutual Fund" is often used to describe a wide variety of investment funds where the investment capital from a large number of investors is "pooled" together and invested in specific stocks, bonds, mortgages, etc. Since 1961 Canadian life insurance companies have been the source of "Segregated Funds", the insurance companies' version of Mutual Funds, with some similarities and many important differences.
In 1998 Mutual fund companies realized the potential in segregated funds and began to make arrangements with life insurance companies to create new segregated funds which mirrored the performance of their own mutual funds and could be aggresively marketed by the mutual funds agents. Only life insurance licensed brokers can sell these funds.
During the last several months of 1998 there was a proliferation of new advertising from many new and existing segregated funds companies. Less than a year later, it was learned that the Federal Insurance regulators were taking a closer look at segregated funds to make certain that consumers were properly protected and as a result they subsequently sent out directions to all insurance companies issuing segregated funds to increase their reserves to protect existing owners and new purchasers of segregated funds. This resulted in increased costs to administer these kinds of funds and some of the mutual fund companies changed their minds about pursuing these investments. Those companies still offering segregated funds have re-worked their products for this new market place. While the changed segregated funds contracts may not be as liberal as before, some Canadian life insurance companies have repackaged segregated funds with significant guarantees that are worth consideration. Currently several major Canadian life insurance companies offer Guaranteed Lifetime Minimum Withdrawal Benefits [GLMWB] with segregated funds.
Subject to the applicable death and maturity guarantees, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value according to fluctuations in the market value of the assets in the segregated fund.
Segregated Funds are only available to Canadian residents. Persons resident or located in other countries are not eligible to purchase these products or associated services. Within Canada, the information on this web site is not intended to be construed as an offer to sell any insurance products in the province of Quebec.
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