Segregated Funds

Segregated funds, commonly referred to as “seg funds,” are investment products offered by life insurance companies in Canada. They combine market-based investment opportunities with insurance features. One of their distinguishing characteristics is a maturity and death benefit guarantee, which typically protects between 75% and 100% of the original capital invested, less withdrawals, provided the contract terms are respected.

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Structured as individual variable insurance contracts, segregated funds allow investors to participate in the growth potential of underlying portfolios—such as equity, fixed-income, or balanced mandates—while incorporating contractual guarantees. This structure may appeal to investors seeking market exposure alongside a measure of downside protection.

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Certain segregated fund contracts may provide potential creditor protection when a designated beneficiary qualifies under applicable legislation. In Quebec, creditor protection depends on the beneficiary designation and specific legal criteria, and it is not absolute. These features can be particularly relevant for business owners or professionals with potential liability exposure.

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Segregated funds may also offer estate planning advantages. Because they are insurance contracts, proceeds are generally paid directly to a named beneficiary and may bypass probate, which can simplify and expedite estate settlement. The tax treatment of death benefits and estate implications should be reviewed in light of individual circumstances.

Some contracts include reset features, allowing the guaranteed value to be increased periodically if market gains occur, subject to contract provisions. While resets can help preserve growth during favourable markets, they may extend the maturity date or affect fees.

Segregated funds typically carry higher management fees than comparable mutual funds or ETFs due to the embedded insurance guarantees and associated benefits.

As with any investment, returns are not guaranteed beyond the contractual maturity and death benefit provisions, and market fluctuations will affect the value of the investment.

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Investors considering segregated funds should carefully review the information folder and contract terms, including guarantees, fees, risks, and restrictions. When appropriately aligned with an individual’s objectives, time horizon, and risk profile, segregated funds can serve as a complementary component within a broader financial strategy.