You want growth but worry that a market drop could hurt the savings you need soon.
Why it fits: The maturity and death benefit guarantees limit how much you could lose while keeping you invested for growth.
Segregated Funds
Invest for growth with guarantees that protect your principal and your loved ones.
Segregated funds are investment funds offered through an insurance contract. They combine market growth potential with guarantees that protect 75%–100% of your deposits at maturity or death, and they can bypass probate when you name a beneficiary.
Overview
Segregated funds let you invest in the markets while protecting part of your money with insurance guarantees. They work much like mutual funds, but because they are offered by insurance companies, they come with extra protection for you and your family.
Depending on the contract, 75%–100% of your deposits are guaranteed when the contract matures, which is at least 10 years after you invest, or when you pass away. Past performance does not guarantee future returns, but the guarantee limits how much you could lose over the long term.
When segregated funds make sense
Segregated funds are a good fit if you want growth but feel nervous about market drops, if you want your savings to pass directly to loved ones without probate, or if you own a business and want possible protection from creditors. The trade-off is higher fees, so it is important to weigh the value of the guarantees.
What to compare
When choosing a segregated fund contract, look at:
- Guarantee level: 75% guarantees cost less, while 100% guarantees offer more protection for higher fees.
- Reset features: how often you can lock in gains and how this affects your maturity date.
- Fees and fund choices: compare MERs and the range of funds available.
- Beneficiary designation: naming the right beneficiary is key for probate savings and creditor protection.
How it works
- 1
Choose your funds and guarantee level
Pick from a range of investment funds and choose a guarantee level, usually 75% or 100% of your deposits.
- 2
Invest and stay invested
Your money is invested in the market and its value goes up and down. The guarantee applies at maturity, which is at least 10 years after your deposit.
- 3
Lock in gains with resets
Some contracts let you reset the guarantee to a higher market value, so growth you have earned is protected too.
- 4
Receive the guaranteed amount
At maturity or death, you or your beneficiaries receive the greater of the market value or the guaranteed amount, less any withdrawals.
Key benefits
Maturity guarantee
At least 75% of your deposits, and up to 100% with some contracts, are guaranteed at maturity, even if markets fall.
Death benefit guarantee
If you pass away, your beneficiaries receive at least 75%–100% of your deposits, less withdrawals, regardless of market performance.
Bypasses probate
With a named beneficiary, the money goes directly to them, avoiding probate fees and delays and keeping your affairs private.
Potential creditor protection
Naming a beneficiary in the preferred class, such as a spouse, child, parent or grandchild, may protect your investment from creditors. This can be valuable for business owners and professionals.
Reset options
Some contracts let you lock in market gains to raise your guaranteed amount.
Works with registered accounts
You can hold segregated funds inside an RRSP, TFSA, RRIF or a non-registered account.
Who it’s for
You are self-employed and want to protect personal savings from business creditors.
Why it fits: With a preferred-class beneficiary, segregated funds may offer creditor protection that regular investment accounts do not.
You want your savings to pass quickly and privately to your children.
Why it fits: Naming a beneficiary lets the funds bypass probate, saving time and fees for your family.
Pros & cons
Pros
- Guarantees protect 75%–100% of deposits at maturity and death
- Bypasses probate with a named beneficiary
- Potential creditor protection
- Market growth potential with peace of mind
Things to consider
- Higher fees (MERs) than comparable mutual funds
- Guarantees only apply at maturity or death, not to early withdrawals
- Withdrawals reduce your guaranteed amount
How it compares
| Segregated funds compared with mutual funds and GICs | Segregated Funds | Mutual Funds | GICs |
|---|---|---|---|
| Growth potential | Market-based | Market-based | Fixed interest |
| Principal guarantee | 75%–100% at maturity or death | None | 100% (CDIC-insured up to limits) |
| Fees | Higher | Moderate | None directly |
| Probate bypass | Yes, with a named beneficiary | Usually no for non-registered accounts | Usually no for non-registered accounts |
| Creditor protection | Possible with a preferred-class beneficiary | Generally no | Generally no |
| Best for | Growth with protection and estate benefits | Lower-cost market growth | Safe and predictable returns |
Run the numbers
Segregated fund guaranteeSee how a 75% or 100% maturity guarantee protects your deposit if markets fall.Frequently asked questions
How are segregated funds different from mutual funds?
Both invest in stocks and bonds, but segregated funds are insurance contracts. They add maturity and death benefit guarantees, possible creditor protection and probate savings, which is why their fees are higher.
Can I lose money in a segregated fund?
Yes. The value goes up and down with the markets, and if you withdraw before maturity you get the market value, which could be less than you invested. The guarantee only applies at maturity or death.
What is a reset?
A reset lets you lock in a higher market value as your new guaranteed amount. It usually restarts the maturity period, often at 10 years, so it is best used when you are comfortable with a longer timeline.
Can I hold segregated funds in my RRSP or TFSA?
Yes. Segregated funds can be held in an RRSP, RRIF, TFSA or non-registered account, so you can enjoy the guarantees along with the usual tax benefits of each account.
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