What are segregated funds?

Got questions about segregated funds?

Segregated funds can be a straightforward, all-in-one investing option. And while they’re only available through insurance providers like Co-operators, they’re not nearly as complex as their name might suggest. This may be the easiest way to give segregated funds meaning in terms of your situation:

As an investment solution, segregated funds help to grow your savings. But, as an insurance product, they also help to protect those savings – as well as your loved ones, your estate and your business.

How do segregated funds work?

Now that you know why they’re useful, here’s segregated funds explained in more “investing” detail. Essentially, segregated funds deliver all the value and growth potential of a regular mutual fund. Because, like mutual funds:

  • They are available in a variety of account types, including RRSPs, TFSAs, non-registered, RRIFs, LIRAs and LIFs.
  • They bring the potential for market growth, offering access to a range of investment categories, including stocks and bonds, foreign and domestic.
  • They accommodate all levels of risk tolerance, from conservative to aggressive.
  • They are designed and managed by professional fund managers, who are experienced in navigating all market conditions.

Whatever your time horizon and whatever your financial goals, with segregated funds you can invest in a way that works for you.

How are segregated funds different from mutual funds?

Here’s where the “insurance” factor kicks in. While segregated funds may come with higher fees, they offer increased security for your money. Exclusive benefits of segregated funds include the following:

Protection for your money

Depending on the guarantee level you choose, you can protect 75% to 100% of your principal investment. And, upon maturity or death,1 you can count on that money, no matter how the markets have performed. With the 100%-guarantee option, automatic resets allow you to lock in (or guarantee) investment gains at a new, higher market value.

This protective power of segregated funds is especially helpful when markets fluctuate – when it’s easy to lose sight of your financial goals and your reasons for investing in the first place. With a guarantee in place, segregated funds let you confidently invest in your future, while limiting the losses that may result from market downturns.

As mentioned, the amount of your money that is protected depends on the guarantee level you choose. But there’s no reason to worry. Since life can change on a dime, so can you: with Co-operators segregated funds, you’ll have the option to transfer between guarantee levels up to three times over the life of your fund.

Protection for your estate

Whenever you invest, it’s important to consider what happens to your money if the unexpected happens. You want to transfer your wealth to family members (or your desired charity) in the most straightforward and cost-effective way. With segregated funds, naming a beneficiary ensures that they’ll receive the money in a direct and timely fashion – paid out quickly upon proof of death.

Or, to put it another way, do segregated funds bypass probate? The answer is yes. By naming a beneficiary, your money can bypass probate and the legal validation of your will – also known as the estate-settlement process – saving up to 1.5% of your assets. Instead, your funds will be treated as a life insurance claim, meaning that your beneficiary will receive either the guaranteed amount or the market value of your investment, whichever is greater. Meanwhile, less will go to the government in the form of probate fees. You’ll also maintain your privacy because the money won’t pass through your estate.

Protection for your business

Are you a business owner or self-employed? The segregated funds creditor protection benefit can potentially help you separate your personal savings from your professional liabilities. And, in the case of business bankruptcy or litigation, your named beneficiary’s claim to the money may be prioritized over claims made by creditors.

Here’s a more in-depth look at the difference between segregated funds and mutual funds.

Want the protective power of segregated funds in your portfolio?

Whether you’re new to investing or you’re a seasoned pro, it never hurts to have an “insurance policy” for your money. These pooled, professionally managed investments offer diversification and growth, and let you save in a way that fits your comfort and budget – even protecting a portion of your money!

Now that you have a deeper understanding, think segregated funds are the right way forward for you?


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1. Maturity and death benefit guarantees are not available upon surrender of the segregated fund policy and are proportionally reduced by any withdrawals from or investment transfer out of the segregated fund. Subject to any applicable death and maturity guarantee, any part of the premium or other amount that is allocated to a segregated fund is invested at the risk of the policyholder and may increase or decrease in value. Contact your financial representative for details.

*In the province of Quebec, the authorized representatives are Financial Security Advisors who have been duly certified by the Autorité des marchés financiers.

The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional tax advisor on tax related matters. Mutual funds are offered through Co-operators Financial Investment Services Inc. to Canadian residents except those in Quebec and the territories. Segregated funds and annuities are administered by Co-operators Life Insurance Company. Co-operators Life Insurance Company and Co-operators Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and security of the personal information that we collect, use, retain and disclose in the course of conducting our business. Visit www.cooperators.ca/en/PublicPages/Privacy.aspx for more information. Co-operators® is a registered trademark of The Co-operators Group Limited.