Segregated Funds
A segregated fund is an investment fund held in an insurance contract. The term “segregated” refers to the fact that insurance companies separate one’s investment from the assets of the insurance company. One’s insurance contract dictates the insurance protection one receives. Segregated funds can be issued as either registered or non-registered plans. Segregated Funds provide access to professional money management, diversification through a large variety of underlying brand name mutual funds, or original life insurance company segregated funds. The spectrum of choice offers diversification by investment class, country, industry class, corporate size and investment management style, and pre-selected asset allocation portfolios to match the investor’s risk profile. They also have potential RRSP/RIF eligibility.
As a result of their insurance contract nature, segregated funds have a number of unique features compared to mutual funds. These include firstly, maturity and death benefit guarantees. Should the annuitant die before reaching the date of maturity, the guaranteed death benefit less any withdrawals will be paid out to beneficiaries. The death benefit and maturity values may be different percentages.
Secondly as they are insurance products, segregated funds offer creditor protection under certain circumstances where a preferred beneficiary has been named. Furthermore, named beneficiaries in segregated fund contracts will receive death proceeds directly eliminating delays and costs due to probate.
Thirdly segregated funds have tax advantages over mutual funds in how they allocate capital gains and losses.
Registered Retirement Income Fund (RRIF)
A registered retirement income fund is an investment tool created by converting your RRSP into an income-producing vehicle. Your RRIF provides for periodic income, while continuing to accumulate interest on the remaining capital. It also acts as a tax-shelter for one’s funds.
Life Income Fund (LIF)
A life income fund is like a RRIF, except that it is specifically designed for individuals with locked-in pension money. There is a requirement to convert all LIFs into a life annuity at age 80.
Locked-In Retirement Income Fund (LRIF)
A locked-in retirement income fund is like a LIF, except there is no requirement to convert to an annuity at age 80, and the method of calculating the maximum payment is different.
Guaranteed Investment Certificates (GIC) also called Term Accounts – offered by Life insurance companies.
GICs provide a guaranteed rate of interest on one’s investment with high security that will bring the policyholder peace of mind. Among its numerous benefits are: the comfort of knowing one is earning a guaranteed rate of interest, and that one has the flexibility of choosing from a variety of interest payment options and terms; The term of the investment is generally between 1 and 10 years; Interest can be paid monthly, semi-annually, annually, or compounded annually and paid at maturity; GICs may be cashable before maturity subject to an adjustment.
GICs issued by insurance companies offer unique advantages over those of other financial institutions namely, creditor protection under certain circumstances where a preferred (family class) beneficiary has been named. Nominated beneficiaries in GIC contracts will receive death proceeds directly eliminating delays and costs due to probate.
Pension income credits are available for clients 65 and over, up to $1,000 (from all sources). Compcorp protection of up to $60,000 per company against insurance company insolvency also applies.