Segregated Funds

Investment funds that are held within insurance contracts are known as segregated funds. The proceeds from these funds are collected by the insurance company that underwrites the contract. These proceeds are then used by the insurance company to buy assets that will provide a return on the segregated fund. Depending on how the specific fund has been structured, those investing in segregated funds may be able to receive a fixed return for the length of the contract or may simply receive a return when the fund reaches maturity. The assets in segregated funds are secured. This allows the returns to be separate from the general assets that the insurance company holds. Assets that are purchased for a segregated fund are separate from all other assets held by the insurance company. This is true of administration as well as record keeping. This agreement allows the insured party to have access to life insurance as well as receive a return from the fund should it perform well.

Segregated funds are portfolios that are professionally managed by the insurance company and offer a guaranteed return when they mature or when the investor dies. Segregated funds are very similar in structure to mutual funds since they are both professionally managed. They also offer a variety of different type choices and diversification much like mutual funds and the profits from the funds are taxed unless they are held in retirement accounts. The difference between mutual and segregated funds are that segregated funds are variable annuity contracts that are offered by life insurance companies. The insurance companies typically offer a return guarantee of no less than 75 percent of the investment when the fund is held for at least 10 years or more.

There are a number of additional benefits of investing in segregated funds as well. They offer reset options which means that the investor has the opportunity to reset the investment amount including all gains that have been made within the portfolio. There are typically a set number of resets that are permitted for each contract. Segregated funds also offer a bit of protection from an investor’s creditors. Provided the annuity contract has been in effect for no less than two years and there are no estate taxes owed by the investor, a segregated fund investment is not accessible by creditors. This stands true even if the investor chooses to file for bankruptcy or faces other various financial difficulties.

Investors will find that segregated funds are much more liquid than many other investment options as well. Investors in these funds can typically withdraw as much as 10 percent of the initial investment annually without penalty unless the funds are held in a retirement account in which case the amount goes up to 20 percent. Other benefits are notable upon estate planning. Segregated funds are much simpler and less expensive to transfer than other funds because the investment amount is not subject to probate. The funds of the investment will go directly to the holder of the account or to the beneficiary of the account funds.

Segregated funds can offer a wonderful investment opportunity for those who want to add a bit of diversity to their investment portfolios. You should take the time to do a bit of research into the various funds that are available and ensure that you are working with a reputable and trustworthy brokerage firm before making any investment. Many banks and other financial institutions can offer more information on the variety of segregated fund types that they offer or you can check with a local brokerage firm or an online firm. Overall, segregated funds offer investment opportunities that have room for growth as well as a level of protection against loss.

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