Insight and advices

Canadian Segregated Funds: Are They For You?

Apr 29, 2025

In Canada, people have the option of choosing Canadian segregated funds, instead of the more well-known mutual funds. However, when people think about segregated funds, they often assume they’re only suitable for retirees or those with a large amount of wealth. While it’s true that segregated funds can be a great choice for those planning for retirement, they’re not just for that group. In fact, segregated funds offer a wide range of benefits that can appeal to a variety of investors—whether you’re just starting out, are a conservative investor, or even a business owner looking for added protection and flexibility.

In this article, we’ll explore why segregated funds can be a smart choice for a diverse group of individuals. From offering security and growth to providing protection and peace of mind, segregated funds can be an excellent option for a broad range of investors, not just retirees.

1. Conservative Investors

If you’re a conservative investor looking for a combination of security and growth, segregated funds can be a compelling choice. Many investors shy away from stocks and mutual funds due to the risks associated with market volatility. The fear of losing their principal in a market downturn can prevent them from seeking higher returns.

Insurance

Segregated funds, however, provide an attractive middle ground. With the added insurance component, they offer guarantees that protect a portion of your original investment, even if the market declines. This means you can still benefit from the growth potential of the fund—just like a mutual fund—while minimizing the risk of losing your principal.

For example, segregated funds often offer a 75/75, 75/100, or 100/100 guarantee, ensuring that at least 75% to 100% of your investment is returned upon maturity or in the event of your death. This feature is particularly appealing for conservative investors who want the opportunity for growth but with an added layer of protection from market fluctuations.

2. Business Owners

Business owners, in particular, can benefit from the added protection that segregated funds offer. As a business owner, your personal assets may be tied up in your business, and you may face liabilities that could put your wealth at risk. A segregated fund policy provides a level of protection that can safeguard your assets and provide you with a measure of financial security.

Credibility Protection

Segregated funds can enhance your credibility with banks, investors, and other stakeholders by showcasing that you have a well-rounded approach to protecting both your business and personal assets.

Liability Protection

Since segregated funds are an insurance product, they offer a degree of protection from creditors. If you were to face financial difficulty, the funds in a segregated policy may not be subject to claims from creditors or legal actions. This provides a layer of financial shielding, ensuring that your investments are safer.

Death Benefit

Moreover, as a business owner, you may want to ensure that your family or business partners are taken care of in the event of your death. The death benefit from segregated funds can provide a tax-efficient and direct transfer to beneficiaries without the delays and complications of probate.

3. Beginners

As mentioned previously, segregated funds can be a strong fit for conservative investors—and that includes beginners. If you’re new to investing and cautious about market risk, segregated funds offer a unique combination of growth potential and protection. With guarantees on 75% to 100% of your initial investment at maturity or death, they help ease the fear of losing money. Plus, they’re professionally managed, diversified, and include estate planning benefits like probate bypass. For those just starting out, segregated funds provide a reassuring, low-risk way to begin building wealth.

4. Retirees

While we’ve already mentioned that segregated funds can be ideal for conservative investors and business owners, they are also an excellent option for retirees looking for a safe yet profitable way to grow their wealth in retirement. Many retirees are concerned about the longevity of their savings and want to ensure that their investments will provide reliable income without putting their principal at risk.

By choosing segregated funds, retirees can enjoy the benefits of professional management and market growth while knowing that they are protected by guarantees that ensure their money is safe. This added security provides peace of mind, knowing that even if market conditions are unpredictable, a portion of their investment will be protected. Segregated funds can also play an important role in estate planning, helping retirees pass on their wealth to loved ones in a timely, tax-efficient, and stress-free manner.

Where Can You Apply for Segregated Funds in Canada?

If you’ve decided that segregated funds align with your investment goals and risk tolerance, the next step is knowing where and how to apply.

Life Insurance Companies

In Canada, segregated funds are only offered through life insurance companies, such as Manulife and IA Financial Group, not banks or regular investment brokerages. Because these are legally considered insurance contracts, you must go through a licensed life insurance advisor to purchase them.

These companies offer a range of segregated fund products, each with different features, fees, guarantees, and fund options. Your advisor can help compare them.

Licensed Insurance Advisors and Financial Planners

Independent financial advisors who are licensed to sell life insurance products. At Ai Financial, we can help you understand how segregated funds fit into your overall plan, choose between providers and product options, complete the application and paperwork, review the policy terms, including guarantees and fees.