How does a segregated fund work?

Insurance companies sell investment funds called segregated funds. In some ways, these investments are similar to mutual funds, in the way that they are a collection of funds that a client invests in with professional fund managers minding them.

A segregated fund offers some additional features that mutual funds do not, including a death benefit and in some cases, a guaranteed base income. If a segregated fund policy is purchased with non-registered funds, it lets you as the investor name your beneficiaries. That way, when you pass away, the money can be paid directly to your loved ones and bypass any probate fees.

Another benefit to Segregated funds is that Individual insurance contracts purchased through segregated funds are invested in underlying assets like mutual funds, helping your contract appreciate in value over time. However, there is also a chance the funds could incur losses, so these funds include a guarantee to protect part of the investment. Another benefit of segregated funds is that even if the underlying fund that your segregated investment is based on loses money, you will still return some (or even all) of your principal investment.