A segregated fund is an investment held inside an insurance contract. The money is invested in a portfolio much like a mutual fund, but because it is legally an insurance contract, a different set of rules applies to it.
Those rules are the whole reason this exists. Here is what they actually do, and where they do not help.
The guarantees
A segregated fund contract guarantees a percentage of what you deposit — commonly 75% or 100%, depending on the contract you choose — at two moments:
- At maturity, a set date defined in the contract, usually ten or more years out.
- On death, whenever that occurs.
Between those two moments the value moves with the markets like any other investment. The guarantee is not a promise that your balance never drops. It is a floor at two specific points. Anyone who tells you otherwise is misselling it.
The exact percentages, dates and conditions are set out in the Information Folder and the contract, and withdrawals reduce the guaranteed amounts proportionally.
The beneficiary designation — the part that matters most
You name a beneficiary on the contract, the same way you would on a life insurance policy. When you die, the money goes to that person.
Not to your estate. To that person.
The difference is larger than it sounds. Assets that pass through an estate in Ontario are subject to the Estate Administration Tax — roughly 1.5% on the value above $50,000 — and they are frozen until probate completes, which routinely takes six to twelve months and sometimes far longer. Estate files are also public record.
A segregated fund contract with a named beneficiary generally bypasses all of that. The claim is paid directly, usually within weeks, and privately.
On a $300,000 portfolio that is roughly $3,750 in estate administration tax avoided, plus months of delay your family does not spend waiting. For a family managing a funeral and a mortgage at the same time, the timing is often worth more than the money.
Creditor protection
If the beneficiary you name falls within a protected class under Ontario law — spouse, child, grandchild or parent — or is designated irrevocably, the contract may be protected from creditors.
For a self-employed contractor, a business owner, or anyone carrying personal guarantees, that is a serious advantage and one of the main reasons people move retirement savings into a segregated fund contract.
Two honest caveats. It is not absolute — courts can set aside transfers made to defeat existing creditors, so this is planning done in advance, not a shelter used once trouble starts. And it depends entirely on how the contract is structured, which is a conversation, not a checkbox.
The cost, stated plainly
Segregated funds have higher management expense ratios than comparable mutual funds. Often meaningfully higher. You are paying an insurance company to carry the guarantee, and that is not free.
So the real question is whether what you get back is worth it for you.
It usually is if you are self-employed or own a business, if you are over 60 and estate settlement is a live concern, if you have a blended family and want assets to reach specific people without dispute, or if you have a dated goal — a down payment, a child starting university — where a bad year at the wrong moment is a genuine problem.
It usually is not if you are 28 with a thirty-year horizon and no dependants, if you are purely maximising long-term return, or if you already have a well-run low-cost portfolio and no estate complexity. In that case a mutual fund or ETF through a licensed dealer is the better answer, and I will say so.
I would rather tell you that than sell you something that does not fit. It is a small city and I would like to still be your broker in ten years.
Which plans can hold segregated funds
RESP, FHSA, TFSA, RRSP, RRIF, LIRA, LIF, RDSP and non-registered accounts can all be held as segregated fund contracts. The plan type determines the tax treatment; the contract determines the guarantees, the beneficiary and the creditor treatment.
Common questions
Are segregated funds guaranteed by the government?
No. The guarantee is a contractual obligation of the insurance company. Assuris provides a level of protection if a member insurer fails, similar in spirit to CDIC for bank deposits.
Can I withdraw before the maturity date?
Yes. Withdrawals reduce the guaranteed amounts proportionally, and there may be charges depending on the contract you choose.
What is the difference between this and a mutual fund?
The underlying investing is similar. Segregated funds add maturity and death benefit guarantees, a named beneficiary, probate bypass and potential creditor protection — and cost more for it.
Do I need a large amount to start?
No. Most contracts start with modest monthly deposits.
Can I move an existing RRSP or TFSA into one?
Usually yes, by transfer, though there may be fees or deferred sales charges on the existing plan. Bring the statement and I will look before recommending anything.
Segregated funds sit alongside life insurance in most estate plans. See all savings and investment options.
If you are weighing a segregated fund against what you already hold, bring your current statement. I will compare them side by side and tell you honestly whether it is worth moving. Book a 15-minute conversation.