Life insurance can offer some protection for your investments
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Segregated fund investments can offer cautious investors the benefits of both potential capital growth and a capital guarantee.

The “seg” fund is not a new phenomenon. Insurance companies have offered them for years. Historically, these investments in pooled funds offered at least 75% capital protection and were managed internally.

But seg funds have recently come into vogue because mutual fund and insurance companies have joined together to offer innovative variations. The newest segregated fund products are mutual fund clones with an insurance benefit component.They guarantee up to 100% of an investor's capital. In both old and new versions, the capital protection usually applies after 10 years, or upon death, whichever occurs first.

Capital protection appeals to a variety of people, including

• everyday investors who are conservative but want higher returns than GICs offer;
• pre-retirees who need growth, but can't afford to lose money;
• seniors who require estate protection and certain capital guarantees; and
• business people who have exposure to personal liability and want to protect their assets.

Segregated fund products address the needs of these individuals with a variety of value-added features.

Guaranteed investment. The most compelling reason for buying a seg fund policy is capital protection. While GICs also offer a guaranteed return, they are limited in their growth potential. Since seg funds are invested in capital markets, they have a greater capacity for appreciation.

Estate planning. The death benefit of the seg fund policy offers senior investors some estate planning benefit because their investment value can remain intact upon death (check your policy guarantees). These policies can also dramatically reduce legal costs, as proceeds flow directly to named beneficiaries, without probate fees.

Locked-in gains. Many funds offer a reset provision that allows you to lock-in capital gains, thus increasing the protected amount. For example, if your initial investment of $5,000 increases to $6,000 within a year, you may reset the guarantee to protect the entire $6,000. Typically, this restarts the 10-year holding term. The reset can be a valuable tool for investors with a longer time horizon, or when funds appreciate significantly.

Creditor protection. The segregated fund policy can protect the owner's assets in case of bankruptcy. This is subject to certain restrictions, and should be discussed with a qualified financial advisor.

 

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