Investing in today’s environment is not for the faint of heart. However, fortunately for Canadians, Segregated Fund products offered by many life insurance companies provide a safety net for nervous investors.
Fund products present some interesting opportunities for people looking to get more security in their investment portfolios without sacrificing their potential for growth.
At a time when most companies are reducing their guarantees to 75%, a few companies still offer 100% guarantees for both maturity value and death benefit.
Resets can have significant value in a volatile market. With this feature, you have the ability to:
John invested $500,000 in a segregated fund and selected a technology fund as the investment choice. The technology boom saw that investment grow to $850,000 and John wisely exercised his reset option. Shortly afterward, the dot.com bubble burst and the investment value fell from $850,000 to $300,000 with no significant recovery. This same bubble burst devastated many investors. Meanwhile, John was able to recover not only his original investment but also the full $850,000 at his maturity date.
One fact about Segregated Funds that is often overlooked is that as a product of a life insurance company, you can name a beneficiary for the proceeds at your death. This creates the potential that your segregated fund investment may be free from the claims of creditors or potential litigants.
Volatile investment markets create a significant amount of stress and emotional turmoil, particularly amongst older investors. The closer you get to retirement, the higher the stakes. Therefore, many investors have forsaken the potential of higher returns for a significant portion of their portfolio. While this does reduce risk, it probably will result in lower returns.
By using Segregated Funds and taking advantage of the 100% Maturity Guarantee and reset options, one could achieve balance in their portfolio without necessarily locking in low yields.
The 100% death benefit guarantee means that you can remain invested in an equity portfolio while not risking the estate value of your investment portfolio. Regardless of what happens in the market, your investment fund is totally guaranteed at your death. This guarantee is applicable to contracts purchased before age 80. For contracts purchased after age 80, the guarantee is usually 75%.
By naming a beneficiary, upon your death, all of your segregated fund investments will flow to your beneficiary without any probate fees, administrative costs or risk of any Wills Variation Act litigation.
Market downturn is not the only risk to which capital can be exposed. For many professionals and business owners, there are situations that may involve litigation either by creditors or other parties who feel they have a claim against your personal and business assets. By naming a preferred beneficiary, this risk is potentially eliminated.
For domestic situations involving previous marriages and the desire to protect capital for present or previous family members, the beneficiary designation could be made irrevocable. The irrevocable beneficiary designation confers rights and protection on the beneficiary, which would not be as enjoyable through the “primary beneficiary” title.
Another advantage of Segregated Funds is that the use of named beneficiaries allow for a confidential transfer of wealth at death. In uncertain times having the comfort of a maturity and death benefit guarantee provides investors with a significant safety net.
Let’s connect to discuss if Segregated Funds will compliment your current investment strategy. As always, please feel free to share this article with anyone you think would find it of interest.
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