Protecting Your Interests - The Role Of Segregated Funds

Segregated funds are individual variable insurance contracts and may qualify for protection against the claims of creditors under provincial insurance laws.

Segregated funds offer all the benefits of mutual fund investing – professional management, liquidity and diversification – and the added peace of mind with the potential for creditor protection. If you are a small business owner, or face personal liability in business, segregated funds may be for you.
Risky Business
Many small business owners have pledged some part of their personal assets in order to secure a loan for their business. In addition to pledging personal assets, many small business owners have not taken steps to protect uncommitted property. Yet, the reality is that small business start-ups can fail. On top of having to face the business loss, those small business owners must also deal with losing some or all of their personal assets, whether it be their house, car, or funds earmarked for retirement.

Safeguarding Assets
Assets that have not been pledged as collateral may be protected against seizure by creditors through the purchase of segregated funds. Segregated funds are individual variable insurance contracts and may qualify for protection against the claims of creditors under provincial insurance laws. As an insurance product, segregated funds come with certain guarantees, such as a death benefit guarantee and a deposit maturity guarantee.

Segregated funds may qualify for protection from your creditors even in bankruptcy. Creditor protection may be available if the named Beneficiary of the funds is a spouse, parent, child or grandchild of the Annuitant (an ascendant or descendant of the Contract Owner in Quebec) or if the Beneficiary is named irrevocably.

Who Should Be Interested?

Self-Employed Individuals
Small Business Owners
Professionals

How They Stack Up With Mutual Funds
In addition to offering creditor protection, segregated funds can offer the same growth potential of mutual funds as well as the extra benefits of deposit maturity and death benefit guarantees. Here are some of the differences you should be aware of.

The Bottom Line
Segregated funds can be a useful tool for potential creditor protection. If you're interested in protecting your hard-earned investments from creditors and building wealth outside your business, you should seek legal advice as to whether the protection would be available based on your personal circumstances. Your financial advisor can help you obtain this advice and assist you in making the right decision when it comes to segregated fund investing.