Segregated Funds versus other Investments (mutual funds, stocks, bonds, GIC, etc)
by Meiz Mjadoub
Summer is finally here and if you have been in Ottawa, this past winter, these are happy days indeed.
In this summer piece, I’ll like to present a little know facts about Life insurance products. Little known fact is that with exception of checking accounts offered by the Banking Sector, Life Insurance companies offer the similar products like Savings, Guarantee Investment Certificate (GIC) and Mutual Funds. These are referred to as Segregated Funds. These funds are segregated from the normal activities (Life Insurance) of the insurance companies.
There are however, significant differences between these two institution, Banking and Life Insurance. The Bank Act’s basic premise is to safeguard Depositors. While The Insurance Act however, is designed to safeguard beneficiaries.
I present below at this time how the deposits are treated at death.
Unlike other investments, benefits paid from a segregated fund contract can bypass your estate upon death. Proceeds can be paid directly to your beneficiaries without being subject to the estate administration/probate process and associated taxes or fees. This allows you to leave a legacy upon death to our heirs quickly, privately and cost-effectively.
Here’s an example:
|Segregated Funds||Other Investments|
Greater of Death Benefit Guarantee and current market Value
Current Market Value
|Estate Administration Tax 1 (ON)||$0||-$14,500|
|Legal fees (3-5%)||$0||-$30,000|
|Executor fees (3-5%)||$0||-$30,000|
|DSC fees (0-5%)||$0 2||-$30,000|
|Estimated total cost upon death 3||$0||-$104,500|
Paid quickly and directly to beneficiaries, ensuring the details are kept private
Paid to beneficiaries once the will has been “probated” which can be a lengthy process and is publicly available.
1-Known in other provinces as probate fees, for illustrative purposes only. Example uses Ontario estate administration tax but probate fees applicable in other provinces differ by province. Other cost can vary depending on the complexity of the estate. Starting January 1, 2020, the Ontario estate administration tax will be $15 per $1,000 for estate over $50,000.
2- DSC withdrawal fees waived upon the death of the annuitant provided no successor annuitant is named.
3- Estimated total cost upon death. There may be other cost during the life of the contract.
Unique features of segregated fund contracts:
|Segregated Fund||Other Investments|
|Death Benefit Guarantee||Yes||No|
|Maturity Benefit Guarantee||Yes||No|
|Potential Creditor Protection||Yes||Registered Only|
|Estate Bypass||Yes||Registered Only|
The Majdoub Group is very experienced in this area and welcome questions, enquiries and comments. We are here for you. Below are our coordinates.
Meiz Majdoub, B.Comm, CLU, CH.F.C.
141 Holland Avenue
Ottawa ON K1Y 0Y2