Segregated Funds in Canada
Direct answer
A segregated fund is an insurance contract in Canada that invests in an underlying pool of assets and adds contractual features, most notably maturity and death benefit guarantees of a stated percentage of deposits. Segregated funds are sold by licensed insurance advisors, not as securities. They usually carry higher fees than comparable mutual funds, and the guarantees do not remove investment risk before maturity.
Educational information only, not personalized financial, tax or legal advice. Last updated August 25, 2026. Reviewed for Canadian regulatory and tax information: August 25, 2026.
Key points
- Segregated funds are individual variable insurance contracts issued by life insurers.
- Maturity guarantees commonly range from 75% to 100% of deposits at a stated maturity date, subject to the contract.
- Death benefit guarantees pay a stated minimum to the beneficiary if the contract holder dies.
- A named beneficiary allows proceeds to bypass the estate, which can reduce probate cost and delay.
- Management expense ratios are generally higher than comparable mutual funds because of the guarantees.
- Withdrawals before maturity can proportionally reduce the guaranteed amounts.
How it works
You buy a contract, not a security
You deposit into an insurance contract that allocates your money to a chosen fund. The insurer, not a fund company, is your counterparty.
Guarantees attach to your deposits
The contract states the maturity guarantee percentage and date, and the death benefit guarantee. Each deposit generally has its own maturity date.
Optional resets may be available
Some contracts allow you to reset the guaranteed amount to a higher market value, which usually restarts the maturity period and may increase fees.
Payout at maturity or death
At maturity you receive the greater of market value or the guaranteed amount. At death the beneficiary receives the greater of market value or the death benefit guarantee, generally paid directly.
Potential benefits
- Contractual downside floor at maturity and at death, subject to contract terms.
- Direct payment to a named beneficiary, bypassing the estate in most provinces.
- Possible creditor protection in some circumstances when a protected-class or irrevocable beneficiary is named.
- Access to professional management within a familiar fund structure.
Risks, costs and considerations
- Higher ongoing fees can meaningfully reduce long-term returns.
- Guarantees apply at maturity or death, not on demand; market value can be lower in between.
- Withdrawals reduce guarantees proportionally.
- Long maturity periods, often ten to fifteen years, limit flexibility.
- The guarantee depends on the insurer's ability to pay; Assuris provides limited protection if an insurer fails.
Who may benefit from learning about this?
The situations below are general and illustrative. They are not a suitability assessment, and no strategy is appropriate for everyone.
Hypothetical example
A hypothetical 62-year-old invests in a contract with a 75% maturity guarantee and a 100% death benefit guarantee. If markets fall sharply and they die during the downturn, the beneficiary would receive the guaranteed death benefit rather than the lower market value. If instead they withdraw funds early, both the market value and the guaranteed amounts are reduced. Actual terms would come from the specific information folder.
Frequently asked questions
What are segregated funds?
Segregated funds are insurance contracts that invest in a pool of assets while adding contractual guarantees, typically a maturity guarantee and a death benefit guarantee expressed as a percentage of deposits. They are issued by life insurers and sold by licensed insurance advisors. The 'segregated' name refers to the assets being kept separate from the insurer's general fund.
Are segregated funds guaranteed?
Only in specific, defined ways. The contract guarantees a stated percentage of deposits at the maturity date and a stated amount on death, subject to conditions and reduced by withdrawals. Between those points the market value can fall. The guarantee also depends on the insurer's ability to pay, with limited backstop protection through Assuris.
What is the difference between segregated funds and mutual funds?
Mutual funds are securities with no maturity or death benefit guarantee and generally lower fees. Segregated funds are insurance contracts with those guarantees, the ability to name a beneficiary so proceeds bypass the estate, possible creditor-protection features, and generally higher management expense ratios. They are also regulated and distributed differently.
What happens when the investor dies?
The named beneficiary generally receives the greater of the current market value or the contract's death benefit guarantee, paid directly and outside the estate in most provinces. This can avoid probate delay and fees. If the estate is named as beneficiary, the proceeds fall into the estate and lose that advantage.
What fees do segregated funds charge?
They charge a management expense ratio that includes both investment management and the cost of the guarantees, so it is typically higher than a comparable mutual fund. Some contracts add insurance fees for higher guarantee levels or reset features, and early withdrawals may trigger sales charges depending on the option chosen.
When may segregated funds be appropriate?
They may suit investors who specifically value the estate and guarantee features and accept the higher fees, such as people planning a direct transfer to beneficiaries or professionals interested in potential creditor-protection characteristics. They are less suitable where cost minimization is the priority or the money may be needed before maturity.
When to speak with a licensed professional
This page explains general concepts. Before acting, speak with an advisor licensed in your province, and with an accountant or lawyer where tax or legal structures are involved. Product availability, eligibility, pricing and tax treatment depend on the provider, your circumstances and current Canadian rules.
Sources & references
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