Segregated Fund
Fonds distinct in French
Quick definition
A segregated fund is a mutual-fund-like investment pool wrapped inside an insurance contract. It adds maturity and death guarantees, potential creditor protection, and estate-bypass features, in exchange for noticeably higher fees.
A mutual fund in an insurance wrapper
A segregated fund (or "seg fund") looks and behaves much like a mutual fund: your money is pooled with other investors' and managed in a portfolio of stocks, bonds, or both. The difference is the legal wrapper. A seg fund is an insurance contract, technically a variable annuity contract, issued by a life insurance company and sold only by licensed insurance representatives.
That insurance wrapper is what creates every feature that distinguishes seg funds, good and bad.
The insurance extras
Four features come with the contract:
- Maturity guarantee. The insurer promises that at the contract's maturity date, typically 10 to 15 years out, you will receive at least 75% or 100% of your deposits, even if markets fell. Some contracts let you "reset" the guarantee at a higher market value, restarting the clock.
- Death guarantee. If you die, your named beneficiary receives at least 75% to 100% of your deposits, regardless of market value at that moment.
- Potential creditor protection. Because it is an insurance contract with certain beneficiary designations (spouse, child, parent, or an irrevocable beneficiary), a seg fund may be sheltered from creditors. This is a real draw for incorporated professionals and business owners, though protection is not absolute, especially for transfers made when trouble was already looming.
- Estate bypass. With a named beneficiary, proceeds at death pass directly to that person, outside your estate. They avoid probate fees and delays and stay private, unlike a will, which becomes a public document.
The honest part: what the guarantees cost
The insurance features are not free. Seg fund MERs typically run 0.5 to more than 1 full percentage point above comparable mutual funds (as of July 2026), so a fund that would cost 2% as a mutual fund might cost 2.75% to 3.5% as a seg fund.
Here is the uncomfortable math for long-term investors: over 10 to 15 year windows, diversified equity markets have historically finished up far more often than down. A guarantee that pays only if markets are lower after 15 years is a guarantee that rarely pays, yet you pay for it every single year. For a long-horizon equity investor, the extra fee usually buys peace of mind, not money. The death guarantee has more bite for older investors with shorter horizons, where a market drop right before death is a realistic scenario.
Who seg funds genuinely suit
Seg funds are a niche product with real niches:
- Incorporated professionals and business owners who want a layer of creditor protection on personal investments, with family-class beneficiaries named.
- Estate-privacy and estate-speed seekers who want money to reach beneficiaries quickly, privately, and outside probate.
- Guarantee-craving conservative investors, often near or in retirement, who would otherwise sit in cash. If a 75% or 100% floor is what gets someone invested at all, the higher fee can be a reasonable price.
In Canada
Seg funds are a distinctly Canadian insurance product, regulated provincially as insurance rather than as securities, which is why they are sold by insurance-licensed representatives and documented with an "information folder" and Fund Facts-style disclosure of their own. Assuris, the industry-funded protection plan for life insurers, provides some coverage of seg fund guarantees if the insurer fails (as of July 2026); the invested assets themselves are held separately from the insurer's general funds, which is where the name "segregated" comes from.
One Québec note: the estate-bypass advantage is smaller there. Québec's succession process has no probate fees comparable to other provinces, and notarial wills do not require court verification, so avoiding "probate" is less valuable, though beneficiary designations still speed up payment and keep it private. On death and on certain transfers, note that a spouse or a successor holder designation on registered accounts raises similar estate-planning questions; seg fund designations sit inside the insurance contract itself.
Worked example
Marc, 52, is an incorporated consultant with $300,000 to invest personally. A lawsuit against consultants in his field is not far-fetched, so creditor protection matters to him. He puts the money in a segregated fund contract with a 75% maturity guarantee, a 100% death guarantee, and his spouse as beneficiary. He pays roughly 0.9 points more per year than a comparable mutual fund, about $2,700 annually at the start. For Marc, that is the price of creditor protection and a clean, private transfer to his spouse. His sister, a 35-year-old salaried employee investing for retirement in a TFSA, would get little from the same contract: her horizon is 30 years, her creditor risk is low, and the extra fee would compound against her.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026