Segregated Funds: Quick Facts
- Segregated funds are unique financial assets available only through life insurance companies. They are called "segregated funds" because life insurers hold them separate from the general assets of the company.
- Consumers can participate in segregated funds by purchasing a segregated fund contract (an "Individual Variable Insurance Contract") which combines the growth potential of investment funds with unique guarantee features that provide downside risk protection.
- Life and health insurance companies have total assets of almost $571 billion1.
- 34% of those assets ($195.3 billion) are held in segregated funds. Of that, $86.3 billion represent individual contracts (the remainder are pension products)2.
- 3.4 million Canadians own Individual Variable Insurance Contracts.
- Assets in those contracts ($86.3 billion) form 10.2% of the total investment fund industry of $842.9 billion; segregated funds as a proportion of that industry has been gaining ground -- it's up from 9% in 20053.
- Life and health insurance companies are regulated for solvency: they must meet Minimum Continuing Capital and Surplus Requirements (MCCSR) set by the Office of the Superintendent of Financial Institutions (OSFI) and maintain reserves to meet future guarantees contained in IVIC contracts.
- Life and health insurance companies are subject to marketplace regulation
- They can use only licensed agents to offer their products
- They must provide disclosure about the product before you purchase your contract
- Disclosure is made through an "Information Folder" which includes a brief summary of your contract and your rights in a "Key Facts" document, as well as two-page "Fund Facts" documents describing each of the segregated funds offered in your contract
- You can only buy a segregated fund contract through an agent who holds a life insurance license issued by the provincial regulator. There are 91,000 licensed life agents throughout Canada.
1 Canadian Life and Health Insurance Association, 2011
2 Ibid
3 Investor Economics, 2011
Segregated Funds: Quick Facts