Summary
Segregated funds are often marketed on peace-of-mind features like estate shortcuts and long-horizon guarantees. For many, those features don’t justify the higher ongoing costs. This article explains where the benefits do (and don’t) apply in Saskatchewan, and a decision framework to use before you sign.
What is a Seg Fund — And Why the Allure?
A segregated fund is an investment wrapped in an insurance contract. That wrapper allows beneficiary designations on non-registered accounts and adds features like long-horizon maturity or death-benefit guarantees. The catch is cost: you’re paying for insurance features on top of investment management. In practice, that often means noticeably higher fees compared to a comparable mutual fund from the same manager.
“Every down is bigger; every up smaller.”
That’s the core consequence of higher ongoing costs. Fees are deducted every year, so downturns cut deeper and recoveries climb from a lower base.
The Guarantees: What Must Happen to Get Paid?
Guarantees are usually framed as, “Invest a set amount; after a long period, you’ll get at least that amount back,” sometimes with a death-benefit feature. The marketing sounds reassuring, but look closely at the conditions and the horizon. For diversified funds over long timeframes, it’s uncommon to end below the original principal — especially in the types of broad funds typically used inside seg contracts. That rarity is why insurers can price these guarantees.
Two practical issues:
- Timeframe: Shorter guarantees often protect only part of the value. Longer ones that cover everything typically tie you to a decade or more.
- Behaviour risk: If you need liquidity before maturity or switch contracts, the guarantees may change and may not apply at that time. (Always read the contract provisions.)
“I’m yet to meet somebody who has seen them pay out.”
Probate and Estate Timing in Saskatchewan
One legitimate seg-fund benefit is estate processing: because it’s an insurance contract, you can name a beneficiary on non-registered money and bypass the estate, which can speed up access for heirs. But in Saskatchewan, probate costs are modest compared to other provinces. Paying higher fees for decades just to avoid probate is often not a good trade-off. For registered plans like TFSAs and RRSPs, you can usually name beneficiaries without buying an insurance wrapper anyway.
“Avoiding probate is overused… in Saskatchewan it’s not [expensive].”
If your main goal is a smoother estate settlement, compare alternatives first (e.g., beneficiary designations where allowed, or simple account structuring) before adding a high-cost wrapper.
A Decision Framework
Use this when you’re pitched a seg fund or already hold one:
- Define the benefit you actually need. Is it a beneficiary designation on non-registered assets? A death-benefit floor? Faster estate settlement? If the goal is probate alone in SK, press pause.
- Price the insurance. Compare the ongoing costs to those of an equivalent mutual fund (same manager, same strategy). Don’t accept vague answers. Get the numbers in writing.
- Test guarantee realism. Ask for historical scenarios where the guarantee would have paid. Over long horizons, diversified portfolios seldom finish below principal.
- Consider planning alternatives. Many can achieve their estate goals through beneficiary designations (where allowed), wills, or simple account structuring, without purchasing an expensive wrapper.
- Get a second opinion. Seek advice from a CFP with broad product access, not just insurance licensing, so the recommendation isn’t constrained by product availability.
“If you’re paying that type of price, the client should know exactly why.”
What to do next
- Pull your latest statement(s).
- Identify each fund’s MER (or ask your provider in writing).
- Compare to the equivalent mutual fund (same manager/strategy).
- List the specific benefit you think you’re buying; confirm contract details and conditions.
- Book a second opinion with a CFP who isn’t limited to insurance products.
If you need help understanding what you’re paying for, I’ll explain the trade-offs and help you decide.