All segregated funds offer death benefits and maturity guarantees. The amount or percentage of guarantee can vary between products and offering companies. Some companies offer segregated funds with several guarantee options, while others only offer a single guarantee option.
Segregated funds are required to have a minimum 75% maturity guarantee and a minimum 75% Death Benefit Guarantee. Many companies offer up to 100% Death Benefit Guarantee, but it is less common for a company to offer a 100% Maturity Guarantee.
Specifically, the Death Benefit Guarantee offers protection from losses incurred by the investor during their lifetime. The guarantee is paid upon the investor’s death. The Death Benefit Guarantee percentage is selected with the initial purchase of the contract. At the time of the investor’s death, the beneficiaries would receive the greater of the guaranteed amount or the investment’s market value. This enables the investor and their heirs to benefit from market growth while safeguarding the investment capital.
A Maturity Guarantee safeguards the investment’s capital until the end of a specified time period, usually in 10- or 15-year terms. Newer segregated funds have also extended the maturity date until the investor reaches 100 years of age. With the recent turmoil in financial markets, the trend for segregated funds is to offer longer and longer maturity terms and lower (75%) Maturity Guarantees. The Maturity Guarantee ensures that the investor will receive the higher of the investment’s market value or the guaranteed amount on the date of maturity.
Principal protection guarantees are typically reduced on a proportional basis by any withdrawals made from the fund.