# Segregated funds



## PF_Enthusiast (Jan 21, 2011)

I was just wondering if anybody on the forum has any investments in seg funds. I know with the high MER and "insurance" you have on your money makes them significantly more expensive than a mutal fund. I guess depending on the circumstances (bankruptcy protection, death benefit, etc.), they do appeal to certain investors. 

The reason I'm asking is because I have a fairly new universal life policy, yes I know many of you are not in favour of universal life because of the high fees associated with it, and I'm waiting for it to build some cash value. While I wait, I'm looking to see what my best option is to invest within the policy in.

Any feedback is greatly appreciated.


----------



## CanXB (Apr 6, 2010)

My wife and myself have seg. funds. We are leveraged as well and started at the bottom of the crash in 2009. Once the recovery started to take hold we went in whole hog for a total off 350K borrowed and put it into seg funds. It is technically our second pension plan. We are in our early 30's and looking to retire by 50. I like them and the idea of them, and with our other investments we are currently in good shape. I am well aware of the risks of rising interest rates, but our budget can handle changes when (not if) they come.


----------



## kcowan (Jul 1, 2010)

I bought one on 2002 to replace my DB pension if I died. It was with Maritime Life which offered good investment choices and low MERs (for seg funds). Since that time, there have been 2 acquisitions and I am now part of Industrial Alliance which offers inferior funds with high MERs. My choices were grandfathered (50% Canadian Equity and 50% Canadian Bonds) so my performance has been OK but I have little choice to change the allocation.

Would I do it again? Probably not. I would go with term insurance.


----------



## PF_Enthusiast (Jan 21, 2011)

I currently have my universal life plan through Great-West Life. I'm 26 with hopes of freedom 55! I purchased this plan almost a year ago because I wanted to begin some kind of investing AND I wanted to have a bit of life insurance with the option to purchase more without having to provide evidence or insurability or an increase in premiums. My premiums are based on T-100 rates. Death benefit is equal to face amount plus cash value. It's a very small UL policy so I'm in no rush to choose investments with what little cash is in there now. 

This year is the year of financial goal setting as I've neglected to do anything so far. TFSA, RRSP and UL investment ideas are on the books for 2011. 

Here's a link to Great-West Life's seg funds: http://www.globefund.greatwestlife....reat-West+Life+Assurance+Co.&iaction=Go?blank


----------



## LondonHomes (Dec 29, 2010)

I looked at seg funds a long time ago. The advice I remember from them is that the insurance portion is useless since it's based on getting your principle back 7+ years in the future. Which means yes you didn't lose your principle but you lost 7+ years of growth. 

It ways also suggested to take the difference between the higher MER fee on the Seg fund and buy term insurance directly.


----------



## Brian Weatherdon CFP (Jan 18, 2011)

I have segs, mutuals, a few stocks; whole, term, & universal life. Over time, WL outpaces term and UL but that wasn't your Q. ... On seg funds specifically a major provider like GWL / London Life has MERs lower than many mutual funds and much more efficient that many other providers. 

But now to your Q of seg funds in your UL policy... (i) It depends on your risk tolerance. (ii) I personally chose percentages in dividend, Cdn equity, and emerging markets. (iii) What too many have never realized is, when markets (& UL policy value) fall 3 years in a row, MTAR will "cap" the potential recovery. You can google MTAR; it's a tax-limit on growth in life policies. ...and this also relates to why I put a great deal of value in WL instead of UL.

Anyway if you have a 40 year horizon, surely you'll select a similar growth approach that you would use in the rest of your investing.
Cheers!
B


----------



## Larry6417 (Jan 27, 2010)

Brian Weatherdon CFP said:


> I have segs, mutuals, a few stocks; whole, term, & universal life. Over time, WL outpaces term and UL but that wasn't your Q.
> B


Term life has no investment component, so how can whole life "outpace" term? It's apples and oranges. 

Also, if one wanted investment only, why not use a guaranteed minimum withdrawal benefit product instead of whole life?


----------



## PF_Enthusiast (Jan 21, 2011)

Thank you so much Brian!

I have been looking for research on investors purchasing seg funds, which doesn't seem to be too common, and basically just looking to expand my knowledge of the subject. It seems as if most online resources discredit them as being a valuable investment vehicle.


----------



## Larry6417 (Jan 27, 2010)

If you want the naysayer's take on UL, see http://perry.kundert.ca/range/finance/ul-blows


----------



## PF_Enthusiast (Jan 21, 2011)

Haha funny you say that...I JUST stumbled on it and read it before I got your reply. Interesting read...


----------



## Brian Weatherdon CFP (Jan 18, 2011)

Larry, you're right that term insurance (except in case of impending mortality when a cash value can be deemed) has no "investment component". Point is....the different insurances have different purposes, and clearly different rates-of-return, ...& volatility versus predictability. My whole life coverage has averaged internal rate of return > 8% over the past 30 years. Yet a younger family or business needs lots of term coverage because they don't have the cash flow; WL and UL have a place. Too little space to discuss adequately here.


----------



## Brian Weatherdon CFP (Jan 18, 2011)

Also Larry, GMWB is truly a different fruit. It's a higher cost fund; it's not life insurance. Some in the forum could be in a circumstance where a permanent cash-value life policy will build tax-sheltered cash...for future draw-out tax-free via collateral assignment. 

Guaranteed Minimum Withdrawal Benefit on the other hand is a high-fee investment for more conservative investors wanting to guarantee a positive cash flow... Eg. 6% guaranteed for life (age 75+) This situation doesn't fit the original question.

Cheers all!
Brian


----------



## Larry6417 (Jan 27, 2010)

Brian Weatherdon CFP said:


> My whole life coverage has averaged internal rate of return > 8% over the past 30 years.


Are we talking about the same rate of return? Whole life policies are notorious for high fees. often 3% or higher. To earn more than 8% net of fees, your whole life policy must gain more than 11 % per year for 30 years. No offense, but I don't believe that figure.




Brian Weatherdon CFP said:


> WL and UL have a place. Too little space to discuss adequately here.


Of course UL and WL have a place! However, with the advent of the TFSA, that place is much smaller. It's the rare couple that needs the investment portion of UL/WL. A couple, both high earners, could save over $50,000 per year in RRSPs and TFSAs.


----------



## Larry6417 (Jan 27, 2010)

Brian Weatherdon CFP said:


> Also Larry, GMWB is truly a different fruit. It's a higher cost fund; it's not life insurance.


I know. That's why I specified for those who don't need the insurance component of WL/UL.




Brian Weatherdon CFP said:


> Some in the forum could be in a circumstance where a permanent cash-value life policy will build tax-sheltered cash...for future draw-out tax-free via collateral assignment.


Here you are extolling the investment virtues of WL again. However, as you've noted, UL policies must be careful to remain exempt. GMWB products can shelter growth tax-free as well without the labyrinthine rules to remain exempt. Again, the ability of couples to shelter $10,000 a year tax free through TFSAs greatly reduces the attractiveness of WL/UL. 



Brian Weatherdon CFP said:


> Guaranteed Minimum Withdrawal Benefit on the other hand is a high-fee investment for more conservative investors wanting to guarantee a positive cash flow


Of course GMWB products are expensive! Investors pay for the benefits associated with the product...just like WL policy owners. I find it odd that you would criticize GMWB products as high cost (they are) without levelling the same criticism at WL/UL. Thanks for the discussion!


----------



## Brian Weatherdon CFP (Jan 18, 2011)

Hi Larry,

On your points of whole life...

In such a forum as this I won't mention insurers, however if you find the largest participating funds you will find the top two insurers for creating results in WL. In 1995 I had an industry brochure showing the S&P, Best, Fitch, Moodies reports on nearly 150 life insurers in Canada, and summarizing which were the top 4. So you and I agree, over 140 of them failed to create the value you and I would want. Only two of them meet my own test for WL. Of these two, their dividend returns of their PAR accounts are now the lowest in well over 30 years, being 5.9% for one, and 6.0% for the other. Fact is, the equivalent MER for those Par funds is extremely low. Over most of my lifetime (54) they've averaged NET very close to the raw stock market return. And that, with zero downward volatility.

Not to go on about it....your side of the conversation is equally impotant and it all helps people consider what they want to know in making decisions.

Cheers to you.
Brian


----------



## marina628 (Dec 14, 2010)

I have a whole Life policy from state farm that i bought Feb 1986 ,they GUARANTEED 8% RETURN FOR life of policy on any cash value/dividends I have there.Currently cash value $47,000 ,was a great investment IMO.


----------

