How the Guarantees Work
Segregated funds offer two types of guarantees: maturity guarantees (protecting your deposits over a 10+ year period) and death benefit guarantees (protecting your beneficiaries regardless of market value at death). Both come in 75% and 100% levels, with higher guarantee levels carrying higher fees.
| Guarantee Type | 75% Level | 100% Level |
|---|---|---|
| Maturity guarantee | 75% of deposits returned after 10 years minimum | 100% of deposits returned after 10 years minimum |
| Death benefit guarantee | 75% of deposits paid to beneficiary at death | 100% of deposits paid to beneficiary at death |
| Additional MER cost | +0.30-0.50% | +0.75-1.50% |
| Reset feature | Locks in gains periodically | Locks in gains periodically |
The Reset Feature
Most seg fund contracts allow periodic resets — typically every 3 years or on policy anniversary — that lock in market gains as the new guaranteed amount. If your $100,000 deposit grows to $130,000 and you reset, the new guarantee is based on $130,000. This ratchet mechanism means the guarantee can only increase, never decrease.
Resets typically extend the maturity date by another 10 years, which is important for older investors. After age 70-75, many contracts no longer allow resets, and the guarantee period may be shortened. Read the contract terms carefully — the details vary significantly between insurance companies.
Are the Guarantees Worth It for Retirees?
The value of seg fund guarantees depends on your specific situation:
Death Benefit Guarantee — Potentially Valuable
For retirees with a shorter life expectancy who want to ensure beneficiaries receive at least their original investment regardless of market conditions, the death benefit guarantee provides genuine peace of mind. If markets decline 30% near end of life, the guarantee ensures beneficiaries receive the full deposit amount (or reset amount).
Maturity Guarantee — Rarely Triggered
The maturity guarantee protects against the scenario where markets are lower after 10+ years than when you invested. Historically, this has been extremely rare for diversified portfolios. Over any rolling 10-year period since 1950, a balanced portfolio has been positive in over 95% of cases. You are paying 0.50-1.50% annually to insure against a 5% probability event.
Alternative Approaches for Retirement Security
Rather than paying for seg fund guarantees, consider whether these alternatives achieve similar security at lower cost:
- Conservative asset allocation: A 40/60 or 30/70 portfolio in low-cost ETFs provides stability with much lower fees
- GIC ladder: Guaranteed principal with known returns, CDIC insured, at zero additional cost
- Annuities: Guaranteed lifetime income without market exposure — may be more appropriate for pure income needs
- Bucket strategy: 2-3 years of spending in cash/GICs, remainder in growth investments — provides time buffer without guarantee fees