Segregated Fund Definition: Insurance With a Market Engine (LLQP)
A segregated fund is an investment fund held inside an individual variable insurance contract (IVIC) — it behaves like a mutual fund, but because it is legally an insurance contract, it comes with guarantees and a named beneficiary.
"Segregated" means the fund's assets are kept separate from the insurer's general assets. The investor buys units of the fund; the value rises and falls with the market. What makes it insurance is the contract wrapper around it.
Why it matters on the LLQP exam
This is the core product of the Segregated Funds and Annuities module. Know these features cold:
- Maturity guarantee — after a set period (commonly 10 years), the contract guarantees at least 75% (often up to 100%) of deposits, even if markets crashed.
- Death benefit guarantee — on the annuitant's death, the beneficiary receives at least the guaranteed percentage of deposits, bypassing the market value if it's lower.
- Named beneficiary — proceeds pass outside the estate, avoiding probate, and may offer creditor protection when the beneficiary is a spouse, child, parent, or irrevocable beneficiary.
- Sold by life licence only — mutual funds need a securities licence; segregated funds require a life insurance licence. The exam tests this licensing boundary constantly.
Traps to watch: guarantees apply only at maturity or death, not on mid-term surrender; and higher guarantee levels come with higher fees (see management expense ratio).
Example question
Which feature is unique to a segregated fund compared with a mutual fund?
- Professional investment management
- A death benefit guarantee payable to a named beneficiary
- Daily unit pricing
- Exposure to equity markets
Answer: B — guarantees plus beneficiary designation exist only because a seg fund is an insurance contract.
Next, review the guaranteed minimum death benefit and the reset provision in the segregated funds hub.