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Jun 04 2014

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Portfolio Insurance for Estate Planning

Protect your moneyPortfolio Insurance for Estate Planning Investments

When you invest in the stock or bond market, your are planning for a gain but there is also the possibility of loss.

If your investment objective is to protect the capital and potentially pass the proceeds on to your beneficiary after your death, you may want to consider segregated funds. Segregated funds, offered by life insurance companies, are similar to an ETF or mutual fund portfolio but with two important added benefits. 

This article focuses on a specific type of segregated fund, commonly referred to as a “100/100″ and the “100/100″defines the two major benefits. The first number (benefit one) is the maturity guarantee and the second number (benefit two) is the death benefit guarantee. So “100/100” means that the particular segregated fund has a 100% maturity guarantee and a 100% death benefit guarantee?

Below is an example for a segregated fund with a 10-year 100/100 guarantee. 

 

Segregated Fund 100 100

The Benefit of a 100% Maturity Guarantee

With a 10-year 100% maturity guarantee, the investor (annuitant) is guaranteed to receive back at maturity  the higher of the original investment or the market value. In the example below, the red line represents a portfolio in a down market. At maturity (see point 2 highlighted in yellow), the insurance company would “top-up” to the $100,000 amount. 

The Benefit of a 100% Death Benefit Guarantee

In both portfolios above, if at any point that they are worth less than the original investment and the investor were to pass away, the insurance company would “top-up” to the $100,000. 

Summary

So this demonstrates the concept of portfolio insurance and capital preservation in estate planning. There are many variations of the 100/100 segregated fund offered through life insurance companies, so work with a qualified financial planner, who can advise on your particular situation. It should be noted that there is a cost for these added features which is why the management expense ratio (MER) is higher when compared to a similar investment in an ETF or mutual fund.

In the next article, I’ll introduce the concept of “resets” and “probate benefits” to show how they enhance the portfolio’s death benefit. 

If you have further questions, please click here to contact me.

 

 

 

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