Q&A - Answers to basic questions No. 35 to 36

- - (full list of questions)


35. Why have segregated funds become so popular lately?

Segregated funds are the insurance industry's response to the increased popularity of mutual funds. Mutual funds, in general, have been great for many investors in the last several years. However, even the lessened volatility of mutual funds (compared to stocks) is too high for many people's risk tolerance. While downturns on the stock market are usually soon compensated by upswings, there is historic evidence for long periods of bear markets as well. In the 1930s, stock prices plunged 90% over a few years in the US. In Japan, the market today is at less than half the peak it reached a decade ago. In South Korea, stock prices are lower than they were 11 years ago. In addition to diversification, investing in segregated funds can also be seen as a means of dealing with the uncertainties of the future.

If someone badly needs the invested money at the "wrong time", he/she can get back less then what was invested originally, perhaps years before. The same negative return can result from death occurring in those bleak market periods for heirs.

Segregated funds are somewhat similar to banks' index-linked GICs as well. For a certain extra charge, the investor gets guarantees that he/she or their heir/s/ will get back at least the invested amount, whatever happens on the stock markets. At the same time, the investor can benefit nicely from the gains on the market, especially if the reset option is used wisely. (to see what it is, and some other benefits, click here)


36. What if I am concerned with how the family can handle the long term care needs of our elderly?

There is a growing concern for many seniors and their children about the increasingly difficult situation that arises when need for long term care occurs. Demographic, social, medical and economic trends warrant these concerns. Many people do not know about a new type of insurance designed to help finding solutions in such situations.

Long term care insurance provides tax-free daily benefit to people who cannot perform independently some of the basic activities of daily living. The benefit can be used for financing care either in a long term care facility, or at home. The condition that demands long term care can result from injury, sickness, cognitive impairment, or just an advanced stage in the normal aging process.

Benefits of this new protection are:
ˇ freedom of choice (type & location of care)
ˇ independence and dignity in keeping control and not relying on others
ˇ quality of life (selection of care providers)
ˇ protection of retirement income (own or spouse)
ˇ ability to leave family estate intact


Top page (on personal financial planning)

Key areas:

Life and health insurance (including disability, critical illness, and long-term care protection)

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