An individual variable insurance contract, better known as a segregated fund, is an investment contract, considered insurance by law, where a specified group of assets, outside the company’s general reserves, supports the contract’s policy reserves. Segregate fund policies have values that vary according to the market value of their specific group of assets. Assets of segregated funds are not part of the general reserves of the insurer, so no laws prevent them from investing all their assets in equities.
Depending on its contract, a segregated fund may allocate the assets to a fund of treasury bills, common shares, bonds and debentures, real estate or mortgages, like a mutual fund.
Although segregated ( or” seg “) funds have been a part of the financial services landscape since the 1960s they have recently experienced a significant increase in popularity as aging baby-boomers search for investment vehicles with greater guarantee and as mutual found companies look for ways to boost flagging sales.