Cost of the Guarantees

The shorter the term of the maturity guarantees on investment funds – whether they are segregated funds or protected mutual funds – the higher the risk exposure of the insurer and the cost of the guarantees. This inverse relationship is based on the premise that there is a greater chance of market decline (and hence a greater chance of collecting on a guarantee) over shorter periods. A contract holder’s use of reset provisions also contributes to costs, since resetting the guaranteed amount at a higher level means that the issuer will be liable for this higher amount.  Most people feel that the sense of security and peace of mind are worth the small difference, as they say “you get what you pay for”.