CH 5 - Segregated Funds

Question 1

what are segregated funds and who are they held by?

Answer 1

• Investments held under an annuity or a life insurance contract issued by a life insurance company
• owned by life insurance company

Question 2

segregated funds are “trusteed,” which means?

Answer 2

they are deemed to be held in trust for the benefit of their “investors,”

Question 3

Who is the real owner of seg funds?

Answer 3

the trustee of the issuing company

Question 4

Who are the beneficiaries of a segregated fund trust?

Answer 4

The individual variable insurance contracts (IVICs) that invest in the fund / the seg fund policies themselves

Question 5

segregated funds units may be purchased through five different types of insurance contracts

Answer 5

1. accumulation annuities
2. payout (variable) annuities
3. an accumulation annuity and term insurance, combined
4. participating whole life insurance policies
5. universal life insurance policies

Question 6

Accumulation annuities invest in either

Answer 6

guaranteed deposits or in segregated funds

Question 7

accumulation annuities invested in guaranteed deposits:

Answer 7

policyowner invests for a fixed term at a fixed rate.

Question 8

an accumulation annuity is
more like a ____ as opposed to ___

Answer 8

• deposit account
• income stream

Question 9

Payout (Variable) Annuities

Answer 9

• The client deposits capital to the annuity, which is then invested in units of one or several segregated fund. The capital value of the contract varies with the value of the underlying segregated fund investments.

Question 10

The payout of an income stream to the annuitant is usually calculated in one of two ways:

Answer 10

• A fixed number of units is redeemed periodically and the surrender value of these units is paid out to the annuitant. (payments vary with value of units)
• the variable annuity contract can be constructed to surrender a fixed dollar value of fund units each payment period (number of units sold vary)

Question 11

Accumulation Annuity and Term Insurance

Answer 11

policyholder commits contractually to a series of periodic deposits (e.g., $100 monthly for 20 years) to the policy and the funds are then invested in units of a segregated fund.

Question 12

Accumulation Annuity and Term Insurance in event of death

Answer 12

Beneficiary named under the policy is guaranteed to receive the greater of:
* the total of the planned periodic payments, or
* the actual cash surrender value of the contract at the time of the policyowner’s death.

Question 13

Whole Life Par

Answer 13

• A whole life participating policy is a life insurance contract issued for the whole life of the life insured
• It has a cash surrender value and shares in the profits of the insurance company through the payment of policy dividends

Question 14

Whole life par: one of the investment option for the annual dividend paid under the policy is units of a segregated fund offered by the insurer.Where are these reinvested dividends held?
What happens in the event of death for whole life par policies?

Answer 14

• They are held outside of the base policy and can be surrendered for their cash value at any time
• in the event of the death of the life insured, they are paid out to the beneficiary of the policy on top of death benefit.

Question 15

Universal Life

Answer 15

policyowner has the option of making flexible
premium deposits to the plan and of varying the amount of insurance coverage offered by the plan

Question 16

Universal Life: “side fund” deposit option that is taxable . purpose of side fund and treatment in event of death?

Answer 16

• invested in units of segregated funds to augment the earnings of the base, tax-exempt portion of the policy.
• Units held in this side fund can be surrendered for their cash value at any time and, in the event of the death of the life insured, their value is paid out to the beneficiary of the policy, in addition to the basic death benefit.

Question 17

How do segregated funds distribute their net income?

Answer 17

By reinvesting within the fund

Question 18

The beneficiary of a segregated fund policy must be guaranteed to receive an amount equal to no less than:

Answer 18

• 75% of the deposits (net of withdrawals) to the policy since its inception, or
• the fair market value of the units in the policy (whichever is greater) at the time of
  the death of the annuitant of the policy

Question 19

Assuris protection, you will retain up to __ $ or __% of your segregated fund guarantee, whichever is higher

Answer 19

60,000
85

Question 20

Segregated fund trusts are the exception to the general rule of capital losses, meaning:

Answer 20

Segregated funds are permitted to allocate their net capital losses to their unitholders, pro rata, and
the unitholders may then claim those losses against net capital gains from other investments, in their own hands.