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LLQP (life licence)

LifeLLQP Life Insurance✓A&SLLQP Accident & Sickness Insurance Seg FundsLLQP Segregated Funds & Annuities EthicsLLQP Ethics & Professional Practice (Common Law)

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Segregated Funds and Annuities · Component 2: products (30%)

Segregated Fund Guarantees & Features

A segregated fund contract is a life insurance contract with market-linked value plus maturity and death benefit guarantees, sold by life agents.

Analyze the available products2 min read5 sections

Must-know for the exam

The insurer owns the fund assets; the contract holder owns the contract (IVIC).
Maturity guarantee: at least 75% of deposits, after a term usually of 10 years; death guarantees often 75% to 100%.
Withdrawals cut guarantees, usually proportionally (sometimes dollar-for-dollar).
Resets lock in growth but usually restart the 10-year maturity term; contracts set maximum reset ages.
Named beneficiary: payment outside the estate, avoiding probate; family-class beneficiaries may give creditor protection.
Right to cancel: written notice within 2 business days of receiving confirmation, which is deemed received 5 business days after sending.
On cancellation the owner gets back fees plus the lesser of the amount invested and the current value.
Fundamental changes (fee increases, objective changes, less frequent valuation, insurance fee limit increases) need 60 days' notice, with fee-free switch or withdrawal rights.
Assuris protects guarantees up to $100,000 or 90% of the guaranteed amount, whichever is higher.

On this page · 5 sections

Traps that cost marks

Thinking the investor owns the fund's securities as in a mutual fund trust.
Mixing up the annuitant and the beneficiary.
Confusing the 75% minimum with optional 100% guarantees.
Paying out the market value when it is below the guarantee.
Adding the guarantee to the market value.
Using a 75% guarantee when the contract has 100%.
Reducing the guarantee dollar-for-dollar instead of proportionally.
Applying a proportional reduction when the contract is dollar-for-dollar.

Why it matters on the exam

Component 2 tests guarantee arithmetic and the features that set seg funds apart from mutual funds.

Guarantee arithmetic

•Maturity: pay the higher of market value and the guaranteed amount.
•Proportional withdrawal: new guarantee = old guarantee x (1 - withdrawal / market value).
•Assuris: higher of $100,000 and 90% of the guarantee.

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Exam-style questions

Rosalind, 71, a retired music teacher in Oakville, Ontario, deposited $200,000 in a non-registered segregated fund contract with a 100% death benefit guarantee and a 75% maturity guarantee. She named her two nephews as beneficiaries. She dies four years later, having made no withdrawals, when the contract is worth $170,000. What do her beneficiaries receive in total?
Kim, 66, a retired transit dispatcher in Winnipeg, Manitoba, deposited $100,000 in a segregated fund contract with a 100% death benefit guarantee. The contract reduces guarantees proportionally for withdrawals. After a market decline, when the contract was worth $80,000, she withdrew $20,000 to help her daughter with a wedding. Under proportional reduction, what is her new death benefit guarantee?
Leon, 70, a retired air traffic controller in Lethbridge, Alberta, holds a segregated fund contract with a $120,000 guarantee that is reduced dollar-for-dollar by withdrawals. The contract's market value is $150,000. He withdraws $15,000 to buy a used camper van for a trip across the country. What is his new guarantee?

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