20 Flashcards
X opted to reset his $75,000 investment in a 100% guaranteed segregated fund after five years, when its market value was $84,000. Ten years after the reset date his segregated fund policy matured at a market value of $91,000 and X redeems the contract. Capital gain?
No capital gains liability is triggered at the time of reset. However, at the time of redemption (which is 15 years after the original deposit), the capital gain of $16,000 ($91,000 which was the proceeds at redemption less the original cost of $75,000) is taxable in the year in which the policy is paid out.
A beneficiary receives a payment from a segregated fund on the death of the insured person. At the time of payment, the market value of the fund is $50,000, and the guarantee amount is $58,500 based on the most recent reset date. What is the death benefit amount owing?
Death benefits are paid only when the market value of the fund is below the guaranteed amount. In this example, when the market value of the segregated fund at death is $50,000, the beneficiary will receive a death benefit payment of $8,500 above the market value. Therefore, in addition to the payment of the $50,000 market value of the fund, the total payment to the beneficiary is the guaranteed amount of $58,500. When the market value at death is above the guaranteed amount, there is no death benefit payable because the beneficiary receives the full market value of the investment which is higher than the guaranteed amount
GWMB (Guaranteed Minimum Withdrawal Benefit) plan?
GWMBs are especially suitable for clients with 5 to 10 years to retirement, who cannot afford significant losses in their portfolio during that time. These clients also want to be able to share in the growth of selected financial markets.
segregated fund contract scenarios
Where contract holder and person whose life is being insured are different people, it is possible that the contract holder will die before the annuitant. If that happens the contract may be transferred to a successor contract holder. If the original contract holder has designated no successor, the contract becomes part of the contract holder’s estate.
segregated funds
sold by insurance companies as an alternative to mutual funds. They offer a range of investment strategies (like mutual funds) but guarantee a certain % of an investor’s payments into the fund will be repaid when the fund matures
