Chapter 22 - Other Managed Products (Done) Flashcards
What are segregated funds?
Segregated funds are a type of pooled investment similar to mutual funds but classified as insurance products, offering features like maturity protection, death benefits, and creditor protection.
How are segregated funds regulated in Canada?
They are regulated by the Canadian Life and Health Insurance Association Inc., and supervised by the Office of the Superintendent of Financial Institutions.
What is the structure of segregated funds?
Investors receive notional units of the contract, involving a contract holder, annuitant, and beneficiary.
What are the key roles in segregated funds?
The key roles are the contract holder (who buys the fund), the annuitant (whose life is insured), and the beneficiary (who receives benefits upon the annuitant’s death).
What are the maturity guarantees for segregated funds?
Maturity guarantees must be at least 75% of the amount invested over a contract term of at least 10 years. For 100% guarantees, the term is often longer, like 15 years.
What happens if an insurance company offering segregated funds becomes insolvent?
The Assuris guarantee covers only the death benefits and maturity guarantees, with a maximum compensation of $60,000 or 85% of the promised guaranteed amounts.
What are the restrictions on who qualifies for the enhanced maturity guarantees in segregated funds?
Insurance companies may impose age restrictions, such as requiring the annuitant to be no older than 80 years to qualify for the enhanced guarantees.
What is the reset date feature in segregated funds?
A reset date allows the contract holders to lock in the current market value of the fund and set a new 10-year maturity date, which can be useful to secure higher market values.
What is the death benefit feature in segregated funds?
The death benefit is guaranteed only if the market value at the time of the annuitant’s death is below the guaranteed amount, ensuring the beneficiary receives at least the original investment amount.
What is creditor protection in segregated funds?
Creditor protection is available because segregated funds are owned by an insurance company, protecting the investment from court-ordered seizure to recover debt.
What are the tax implications of segregated funds?
Taxation can be complex due to guarantees and death benefits. Payments from maturity guarantees are taxable, and death benefits may be treated as capital gains if the contract holder is not the annuitant.
What are Labor-Sponsored Venture Capital Corporations (LSVCC)?
LSVCCs are managed investment funds that provide capital for small to medium-sized emerging companies, offering federal and provincial tax credits but carrying high risks.
What are the pros and cons of labor-sponsored venture capital corporations (LSVCC)?
Pros include federal and provincial tax credits and potential RRSP tax deductions. Cons include high-risk, speculative nature, and an eight-year holding requirement to avoid recapture of tax credits.
What is a closed-end fund?
A closed-end fund is a pooled investment fund that raises capital by selling a fixed number of shares, offering diversification and direct payment of capital gains, dividends, and interest.
How do closed-end funds differ from mutual funds?
Closed-end funds sell a fixed number of shares and are listed on stock exchanges, providing diversification and direct payment of returns but may not trade at net asset value and have foreign income tax considerations.
