IFC Segregated Funds 1 — Questions and Answers
Question 1: What is the primary legal structure of a segregated fund in Canada?
- A securities trust governed by the CSA
- An insurance contract issued by a life insurance company (Correct answer)
- A limited partnership registered with IIROC
- A mutual fund corporation regulated under provincial securities law
Correct answer: An insurance contract issued by a life insurance company
Segregated funds are structured as insurance contracts issued by life insurance companies, which distinguishes them legally from mutual funds and other securities.
Question 2: Which regulatory body primarily oversees segregated funds in Canada?
- The Canadian Securities Administrators (CSA)
- The Investment Industry Regulatory Organization of Canada (IIROC)
- Provincial insurance regulators (Correct answer)
- The Mutual Fund Dealers Association (MFDA)
Correct answer: Provincial insurance regulators
Segregated funds are regulated by provincial insurance legislation rather than securities law, because they are classified as insurance products.
Question 3: What minimum maturity guarantee must Canadian segregated funds offer under industry guidelines?
- 50% of net premiums paid
- 75% of net premiums paid (Correct answer)
- 90% of net premiums paid
- 100% of net premiums paid
Correct answer: 75% of net premiums paid
Canadian insurance industry guidelines require segregated funds to guarantee a minimum of 75% of net premiums paid at maturity, though many funds offer a 100% guarantee.
Question 4: What is the typical minimum holding period required before a segregated fund's maturity guarantee applies?
- 5 years
- 7 years
- 10 years (Correct answer)
- 15 years
Correct answer: 10 years
Segregated fund maturity guarantees generally require the contract to be held for at least 10 years before the guarantee can be triggered.
Question 5: In a segregated fund contract, who is referred to as the 'annuitant'?
- The insurance company issuing the contract
- The person whose life the insurance coverage is based on (Correct answer)
- The beneficiary who receives the death benefit
- The financial advisor who sold the contract
Correct answer: The person whose life the insurance coverage is based on
The annuitant is the individual whose life the insurance contract is based on; the maturity and death benefit guarantees are linked to this person's age and lifespan.
Question 6: Which feature of a segregated fund can potentially protect the investor's assets from creditors?
- The maturity guarantee provision
- The reset option
- The named beneficiary designation (Correct answer)
- The death benefit guarantee
Correct answer: The named beneficiary designation
When a beneficiary other than the estate is named on a segregated fund, the assets may be shielded from creditors in bankruptcy proceedings, provided the designation was not made to defraud creditors.
Question 7: How are segregated fund assets protected if the issuing life insurance company becomes insolvent?
- Through the Canada Deposit Insurance Corporation (CDIC)
- Through the Canadian Investor Protection Fund (CIPF)
- Through Assuris, the life insurance industry protection plan (Correct answer)
- Through direct federal government guarantee
Correct answer: Through Assuris, the life insurance industry protection plan
Assuris is the Canadian life insurance industry's not-for-profit protection plan that covers policyholders' benefits up to specified limits if a member insurer fails.
IFC Segregated Funds 1
What is the primary legal structure of a segregated fund in Canada?