Segregated Funds Flashcards
7 cards from real IFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Segregated Funds flashcards as text
What does a 'reset' option in a segregated fund allow the contract holder to do?
Answer: Lock in a higher current market value as the new guarantee base
A reset option permits the contract holder to lock in a higher current market value as the new base for the maturity or death benefit guarantee, effectively ratcheting up the guaranteed minimum.
An investor deposits $100,000 into a segregated fund with a 75% maturity guarantee. If the fund falls to $60,000 by maturity, how much will the investor receive?
Answer: $75,000 — the guaranteed minimum
The 75% maturity guarantee ensures the investor receives at least $75,000 (75% of $100,000) regardless of market performance.
Which of the following best describes the death benefit guarantee in a segregated fund?
Answer: It ensures beneficiaries receive at least the guaranteed minimum even if the fund value is lower
The death benefit guarantee ensures beneficiaries receive the greater of the current fund value or the guaranteed minimum (typically 75–100% of net premiums) upon the annuitant's death.
How does naming a beneficiary directly on a segregated fund benefit the contract holder's estate plan?
Answer: It allows death proceeds to bypass the estate, potentially avoiding probate fees
Proceeds paid directly to a named beneficiary bypass the estate, avoiding probate fees and potentially expediting the transfer of funds to heirs.
What happens to a segregated fund's maturity guarantee if the contract holder makes a partial withdrawal?
Answer: The guarantee is proportionally reduced based on the amount withdrawn
Partial withdrawals reduce the net premiums paid calculation, proportionally lowering the maturity guarantee since the guarantee is tied to net premiums (contributions minus withdrawals).
Which type of investor would benefit MOST from the potential creditor protection offered by segregated funds?
Answer: A self-employed professional or business owner with personal liability exposure
Self-employed individuals and business owners face greater personal creditor risk, making the potential creditor protection of segregated funds with named beneficiaries particularly valuable to them.
If an investor exercises a reset option on a segregated fund when the market value has increased, what is the primary consequence?
Answer: The contract term is extended by another 10 years from the reset date
When a reset is exercised, the new 10-year maturity guarantee period restarts from the reset date, which means the contract term extends — a key trade-off of using the reset feature.