IFC Segregated Funds 2

Question 1

What does a 'reset' option in a segregated fund allow the contract holder to do?

Accepted Answer

Lock in a higher current market value as the new guarantee base

Answer

Switch the contract to a different insurance company without penalty

Answer

Reset the management expense ratio after a period of poor performance

Answer

Transfer accumulated units to a RRSP without tax consequences

Question 2

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?

Accepted Answer

$75,000 — the guaranteed minimum

Answer

$60,000 — the current market value

Answer

$100,000 — the full original premium

Answer

$85,000 — the average of current and original value

Question 3

Which of the following best describes the death benefit guarantee in a segregated fund?

Accepted Answer

It ensures beneficiaries receive at least the guaranteed minimum even if the fund value is lower

Answer

It guarantees investment growth above the rate of inflation upon death

Answer

It eliminates management fees charged upon the annuitant's death

Answer

It allows tax-free transfer of all assets to beneficiaries

Question 4

How does naming a beneficiary directly on a segregated fund benefit the contract holder's estate plan?

Accepted Answer

It allows death proceeds to bypass the estate, potentially avoiding probate fees

Answer

It increases the fund's guaranteed return rate by 0.5%

Answer

It reduces the annual management expense ratio

Answer

It provides a deduction against the contract holder's taxable income

Question 5

What happens to a segregated fund's maturity guarantee if the contract holder makes a partial withdrawal?

Accepted Answer

The guarantee is proportionally reduced based on the amount withdrawn

Answer

The guarantee remains completely unchanged

Answer

The guarantee is fully eliminated once any withdrawal occurs

Answer

The guarantee is doubled to compensate for the reduced balance

Question 6

Which type of investor would benefit MOST from the potential creditor protection offered by segregated funds?

Accepted Answer

A self-employed professional or business owner with personal liability exposure

Answer

A retired government employee with a defined benefit pension

Answer

A salaried employee with comprehensive employer benefits

Answer

A foreign investor seeking offshore tax advantages

Question 7

If an investor exercises a reset option on a segregated fund when the market value has increased, what is the primary consequence?

Accepted Answer

The contract term is extended by another 10 years from the reset date

Answer

The management expense ratio increases to reflect the higher guarantee base

Answer

The original maturity date is moved forward by 5 years

Answer

The contract is immediately redeemed at the higher value