Segregated Funds and Annuities Flashcards

What is the minimum maturity guarantee required by Canadian insurance regulators for segregated fund contracts?

Answer: 75% of deposits

Canadian insurance regulators require a minimum maturity guarantee of 75% of deposits, though many contracts offer 100% guarantees.

What is the 'reset' feature in a segregated fund contract?

Answer: The ability to lock in market gains by resetting the guarantee amount to the current market value

The reset feature allows contract holders to lock in investment gains by resetting the guarantee amount to the current higher market value, starting a new guarantee period.

How are segregated fund death benefit proceeds treated for estate planning purposes in Canada?

Answer: They can bypass probate and pass directly to the named beneficiary

Segregated fund proceeds paid to a named beneficiary bypass the estate and probate process, providing faster distribution and potential probate fee savings.

What is a 'life annuity' and how does it provide retirement income?

Answer: A contract that provides guaranteed periodic income payments for the annuitant's lifetime

A life annuity converts a lump sum into guaranteed periodic income payments that continue for the annuitant's entire lifetime, regardless of how long they live.

What is the key difference between a segregated fund and a mutual fund in terms of creditor protection?

Answer: Segregated funds may offer creditor protection when a family-class beneficiary is named, while mutual funds generally do not

Segregated funds, as insurance contracts, may provide creditor protection when a family-class beneficiary is named, while mutual funds as securities generally do not offer this protection.

What is a 'prescribed annuity' under Canadian tax law?

Answer: An annuity where the taxable portion of each payment is level over the payment period

A prescribed annuity spreads the taxable income component evenly over all payments, resulting in lower taxable income in the early years compared to a non-prescribed annuity.