LLQP Seg Funds flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Maturity guarantee

A promise that a segregated fund contract will be worth at least 75% or 100% of deposits, less withdrawals, on the maturity date, typically ten years after the deposit.

Death benefit guarantee

If the annuitant dies, the insurer pays the beneficiary at least 75% or 100% of deposits minus withdrawals, or the market value if greater, depending on contract terms.

Proportional guarantee reduction

Withdrawing money reduces the maturity and death guarantees by the same percentage that the contract value falls, not by the dollar amount withdrawn.

Reset feature

A contract provision that recalculates the guarantee at a higher market value, automatically on set dates or when the client requests, and may restart the maturity period.

Individual variable insurance contract

A life insurance contract whose value tracks a segregated investment portfolio; the policyholder owns an insurance contract with guarantees, not the underlying securities.

Information folder

The document an insurer must deliver before sale describing the contract, its funds, guarantee mechanics, fees and risks, serving a role similar to a simplified prospectus.

Fund Facts document

A short plain-language summary for one segregated fund covering its performance, risk rating, costs and top holdings, required to be delivered to the client.

OSFI

The federal regulator that oversees the solvency and financial condition of life insurers selling segregated funds; provincial regulators handle licensing and market conduct.

Know your product

The obligation to understand a segregated fund's mandate, risk level, fees, guarantee features and reset rules before recommending it to a client.

Annual policyholder statement

A report insurers must send contract holders at least yearly, showing contract value, deposits, withdrawals, guarantees and transactions so the client can monitor progress.

Accrual taxation

Income earned inside a non-registered segregated fund, such as interest, dividends and realized gains, is reported and taxed to the policyholder annually even without a withdrawal.

Policy gain

The excess of a withdrawal or death benefit over the contract's adjusted cost base; it is taxed as ordinary income with no capital gains inclusion.

Spousal rollover at death

When the beneficiary is the deceased's spouse or common-law partner, the contract can transfer tax-deferred under the Income Tax Act, postponing the policy gain.

Registered segregated fund contract

A segregated fund held inside an RRSP, RRIF, TFSA or RESP, where annual income is not reported and taxation follows the registered plan's withdrawal rules.

Adjusted cost base

Total deposits plus income already taxed, reduced proportionally by withdrawals; it is the cost figure used to calculate the taxable policy gain on redemption or death.

Time horizon matching

Because guarantees are paid only at maturity or death, money needed earlier depends on market value and may not benefit from the guarantee.

Estate preservation need

A client goal of guaranteeing a minimum amount to heirs; a death benefit guarantee addresses it regardless of market levels at the time of death.

Creditor protection analysis

Whether a beneficiary designation or irrevocable designation shields the contract from the policyholder's creditors; protection depends on provincial law and is not automatic.

Probate avoidance

Naming a beneficiary lets death benefit proceeds pass directly to that person, generally outside the estate and therefore outside probate and estate fees.

Risk tolerance assessment

The client's willingness and financial ability to accept market declines, which determines the appropriate asset mix and guarantee level.

Know your client

Collecting and documenting the client's financial situation, objectives, time horizon, risk tolerance, investment knowledge and constraints before any recommendation.

Reasonable basis

The suitability requirement that an advisor have an objective, documented reason, grounded in client knowledge and product knowledge, for each recommendation made.

Guarantee level trade-off

Higher guarantees, such as 100% instead of 75%, cost more in insurance fees, so the level chosen should match the protection the client actually needs.

Diversification

Spreading money across asset classes, managers and regions to reduce risk, applied both inside the contract and across the client's total portfolio.

Material change review

Reassessing the recommendation when income, health, family status or objectives change, and documenting the review and any revised advice in the file.

Free look period

A right under provincial insurance law to cancel a newly delivered segregated fund contract within a set period after receiving it and obtain a refund.

Pre-sale disclosure

Delivering the information folder and Fund Facts so the client can review guarantees, fees and risks before signing the application, and recording that delivery.

Application record

The form recording owner, annuitant, beneficiary, guarantee options, fund allocation, client information and the reason for the recommendation.

Identity verification

Confirming the client's identity and screening against money-laundering, terrorist-financing and sanctions requirements before the application is submitted to the insurer.

Replacement

New coverage or a new contract substituting for existing insurance or segregated funds; it requires a comparison form and documented justification of suitability.

Surrender charge

A fee some contracts charge for early redemption, which a replacement analysis must quantify along with lost guarantees and any taxable gain triggered.

Ongoing service review

Regular meetings reviewing performance, guarantee levels, resets, beneficiaries and changed circumstances, with notes kept to evidence the advice given.