Textbook Notes (367,747)
Canada (161,363)
RSM230H1 (34)
Chapter 20

CSC_Chapter 20 Segregated Funds and Other Insurance Products.pdf

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Rotman Commerce
Laurence Booth

Chapter 20: Segregated Funds and Other Insurance Products December-13-11 12:45 AM Segregated Funds ○ Money is pooled and invested in securities with the goal of enhancing wealth (similar to mutual funds) ○ Only available from insurance companies & structured as insurance contracts • No ownership of the underlying assets: contract is with the insurance company • Exempt from securities laws and subject to insurance laws ○ Separation of annuitant and beneficiary  Annuitant is the person being insured  Beneficiary is the person receiving the benefit (There are restrictions on who can be a beneficiary) Features of Segregated Funds ○ Segregated fundshave unique features that enable them to meet special client needs, such as:  Maturity protection  Death benefits  Creditor protection ○ Regulated by provincial insurance regulators bc they are insurance contracts  Segregated funds are life insurance contracts, known as individual variableinsurancecontracts (IVICs), between a contract holder and an insurance company ○ These special features incur greater costs as such have higher MERs than uninsured funds  MERs incorporate the cost of the guaranteed benefit ○ Investors assigned notional units (because investors are not owners in the fund) so as to compare against mutual funds ○ Contract covers three parties: i. The person who bought the contract - the contract holder or owner of the contract ii. The person on whose life the insurance benefits are based - the annuitant iii. The person who will receive the benefits payable under the contract upon death of the annuitant - the beneficiary. (a contract may have more than one beneficiary) Critical Features of Segregated Funds ○ Segregation of Assets  Funds are “segregated” from the general assets of the insurance company: protection form firm’s bankruptcy ○ Guarantees:  By law have to guarantee at least 75% (usually 100%) of net contributions when contract matures or on death ○ Potential creditor protection  Generally protected against seizure by creditors.  Useful for business owners and professionals in case of unexpected lawsuit or bankruptcy. ○ Cost-Effective Estate Planning  Generally not subject to probate fees (charges by provincial governments based on a percentage of estate’s asset value)  Proceeds pass directly to beneficiary Segregated Funds vs Mutual Funds Features Segregated Funds
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