LLQP SEGREGATED FUNDS
COMPREHENSIVE TEST BANK PRACTICE
QUESTIONS AND RATIONALES
●● Guarantee in Segregated Funds
LLQP - SFA VL 01
Answer: With the segregated funds, the funds must guarantee
- A minimum of 75% if the investor's principle at death, or
- Upon a 10-year maturity mark
- Some Segregated Funds even guarantee as much as 100% at death or at
the 10-year mark.
As an investor, all the insurer is doing is guaranteeing what he put in..
what about growth?
This guarantee is only for peace of mind. The investor does hope that
they have positive returns, but worst case scenario. they have some level
of guarantee upon death or upon 10-year maturity mark.
●● Sally and Jacob are married and have a new born daughter. Jacob
will be the only income earner in the family and currently earns $50,000
,per year. What would happen to their young family if Jacob dies
permanently?
They have $200 available in their monthly budget and wanted to protect
against this risk.
They considered:
- Life insurance
- Segregated Fun Investment
One month later Jacob, died.
What would have happened if they bought
1. life insurance policy
2. Segregated Fund Investment
LLQP - SFA VL 01
Answer: 1. Purchase Life Insurance:
Based on his age, let's assume $200 per month would have purchased a
$1,000,000 life insurance [policy.
- Upon Jacob's death, Sally would receive death benefit of $1,000,000.
- this would be enough If invested properly, it would likely replace
Jacob's income so Sally and father would be taken care of.
,2. Invest in a Segregated Fund:
It has only been one month, so they would have been invested total
investment of $200.
- The fund would guarantee a minimum of 75% of their total investment
or current market value.
-The bottom line is, Sally would receive approx $200 which is clearly
not enough
●● Assume that Amanda has $5000 in her bank account that she would
like to invest in a stock market for several years to achieve growth.
What issues could Amanda face when she only $5,000 to invest in the
stock market?
LLQP - SFA VL 02
Answer: 1. Not enough knowledge/expertise to do the appropriate
research
2. Even if she has expertise, she may not have enough time to pick
stocks or it may not be justified for small investment
3. Not enough money to achieve a fully diversified portfolio. Most
experts would state you need upwards of 20 different stocks in 20
different companies in order to diversify a portfolio and $5,000 is not
enough.
, ●● What is mutual fund?
LLQP - SFA VL 02
Answer: 1. A mutual fund can be thought as a pot of money where many
investors contribute
2. Each investor obtains units of the fund based on how much he or she
contributes.
3. The fund manager invests the portfolio according to a specific
mandate. For example, if it is a equity fund, he would in invest in
equity.If it is a bond fund, he would invest in a bond.
4. The investors can sit back and let the fund manager do their job.
5. Profit or loss is determine by the amount contributed (how many
units) and the performance of the fund.
●● What are four advantages and two disadvantages associated with
mutual fund?
LLQP - SFA VL 02
Answer: Advantages:
COMPREHENSIVE TEST BANK PRACTICE
QUESTIONS AND RATIONALES
●● Guarantee in Segregated Funds
LLQP - SFA VL 01
Answer: With the segregated funds, the funds must guarantee
- A minimum of 75% if the investor's principle at death, or
- Upon a 10-year maturity mark
- Some Segregated Funds even guarantee as much as 100% at death or at
the 10-year mark.
As an investor, all the insurer is doing is guaranteeing what he put in..
what about growth?
This guarantee is only for peace of mind. The investor does hope that
they have positive returns, but worst case scenario. they have some level
of guarantee upon death or upon 10-year maturity mark.
●● Sally and Jacob are married and have a new born daughter. Jacob
will be the only income earner in the family and currently earns $50,000
,per year. What would happen to their young family if Jacob dies
permanently?
They have $200 available in their monthly budget and wanted to protect
against this risk.
They considered:
- Life insurance
- Segregated Fun Investment
One month later Jacob, died.
What would have happened if they bought
1. life insurance policy
2. Segregated Fund Investment
LLQP - SFA VL 01
Answer: 1. Purchase Life Insurance:
Based on his age, let's assume $200 per month would have purchased a
$1,000,000 life insurance [policy.
- Upon Jacob's death, Sally would receive death benefit of $1,000,000.
- this would be enough If invested properly, it would likely replace
Jacob's income so Sally and father would be taken care of.
,2. Invest in a Segregated Fund:
It has only been one month, so they would have been invested total
investment of $200.
- The fund would guarantee a minimum of 75% of their total investment
or current market value.
-The bottom line is, Sally would receive approx $200 which is clearly
not enough
●● Assume that Amanda has $5000 in her bank account that she would
like to invest in a stock market for several years to achieve growth.
What issues could Amanda face when she only $5,000 to invest in the
stock market?
LLQP - SFA VL 02
Answer: 1. Not enough knowledge/expertise to do the appropriate
research
2. Even if she has expertise, she may not have enough time to pick
stocks or it may not be justified for small investment
3. Not enough money to achieve a fully diversified portfolio. Most
experts would state you need upwards of 20 different stocks in 20
different companies in order to diversify a portfolio and $5,000 is not
enough.
, ●● What is mutual fund?
LLQP - SFA VL 02
Answer: 1. A mutual fund can be thought as a pot of money where many
investors contribute
2. Each investor obtains units of the fund based on how much he or she
contributes.
3. The fund manager invests the portfolio according to a specific
mandate. For example, if it is a equity fund, he would in invest in
equity.If it is a bond fund, he would invest in a bond.
4. The investors can sit back and let the fund manager do their job.
5. Profit or loss is determine by the amount contributed (how many
units) and the performance of the fund.
●● What are four advantages and two disadvantages associated with
mutual fund?
LLQP - SFA VL 02
Answer: Advantages:
