Segregated Funds Exam Questions and Answers (Graded A+)

What document must a client be given prior to completing an application for an individual Variable Insurance Contract (IVIC)? - ANSWER-Information folder: the information folder contains all of the essential information for an informed purchasing decision, thus, it must be given to the client before he completes an application and makes the decision to purchase an IVIC What is a segregated fund? - ANSWER-A segregated fund is a pool of funds held by an insurance company What are the six exclusive features of segregated funds? - ANSWER-1. Maturity guarantee and death benefit guarantee 2. bypass of probate 3. creditor protection 4. bankruptcy protection 5. reset feature 6. favorable tax treatment What is a bond fund? - ANSWER-A bond fund or debt fund is a fund that invests with bonds which can be contrasted with stock funds and money funds What is a balanced fund? - ANSWER-Balanced funds own both stocks and bonds, they keep the balance between the two asset classes by usually placing 60% of their assets in stocks and 40% in bonds What is an equity fund? - ANSWER-An equity fund is a mutual fund that invests principally in stocks. Equity funds are also known as stock funds. What is the formula for the proportional reduction method? - ANSWER-Amount of money withdrawn / Current market value = % amount that the guarantee will be reduced by What ownership rights does the policyholder of an IVIC have regarding the assets owned by the segregated fund of an insurance company? - ANSWER-None: the policyholder of an IVIC owns a contract with the insurer What are the major differences between a mutual fund and an IVIC? - ANSWER-The mutual fund does not offer any guarantees whereas an IVIC offers maturity and death benefit guarantees The mutual fund does not bypass the estate or probate process whereas the segregated fund does The mutual fund does not offer any creditor protection whereas the segregated fund does What is a reset option in an IVIC? - ANSWER-A reset option allows the contract holder to lock in investment gains if the market value of a segregated fund contract increases. This resets the contract's deposit value to equal the greater of the deposit value or current market value, restarts the contract term, and extends the maturity date What is the difference between a "linear reduction method" and a "proportional reduction method" in an IVIC? - ANSWER-The liner reduction method reduces the principal value by the dollar amount withdrawn. The proportional reduction method reduces proportionally from the principal and the growth in the account What is a deferred annuity? - ANSWER-A deferred annuity is a contract that is purchased, generally with a lump sum amount of money, providing a guaranteed sum of