Segregated Funds and Annuities (SFA) Questions and Answers (Graded A+)

What is Segregated Funds LLQP - SFA VL 01 - ANSWER-Segregated Fund is also an investment. it is just a fancy version of mutual fund. Segregated Fund is an insurance product, and it is an investment. Segregated Funds offer some unique features that mutual funds generally do not, such as: - Guarantees - Ability to BY-Pass Probate - Creditor Proofing A segregated Fund is a great product but remember it's not Life Insurance! rather, it's an investment somewhat similar to a Mutual Fund. 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 con