Segregated Funds and
Annuities (SFA) questions and
answers
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 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:
1. Professional money management . A fund will hire a money manager to
manage the portfolio in accordance to the funds objective. For example, if it
is a bond fund, they will hire a bond manager.
2. Easy of investing. In any given business days, you can contact the issuer
and make an investment
3. Diversification. For example, if you are building your own stock portfolio,
you would need to invest in many different companies. But if you are
investing in a fund, you are instantly diversified by the fact the fund itself is
diversified.
4. Liquidity (redemption/switched). It is relatively easy to redeem units or
switch from one fund to another.
Disadvantages:
1. fees. When you invest in a fund, you could pay load fee which is a form of
a commission or you also pay management fee.
Annuities (SFA) questions and
answers
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 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:
1. Professional money management . A fund will hire a money manager to
manage the portfolio in accordance to the funds objective. For example, if it
is a bond fund, they will hire a bond manager.
2. Easy of investing. In any given business days, you can contact the issuer
and make an investment
3. Diversification. For example, if you are building your own stock portfolio,
you would need to invest in many different companies. But if you are
investing in a fund, you are instantly diversified by the fact the fund itself is
diversified.
4. Liquidity (redemption/switched). It is relatively easy to redeem units or
switch from one fund to another.
Disadvantages:
1. fees. When you invest in a fund, you could pay load fee which is a form of
a commission or you also pay management fee.
