Individual Variable Insurance Contracts

Individual Variable Insurance Contracts

1. Basic info

   • Similar to mutual funds
   • Inception date = first offer
   • Registered or not
   • Described in a investment folder
   • CLHIA G2 guidelines
     • Advertising disclosure;  Pre-sale disclosure requirements; Policy disclosure, including minimum contractual terms; Policyholder rights; Audit and accounting requirements; Investment disclosure; Minimum investments standards; Corporate governance of segregated funds; Partitioning of assets held in segregated funds; Closing of segregated funds; and Fundamental changes to and merger of segregated funds. 

2. Guarantees

   • Types
     • Maturity 75/100
       • Policy-based: 10 years to December 31st
       • Deposit-base: 10 years from every deposit, multiple anniversaries
       • Received by the annuitant or on his death
     • Death benefit 75/100
       • No probate fees if there is a beneficiary

3. Advantages

   • Reset option
   • Assuris: 100% if <= 60000; 85% if not
   • Creditor protection (beneficiary preferred/irrevocable, or registered plan)
   • No underwriting
   • Value increase
     • Market value increase
     • More allocation
       • Reinvested, and ACB increase
   • Probate bypass
   • Tax benefit on losses
   • Variety of funds
     • A switch is a new purchase
   • Liquidity
   • Professional management

4. Return

   • Lump-sum
   • Income Benefit Plan
     • GMWB
       • Withdrawals consider the initial deposit
     • GLWB

5. Fees

   • MER
     • Trailing
       • % of market value
     • ETF< Mutual< Group IVIC < IVIC
     • Information folder
       • Demonstration
         • Average, and year-by-year
         • $ 1000 benchmark
         • Guarantees of contract
         • Positive and negative performance
       • Deliver in person or eletronically
       • Acceptance in writing or conversation
     • Higher total value, lower MER
     • Actual gain = Rate of return - MER
   • Sales
     • FEL
       • % of deposit; negotiable
       • Contract value = Investment - FEL
     • Deferred sales charge
       • Decreasing every year
       • Fee = Amount withdrawan x Rate applicable
     • No sales charge
       • MER ends up being higher
     • Back-end load
       • On the total of the fund

6. Types

   • Money market
     • Minimal income, no growth
   • Bond funds
   • Equity
   • Income
   • Balanced
     • - Growth focus more on stocks - Income focus more on fixed income&nbsp;
   • Target date
   • Dividend
   • Mortgage
   • Real estate
   • Index
   • Fund
   • Specialty
   • Canadian Investment Funds Standards Committee (CIFSC) define types

7. Taxes

   • Taxes are always over earned income
   • Non-registered/TFSA
     • Premiums are not deductible;
     • Yearly report of interest, dividends, capital gain, foreign income on allocation
       • NAVPU = (total value of assets - liability)/ number of outstanding units
       • ACB = Initial investment + Allocations
       • Tax = [Investment + (Capital gain x 50%)] x MRT
       • Value of the fund = Units x value per unit
     • Withdrawals as per ACB, except TFSA
     • Benefit taxed only on "top-up", as capital gain
   • Registered
     • Premiums are deductible, except RESP and RDSP
     • Tax withholding on withdrawal; same rate as interest income; only on additional for RRIF
       • Interest taxed 100%, capital gains 50%
     • Benefit is taxable on maturity
       • - Spouse rollover on RRSP, and RRIF

8. Age restrictions

   • RRSP: year of 71
   • RRIF: 90
   • NR/TFSA: 90

9. Disadvantages

   • Maturity only after 10y
   • Higher annual fees
   • Age restriction (80 yo)
   • Many choices, little diferention

10. Claim

    • Beneficiary can only claim after death
    • PoA can claim

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