Segregated Fund Fundamentals
This module covers the foundational concepts tested in the Segregated Funds and Annuities component of the LLQP: what a segregated fund is, why it is legally an insurance contract, the parties to a contract, and how segregated funds compare with mutual funds. Mastering these basics is necessary before moving to guarantee mechanics and estate-planning features.
ExamCAN is an independent study tool; "LLQP" is used here for identification only. Content is derived from public primary sources: the CISRO LLQP competency profile, the Insurance Companies Act (Canada), the Income Tax Act (Canada) (s. 138.1), provincial Insurance Acts, and the CISRO/AMF published curriculum. Verify current figures and regulatory requirements against the CISRO curriculum before your exam.
A segregated fund is an investment product sold exclusively by life insurance companies. Its legal name is an Individual Variable Insurance Contract (IVIC). Three words in that name carry weight:
- Individual -- the contract is between one insurer and one contract owner, not a pooled registration like a mutual fund trust.
- Variable -- the benefit payable on maturity or death varies with the market value of the underlying assets.
- Insurance Contract -- the product is governed by provincial Insurance Acts, not by securities legislation. This one fact drives nearly every distinguishing feature: beneficiary designations, probate bypass, creditor protection, and guarantee obligations.
The fund assets are kept separate (hence "segregated") from the insurer's general assets. The insurer cannot commingle policyholders' fund assets with its own capital. This separation protects contract holders if the insurer were to become insolvent, because the segregated fund assets belong to the fund trust, not to the insurer's creditors.
Under s. 138.1 of the Income Tax Act (Canada), a related segregated fund trust is deemed to exist for tax purposes. The insurer acts as trustee.
Memory hook: "IVIC = Insurance Wrapper over an Investment." Every exam feature -- guarantees, beneficiary, probate bypass -- flows from the insurance-wrapper fact.