6 – SEGREGATED FUND CONTRACT

6.1 Contracts
6.2 Investor requirements
6.3 Agent requirements
6.4 Claims

6.1 Contracts

A contract is a legally binding agreement between two parties. In this context, it refers to the agreement between an insurer and an investor, outlining rights, obligations, and investment terms.

🧠 Key purpose of contracts

📜 Define terms and conditions
⚖️ Protect both parties
🔒 Ensure clarity and enforceability

6.1.1 Segregated fund contract

📊 Also called Individual Variable Insurance Contract (IVIC)

💡 What it does

👉 Defines how the segregated fund investment works, including:

Buying the investment
Withdrawing funds
Terminating the contract
Receiving benefits

📄 Disclosure documents

Explain:
- Investment features
- Risks
- Costs

🛡️ Insurer commitments

The insurer guarantees and defines:

🛡️ Guarantees and benefits
📊 How fund value is calculated
💰 Allocation of premium for guarantees
📅 When values are determined
💸 Fees and charges
🔄 Right to modify contract

📋 What the contract includes

📊 List of available segregated funds
💸 Fees, expenses, and MER
⚠️ Risk disclosure
🛡️ Guarantee details

🔁 Right of rescission (cooling-off period)

📌 Key rules

📝 Can cancel within 2 business days
💰 Refund = lesser of:
- Amount invested
- Current market value
💸 Fees are refunded

⏳ Important timing rule

Confirmation deemed received 5 days after mailing

⚖️ Investor protection

👉 All contracts must include these disclosures
👉 Ensures consistent protection across insurers

📬 Contract delivery

May be:
- Attached to application
- Sent after application

⚠️ Important distinction

Sample contract ≠ purchase
Purchase confirmed only when:
- Contract is active
- Deposit is received

📅 Effective date

Based on:
- Valuation date after deposit
- All conditions met

🔢 Policy number

Unique identifier
Used for:
- Instructions
- Communication with insurer

🧠 Key Takeaways

📜 Contracts define legal relationship between insurer and investor
📊 Segregated fund contract (IVIC) outlines all investment rules
🛡️ Includes guarantees, fees, risks, and rights
🔁 Right of rescission provides short-term cancellation protection
📅 Contract becomes active only after conditions are met
🔢 Policy number is essential for all communications

6.2 Investor requirements

To establish a segregated fund contract, the investor must provide accurate information and funding. These requirements ensure the contract is properly set up and suitable for the investor’s needs.

🧠 Key responsibilities of the investor

📝 Provide accurate and truthful information
🎯 Make informed decisions about investments
🤝 Understand recommendations and consequences

⚠️ Agent responsibility

Ensure client understands decisions
Seek guidance if client comprehension is uncertain

💰 Second requirement

👉 Investor must deposit funds into the contract

6.2.1 Application form

📄 Foundation of the contract

📌 Key process

Completed by:
- Investor (provides info)
- Agent (records info)
Can be:
- In-person
- Virtual

⚠️ Important considerations

Must be completed carefully
Incomplete application → rejected
Language barriers → must resolve before proceeding

✍️ Signatures

Required from:
- Contract owner
- Annuitant (if different)
Confirms:
- Accuracy
- Agreement

⚖️ Power of Attorney (POA)

POA may sign on behalf of owner
Rights depend on legal authority
May NOT include beneficiary designation

📄 Reason-why letter

🧾 Mandatory suitability document

📌 Purpose

Confirms client needs
Explains recommendations
Documents suitability

💡 Key contents

Facts and instructions
Needs addressed (and unmet)
Reasons for recommendation
Proof of client understanding

6.2.1.1 Registered or non-registered form

📊 Tax structure of the contract

🟢 Registered contract

Tax-deferred growth
Owner = annuitant
Cannot:
- Transfer ownership
- Use as collateral

🟡 Non-registered contract

Flexible ownership:
- Individual
- Joint
- Corporation

💡 Benefits

Ownership transferable
Can be used as collateral

⚠️ Key requirement

SIN (or business number) required

6.2.1.2 Naming annuitant and beneficiary

👤 Key roles in the contract

👤 Annuitant

Life on which guarantees are based
Death triggers benefit

⚠️ Important

Cannot be changed once named
Contingent annuitant may be allowed

👨‍👩‍👧 Beneficiary

Receives death benefit

📌 Options

Revocable
Irrevocable

⚠️ Irrevocable beneficiary

Limits owner control
Consent required for withdrawals

💡 Best practice

Use cautiously

📊 Multiple beneficiaries

Must assign percentages
Can name contingent beneficiaries

6.2.1.3 Rider election form

📎 Optional feature selection (e.g., GMWB)

📌 Includes

Election of rider
Payment options
Fund selection
Deposit requirements
Payment frequency

⚠️ Important

Excess withdrawals reduce future benefits

6.2.1.4 Client identification requirements

🔍 Regulatory compliance (FINTRAC)

🧠 Purpose

Prevent:
- Money laundering
- Terrorist financing

📌 Key triggers

$10,000+ transactions
Suspicious activity

📋 Identification methods

📷 Photo ID
📄 Credit file
🔁 Dual-process method

⚠️ Additional checks

Politically exposed persons (PEP)
Third-party involvement

🚨 Reporting obligations

Suspicious transactions → must report
No minimum threshold

6.2.2 The initial deposit

💰 Funding the contract

📌 Deposit methods

Cheque
Transfer
Pre-authorized debit (PAD)

📅 PAD features

Flexible frequency:
- Weekly to annually
Requires banking details

📊 Allocation

Can invest in:
- One fund
- Multiple funds

💡 Investor choice

Allocate:
- Dollar amount OR
- Percentage

⚠️ Special case

Locked-in funds → spousal consent may be required

⏳ Age limits

RRSP/LIRA contributions → until age 71

🔄 Conversion options

RRSP → RRIF
LIRA → LIF / LRIF / PRRIF