Key Concepts:
A segregated fund with a guaranteed death benefit ensures that the investor (or their estate) receives at least a certain percentage of the initial investment in case of death. This percentage is applied to the original investment amount, and if the market value of the segregated fund at the time of death is lower than this guaranteed amount, the insurance company pays the shortfall.
Step-by-step Explanation:
Initial Investment in the Segregated Fund: Tom invested $100,000 into a segregated fund with a 75% death benefit guarantee .
Guaranteed amount = 75% × $100,000 = $75,000 .
Market Value at the Time of Death: The market value of the segregated fund is $70,000 at the time of Tom ' s death.
Shortfall Calculation: The guaranteed amount ($75,000) is greater than the market value ($70,000).
Shortfall = $75,000 - $70,000 = $5,000 .
Death Benefit Payable: Since the segregated fund guarantees at least $75,000, the insurance company will pay the shortfall of $5,000 to the estate.
Answer:
Option A ($0): Incorrect; there is a shortfall between the guaranteed amount and the market value, so a payout will occur.
Option B ($70,000): Incorrect; this is the market value, not the shortfall amount.
Option C ($30,000): Incorrect; this value does not align with the 75% guarantee calculation.
Option D ($5,000): Correct; this is the shortfall amount payable as the death benefit.
References to Canadian Securities Course Exam 2 Study Materials:
Volume 2, Chapter 22 – Segregated Funds
Volume 2, Chapter 24 – Canadian Taxation
Highlights how RRSP investments, such as segregated funds, are treated upon the investor ' s death.
Volume 2, Chapter 26 – Working with the Retail Client
Discusses estate planning considerations, including the role of segregated funds in ensuring financial protection.
