Subsequent deposits must come from registered money, subject to Sun Life Assurance Company of Canada limits, and may be added at any time. The minimum for a guaranteed investment into an Income Builder account is $1,000. The minimum investment into an Income Provider account is $10,000.
Interest rates are subject to change at any time as dictated by market conditions. The interest rate assigned to a guaranteed investment will be the rate in effect on the date of the rate guarantee. A rate guarantee may be used to guarantee the current interest rate for 45 days.
The policy value on any date will be the total amount in all investments on that date, including accrued interest.
If the policy value is less than $500 at any time, we may pay the policy value to the client, subject to the MVA calculation, and thereby terminate the policy.
Money in any guaranteed investment will renew automatically at the maturity date, into a new investment with the same term, except if the new term exceeds the age limits and/or payout period.
On or before the maturity, the owner may advise us to direct the funds into an investment of a different term. Instructions received after the maturity will incur an MVA.
At any time, the owner may elect to transfer all or part of their Income Master RRIF policy to a payout annuity, subject to an MVA if applicable.
The type of payout annuity chosen is subject to those available, based on tax status and the client’s age at the time of purchase.
The policy owner may choose for the spouse to receive continuation of annuity payments or a lump sum.
Designating a spouse to receive continuation of payments will make the spouse a successor annuitant. A successor annuitant takes over all ownership rights of the policy. They control the funds and may designate beneficiaries. However, there can be no changes in the life whose age has been designated to calculate the minimum annual payment. Upon entering a legal or common-law marriage, the successor annuitant may name the new spouse as successor annuitant to the policy.
Naming a spouse as the recipient of a lump sum enables the surviving spouse to transfer the lump sum to his/her RRSP or RRIF and have full control of the policy.
A person other than the spouse can only be named to receive a lump sum. A lump sum death benefit is the policy value at the date of death after the full minimum annual payment for the year of the death has been paid. The MVA calculation will not apply.
Upon death of all payees if no designation has been made, the death benefit will be paid to the estate of the last survivor of the payees. Designation of a payee on the death of the owner can be made either in the application or in the owner’s will.
Withdrawals and transfers
A Client may request an unscheduled payment at any time, subject to an MVA. Currently, the unscheduled payment minimum is $500.
The funds in an investment may be withdrawn and transferred to open a new investment at any time. The amount transferred must meet the minimum required to open the new investment. Any transfer is subject to an MVA.
The client MUST select either the Builder account or the specific Provider investment from which the withdrawal is to be made. All withdrawals from the Builder account will be withdrawn from both the interest and principal portion of each of the investments, in proportion to the value of that investment on the payment date.
Once per calendar year, withdrawals of up to 5% of the policy balance can be made and are not subject to MVA, provided the withdrawal does not deplete the investment prior to maturity.
Withdrawals may affect the selected payment schedule.
Market Value Adjustment (MVA)
If a guaranteed investment is terminated before maturity, the investment is subject to an MVA. No MVA applies to withdrawals from the Daily Interest Account. The amount of an MVA is the difference between the accumulated value and the cash surrender value.
One of the least understood concepts is the MVA. Understanding how and why the MVA works is something you can use effectively to your advantage.
Why are MVAs necessary?
Financial institutions offering guaranteed investments are at an investment risk and suffer expense losses on early termination of these investments. Therefore, MVAs are necessary to ensure money is not lost.
When do MVAs occur?
Whenever funds are surrendered from a guaranteed investment prior to the investment’s end date.
Are MVAs unique to Sun Life?
No. All financial institutions use adjustments of various sorts. It’s important your clients consider these adjustments when comparing the guaranteed investments of financial institutions.
How can you best deal with MVAs?
Don’t let your clients put money into a guaranteed investment for a period extending beyond the foreseeable time that money will be needed.
How are MVAs calculated?
There are three parts to our MVA:
Investment adjustment to offset our investment risk
The objective of the investment adjustment is to compensate for current interest rates being different than the contract rate. The net result is the client neither gains nor loses from a withdrawal which subsequently reinvested at current rates. We must cash in the investments we have made (bonds, mortgages) so the loss or gain that we incur as a result of the client’s request to withdraw funds from their policy is passed on to the client.
Expense adjustment to recover upfront expenses
The expense adjustment is used to recover the expenses incurred when the contract is issued such as selling and administrative expenses. These expenses are normally recovered on an annual basis throughout the duration of the contract. If an early withdrawal of the funds is made, we must recoup those expenses that have not yet been recovered. This adjustment also covers the extra expenses involved in processing the early withdrawal.
Expense adjustment to account for liquidity risk
Liquidity risk arises whenever the liability holders (Clients) demand immediate cash for their financial claims. There are times when this demand for cash results in larger than normal withdrawals for a financial institution. As a consequence, the institution may have to sell some of their less liquid assets to meet the withdrawal demands of the liability holders. Also, some assets with thin markets generate lower prices when the sale is immediate than if the financial institution had more time to negotiate the sale. Sun Life must account for this expense associated with liquidity risk. The expense adjustments represent the adjustment to the interest rates used in determining the cash value.
These expense adjustments can vary by product and are subject to change. They are based on levels at the time of withdrawal, not at the date of deposit.
The calculation of the market value involves:
- projecting the expected cash flows (maturity value) at the contract rate
- finding the discount rate, which reflects current interest rates plus the expense adjustment for upfront expenses and liquidity risk
- calculating the cash surrender value by discounting the expected cash flows at the discount rate to the cash value date
- the MVA is the difference between the accumulated value and the cash surrender value