Insurance GICs advisor resources

• A client may request an adhoc withdrawal at any time, subject to a Market Value Adjustment (MVA) if processed prior to an investment maturity date.
  • Note: An MVA can be significant enough that it decreases the value to less than the original investment amount.
• The minimum unscheduled withdrawal amount is $500.
• There is no MVA when taking a withdrawal from the Daily Interest Investment.

For Income Master RRIF, the first unscheduled withdrawal, of up to 10% (of the January 1^st policy value), each calendar year is not subject to MVA. However, this withdrawal cannot be an amount that, given the income schedule, will deplete the investment prior to maturity. Additional withdrawals (after the 10% MVA free portion) are subject to an MVA.

Superflex accumulation annuity

• $1,000 for guaranteed investments (compound and annual interest)
• $5,000 for annual and monthly interest payout guaranteed investments
• $250 for daily interest investment
• Pre-authorized chequing (PAC) available into daily interest - $50 monthly (not available on LIRA or locked-in RRSP)

Income Master RRIF

• Initial policy minimum $5,000
• No pre-authorized chequing (PAC)
• Payment minimum - If the full amount of the legislated minimum income has not been met, the balance will be paid out December 31 each year

Minimum age requirement to purchase insurance GICs

• RRSP/ RRIF / TFSA: age 18
• Non-registered: age 16 (in Quebec, age 18)

Jointly-owned Superflex accumulation annuities (applicable to new contracts issued December 2009 and forward)

• Upon the death of an owner who is not the last surviving annuitant, the other joint owner will be considered to be the contingent owner (in Quebec, subrogated policyholder) of the deceased owner’s share of the contract, unless otherwise stated on the application.
• A successor annuitant can be named. If a successor annuitant is named and is alive upon the death of the annuitant, the contract will continue after the death of the annuitant and no death benefit will be payable.

Important points to remember on jointly-owned accumulation annuities (Superflex):

• Joint ownership is only permitted on non-registered policies.
• Accumulation annuities require that an annuitant be named.
• Laws that apply are the Insurance Acts in common-law provinces and the Civil Code in Quebec.
• For clarity, a contingent owner should be named for each owner who is not also the annuitant.

Information: What happens at death?

If the annuitant dies and no successor annuitant has been named:

• The policy terminates – regardless of who the owner is.
• The surviving joint owner(s) does/do not take over ownership of this policy and is/are not entitled to the death claim proceeds (unless they are also the named beneficiary, or no beneficiary has been named). The named beneficiary(ies) receive the death claim proceeds.

If the annuitant dies and a successor annuitant has been named:

• If the annuitant is one of the joint owners, his or her share of the ownership will be transferred to the contingent owner for that share and the successor annuitant will become the annuitant. If there is no contingent owner, the other joint owner will be considered to be the owner of the deceased owner's share.
• New owner(s) can update successor annuitant and contingent owner and beneficiary if desired.
• If the annuitant is not one of the joint owners, owners will remain unchanged and the successor annuitant will become the annuitant.
• No death benefit is payable.

If the joint owner dies (and that joint owner is not the annuitant of the policy):

• If a contingent owner who is the surviving joint owner has been named, the deceased joint owner's share of the policy would pass automatically to the surviving joint owner, resulting in the policy being owned 100% by the surviving owner.
• If a contingent owner who was not one of the joint owners had been named, the deceased joint owner's share of the policy would pass automatically to the contingent owner, resulting in the policy being 50% owned by the surviving joint owner and 50% owned by the former contingent owner. (The owners may wish to appoint new contingent owners at this time.)
• If no contingent owner has been named, the other joint owner will be considered to be the contingent owner (in Quebec, subrogated policyholder) of the deceased owner’s share of the contract, unless otherwise specified.

Please view this chart  for different scenarios that may apply to your Client.

Tax note

One of the taxable benefits of a jointly-owned policy, either on an Insurance GIC or a Trust GIC product, is that the tax burden can be shared by the owners. The tax slip is issued to both owners, and it is between the clients and CRA, who claims the interest. CRA states that if Mr. & Mrs. Smith each put in 50% of the principal, then each owner should claim 50%.

The following information is designed to clarify how Sun Life administers a successor owner on a TFSA policy. Even though some applications do not specifically ask for a successor owner to be named, a TFSA policy allows the spouse the option of becoming the successor owner upon death of the owner.

TFSA regulations stipulate that only the spouse of an owner can become the successor owner (the survivor) of the TFSA policy.

In order to ensure that the spouse has the option of becoming the owner they must be the only beneficiary named on the policy. At death they will have the option of taking the value in cash or becoming the full owner of the policy who can exercise all of the ownership rights including the right to designate a beneficiary.

Note: If the owner chose to pay the death benefit as income to a beneficiary (including a spouse) under the Legacy Settlement Option, the details above do not apply.  We will establish an income stream for the death benefit as instructed.

TFSA Quick Tips

• When transferring money from another institution watch out for transaction fees. Clients may want to check with the relinquishing institution to confirm whether or not a fee will apply.
• Make sure you complete a transfer and not a withdrawal. If a withdrawal is completed, the contribution room will only return in the following calendar year and any deposit in the current year will count as a new deposit. Be sure to use Transfer registered assets from another company to a registered product (E63)  when completing a TFSA transfer from another institution.
• Clients are able to hold more than one account as long as they adhere to the annual contribution limit. So don't forget to ask before they make a contribution to make sure they will not exceed their allowable contribution room. 
• Don't forget unused contribution room from previous years can be carried forward and used in future years.
• Maximize household deposits - spouses can give each other money to contribute to each other's TFSA without affecting their contribution room.
• In a province where the legal age to enter a contract is 19? The contribution room counts when they are 18, so they are eligible to deposit double in their first year.
• If a spouse is named as the sole beneficiary of the TFSA the spouse has the option of becoming the sole survivor of the plan. This means that they become the planholder and may exercise all of the planholder rights including the right to designate a beneficiary.
• The contribution to a TFSA must come from either owner. We will accept a cheque drawn on a joint bank account provided the TFSA owner is one of the bank account holders. For example, a client cannot deposit a cheque into his or her adult child's TFSA or a cheque drawn on an individual's company account cannot be deposited to their personal TFSA.

• Money from a non-registered or TFSA Superflex may be used to purchase a payout annuity, provided all minimums and requirements are met.
• Money from an RRSP Superflex may be transferred to an Income Master RRIF or used to purchase a payout annuity, provided all minimums and requirements are met..
  

The maturity date is established as follows:

Non-registered and TFSA plans

The maturity date for non-registered plans is December 31st of the year in which the annuitant reaches age 100.

RRSP plans

The maturity date is December 31st of the year in which the annuitant reaches age 71.

Provincial insurance legislation contains special rules regarding claims by creditors in respect of life insurance policies and annuity contracts.

Although many provinces have enacted laws protecting registered funds from seizure, no matter what type of contract the funds are in, insurance based products have the added benefit of potential creditor protection for non-registered and TFSA funds.

Benefits payable on death

Provincial insurance legislation states a death benefit payable to a named beneficiary does not form part of the estate of the policyholder and is not subject to claims of the creditors of the policyholder. However, in situations where a deceased has failed to adequately provide for the support of a dependant, most jurisdictions have dependants’ relief legislation which permit a court to award a dependant money from an insurance contract even though there is a named beneficiary.

The situation is not nearly as clear for death benefits paid under beneficiary designations not governed by insurance legislation (e.g. designations in a trust company or bank RRSP). Some court decisions have found that these death benefits are subject to the claim of the deceased's creditors while others have come to the opposite conclusion. In BC there is specific legislation stating that the death benefit of an RRSP goes to the beneficiary outside of the estate.

Protection while a policy is inforce

Provincial insurance legislation states that, if certain conditions are met, in-force life insurance policies and annuity contracts may not be seized by a policyholder's creditors. The conditions depend on the province involved:

• In all provinces, except Quebec the beneficiary must be either:
  • the spouse (married or common-law), child, parent or grandparent of the life insured; or
  • designated irrevocably (no specific relationship is necessary); or
  • a preferred beneficiary under the pre-1962 legislation.

• In Quebec the beneficiary must be either:
  • the spouse of the policyholder (married or civil union), or an ascendant or descendent of the policyholder, or
  • designated irrevocably (no specific relationship required).

* The designation of a spouse in Quebec is deemed to be irrevocable unless otherwise stipulated.

Note: There may be no protection if the annuitant is different from the policyholder and the policyholder is the beneficiary.

The Federal Bankruptcy and Insolvency Act specifies that property that's exempt from seizure under provincial law, is not available to be divided among creditors when a client is in a bankruptcy situation. Protection may come from insurance or pension law. You will find more details on pension protection below.

Other forms of creditor protection

There are a variety of other circumstances in which a life insurance policy or annuity contract may have even greater protection from creditors:

• Both the contract and pension money payments are creditor protected under pension legislation.

Limitations of creditor protection

Creditor protection available under provincial insurance legislation can be lost in a variety of circumstances. Transfers or beneficiary designations made within certain time periods prior to bankruptcy or insolvency, while insolvent, or with the intention of defeating the claims of known creditors can result in the loss of creditor protection.

On the other hand there have been other recent cases, not involving bankruptcy, where the courts have upheld transfers of funds to protected annuity policies, made shortly before a court order was made declaring that the policyholder owed a large sum of money.

The law in this area is inconsistent and is continuing to evolve. It is very difficult for even a very experienced lawyer to give firm opinions as to whether a particular policy is protected or not.

Sun Life and its advisors should not make any specific representations that a certain policy will be exempt from seizure. This will depend on a number of factors totally outside of its knowledge and control. It can only make best efforts to ensure that the client's wishes will be carried out. Special care should be taken however where creditor protection is a concern for a client or when the advisor knows or suspects that the client may be experiencing financial difficulties, bankruptcy, insolvency, divorce or separation. We recommend that clients be referred to their own lawyers for specific legal advice.

Please refer to the chart below for an overview of protection from creditors:

Protection against creditors¹ - June 2011

Superflex is a deferred annuity designed to accumulate funds. It is considered an annuity because at some point in the life of the contract, the product is expected to turn into a payout type of investment.

Superflex was issued as a non-registered contract, a Registered Retirement Savings Plan (RRSP), a locked-in retirement account (LIRA) or a locked-in RRSP.

Investment types

There are 4 different investment types available:

• compound interest, available for one to ten year terms
• annual payout, available for one to ten year terms
• monthly payout, available for one to ten year terms, and
• daily interest.

Subsequent deposits

Older versions of the Superflex are closed to new sales however we do accept additional deposits to existing policies. The minimum amount for an investment is $1000 for compound interest plans and $5000 for annual or monthly payout plans. If at any time the policy value is less than $500, and we are not making regular payments, we will terminate the policy and forward the balance to the client. This does not apply to a LIRA, as the value may only be paid out according to the rules of the governing pension legislation.

Interest

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.

Policy value

The policy value on any date will be the total amount in all investments on that date, including accrued interest.

Policy maturity date

The policy maturity date for RRSPs is December 31st in the year of the annuitant’s 71st birthday. The policy maturity date for non-registered contracts is December 31st in the year of the annuitant’s 90th* birthday. If we do not receive directions prior to the policy maturity date, we will apply RRSP funds to a RRIF or in the case of non-registered funds, apply the policy value to establish a payout annuity payable for 10 years, or until the death of the annuitant. If the amount of the monthly annuity payment is less than the amount of our minimum required annuity payment, we have the right to pay the total sum to the owner instead of applying the policy value to provide a payout annuity.

* This was updated via an amendment mailed to affected clients effective December 8, 2018 to age 100.

Investment maturities

Investments within a Superflex policy automatically renew to the same term at maturity. The owner may also advise us to direct the funds to an investment of a different type and/or term or to the daily interest investment on or before the maturity date.

Death benefit

Upon the death of the annuitant and receipt of satisfactory proof, we will pay the policy value in effect on the date of death. We will make the payment to the beneficiary listed on the policy records, or to the estate if no beneficiary is listed. The death benefit is not subject to an MVA calculation. If the policy is a LIRA or locked-in RRSP, we will pay the policy value in accordance with the applicable pension legislation.

Withdrawals and transfers

All or part of an investment may be withdrawn at any time, except for a LIRA or Locked-in RRSP. The minimum withdrawal is $500 and an MVA calculation will apply. The client must specify from which investment we are to take the withdrawal. If the remaining investment balance does not meet the minimum, it will be transferred to the daily interest investment.

Market value adjustment (MVA)

If a guaranteed interest investment is terminated before its end date, the investment is subject to MVA. No MVA applies to withdrawals from the Daily Interest Investment. The amount of a 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 interest 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?

Anytime funds are surrendered from a guaranteed interest 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 compare these adjustments when comparing the guaranteed interest investments of financial institutions.

How can you best deal with MVAs?

Don’t let your clients put money into a guaranteed interest investment for a period extending beyond the foreseeable time that money will be needed.

How are MVAs calculated?

There are 3 parts to our MVA:

1.  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 is 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 policyholder.

2.  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.

3.  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.

Statements

Superflex statements are issued annually in January for the previous year.

Maturity notices will be sent to the client 45 days in advance of a maturity. Confirmation statements will be sent to the client to confirm a new deposit or reinvestment of a matured investment.