How your Accounts are Protected In Canada 

By Robb Lovell MBA



Since the Financial melt down of 2008, we have had many questions from clients about how their accounts are guaranteed here in Canada.  This article provides a nice simple overview.





Banks


Generally, bank accounts are protected and insured by the Canada Deposit Insurance Corporation.  Savings accounts and chequing accounts are covered up to $100,000 as are GIC’s having a term of 5 years or less.  GIC’s with a maturity date more than 5 years are not covered by CDIC at all.  Money orders, bank drafts and certified cheques are, likewise, covered up to the $100,000 limit.


The $100,000 coverage limit generally applies per deposit or per institution.  However, if an individual has up to $100,000 of non registered assets and also has up to $100,000 of RRSP or RRIF assets at the same bank, each category receives separate coverage.  Debentures and accounts or investments that are not in Canadian Dollars (such as a U.S. dollar savings accounts or GICs or a Euro account) are not insured by CDIC.


Life Insurance Companies


Generally, life insurance investments and accounts are insured by Assuris (formerly known as Comp Corp).  Assuris is a not for profit corporation that is funded by the life insurance industry that was founded in 1990.


All life insurance companies that are licensed in Canada to sell life insurance products are required to be members of Assuris and they are required to remain members for as long as they maintain Canadian business.  Assuris maintains a $100 million liquidity fund on an ongoing basis and can assess companies to raise substantial additional capital if required.  Currently, Assuris can raise funds that would give it over 15 times the cost of any life insurance company that has existed in Canada.


Given the high degree of overall stability within the Canadian Life Insurance industry, there have only been three life insurance company failures in the history of Canada.


Typically, in the event that a life insurance company becomes insolvent, Assuris facilitates the transfer of the account or investment to another company who simply continues to administer it, rather than mandating immediate liquidation and payout of the accounts or investments.  When this type of transfer occurs, the original terms of the account prevail, even once the new company becomes its administrator. 

When this transfer from an insolvent company to a new company occurs, Assuris does provide protection for certain amounts.  The amount protected depends upon the type of account, investment or policy involved.


Life insurance policies also have some protection under Assuris rules.  Generally, upon transfer from an insolvent life insurance company to a solvent company, Assuris provides protection of up to $200,000 or 85% of the death benefit of the policy, whichever is higher.


 

Term deposit accounts are fully insured up to an amount of $100,000 per individual per financial institution.  While the rules can get a bit complex, the same individual can have the full $100,000 of non registered money fully insured and also have $100,000 of registered funds with the same financial institution also fully insured.

Life insurance policies also have some protection under Assuris rules.  Generally, upon transfer from an insolvent life insurance company to a solvent company, Assuris provides protection of up to $200,000 or 85% of the death benefit of the policy, whichever is higher.


Segregated funds are called “segregated” because in the event of a company insolvency, these assets belong to the investor and are segregated from the balance sheet of the company and do not become part of the pool of company assets that become subject to the claims of creditors as is typical in an insolvency proceeding.  The segregated fund assets simply are transferred to another solvent company who will continue to manage the funds and the insolvency of the original company alone doesn’t have any impact on the value of the investment.


However, segregated funds do have some important long term guarantees.  One of these guarantees is the death benefit guarantee.  Typically, this is a guarantee that promises a stated percentage of the assets invested into the account, such as 75%, in the event of the death of the account holder.  In the event of a life insurance company insolvency, Assuris guarantees up to $60,000 or 85% of the original guaranteed amount, whichever is greater.


Credit Unions


Each province has a different entity that insures credit union deposits.  In Ontario, credit union accounts are insured by the Deposit Insurance Corporation of Ontario (known as DICO). Coverage under DICO rules uses a $100,000 limit, and similar to CDIC and Assuris, separate coverage with a $100,000 limit is given to assets in each of the non registered and registered categories.  While the actual rules can become quite complex in certain situations.  The above provides a basic guideline.


On an ongoing basis,7th Wave monitors the financial solvency of various companies and over time, administers maturities, reinvestments and accounts so that the majority, if not all, of the funds within a portfolio are fully insured, where possible.