Segregated funds and annuities sit on the line between investing and insurance. A segregated fund contract looks and behaves much like a mutual fund, with guarantees on maturity and death layered on top. An annuity turns savings into a stream of payments, sometimes with investment exposure and optional guarantee riders. Many wealth management firms offer both, often through advisors who hold insurance and securities licences at the same time.
For Know-Your-Product, the important point is that these are insurance products. In Canada, segregated fund contracts are regulated under provincial insurance law, not under the CIRO and CSA rules that govern mutual funds and ETFs. In the US, fixed and indexed annuities are regulated by the states as insurance, while variable annuities are also registered securities. The KYP expectations are real, but they come from a different set of regulators, and a firm that applies only its securities KYP framework to these products will miss them.
This paper sets out what the insurer, the distributing firm and the individual advisor each need to know about segregated funds and annuities. It covers Canada's new national guidance for segregated funds, which contains an explicit "know your product" standard for intermediaries; a sidebar on what US readers should look to instead; the features that need to be assessed; how guarantees interact with withdrawals; and what approval, training, monitoring and documentation look like.
Its scope is the product. Decisions about individual clients are outside it. For KYP of the investment funds these contracts often mirror, see Mutual Funds & ETFs.
The KYP obligation for segregated funds and annuities is set by insurance regulators and, for US variable annuities, by securities regulators too. The expectations are closer to the securities regime than many firms assume.
Segregated fund contracts - formally, individual variable insurance contracts (IVICs) - are life insurance contracts. Insurers and the advisors who sell them are supervised by provincial insurance regulators, coordinated nationally through the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO). CIRO's KYP rules for securities don't apply to them.
On November 19, 2025, CCIR and CISRO published the CCIR/CISRO Segregated Funds Guidance, the first consolidated national set of expectations for insurers and intermediaries on the design, sale and servicing of these contracts. It is being adopted by each province and territory under its own regulatory regime.[1][2] It sets KYP-type expectations at three levels.
Insurers must identify the target customer group for each contract they issue, and maintain policies, procedures and controls to ensure the contract is likely to meet the expected characteristics, interests and needs of that group and delivers the reasonably expected benefits.[1] This is the insurance-sector counterpart of the firm-level product assessment in the securities regime, performed by the product's manufacturer.
Insurers must provide training material, in plain language and in a written or recorded format, reasonably designed to let intermediaries meet the guidance's expectations. It must cover the contract's characteristics and features and the structural choices available under it. The insurer must take reasonable steps to confirm that each intermediary has the necessary knowledge and expertise before selling, and must promptly update training when any material change is made to a contract and notify intermediaries of the update.[1]
The guidance contains an explicit know-your-product standard for the advisors who sell and service segregated fund contracts. Before selling, they must understand what the contract is, how it works and its risks, and the particulars of each contract they offer, including:[1]
Insurers must have controls reasonably designed to ensure intermediaries comply with the guidance and that customers are served by intermediaries who have completed the relevant training. The guidance's definition of distributing covers recruiting, screening, training, compensating or monitoring the intermediaries who sell the contracts, which brings managing general agencies and other distributors into scope.[1]
There is no US segregated fund. The nearest equivalents are annuities: a variable annuity with a guaranteed death benefit or a living-benefit rider plays a similar role, and fixed and indexed annuities offer principal protection in a different form. How they are regulated for KYP purposes depends on whether the annuity is a security.
Variable annuities are registered securities as well as insurance contracts, so the securities-side product diligence applies. Reg BI's Care Obligation requires a broker-dealer to understand the potential risks, rewards and costs of what it recommends.[7] FINRA Rule 2330 adds specific requirements for deferred variable annuities, including written supervisory procedures and training:[6]
Fixed and fixed indexed annuities are regulated by state insurance departments. The National Association of Insurance Commissioners' Suitability in Annuity Transactions Model Regulation (#275), which each state adopts under its own law, contains two product-knowledge requirements:[8]
| Product | Regulator | Product-Knowledge Standard | Training Obligation |
|---|---|---|---|
| Canadian segregated fund contract | Provincial insurance regulators (CCIR / CISRO) | Intermediary know-your-product expectations in the Segregated Funds Guidance | Insurer provides training, confirms intermediary knowledge, updates on material change |
| US variable annuity | SEC, FINRA and state insurance regulators | Reg BI Care Obligation: understand risks, rewards and costs | FINRA Rule 2330(e) training programs for representatives and principals |
| US fixed or indexed annuity | State insurance regulators (NAIC model) | Adequate knowledge of the product before soliciting (Model #275, Section 7A) | Insurer provides product-specific training and materials (Section 6C) |
The common thread is that the manufacturer - the insurer - carries an explicit training duty that has no direct counterpart for mutual fund manufacturers. Distributing firms can rely on that training as an input, but not as a substitute for their own understanding of the products they choose to offer.
What makes these products different from the funds they resemble is the insurance layer: guarantees, riders, surrender terms and the costs attached to them. That's where the product assessment has to go deepest.
The table below maps common contract features to the questions a KYP assessment should answer. Features vary by insurer and contract; the assessment should work from the contract's information folder and policy terms, not a generic description.
| Feature | What to Understand |
|---|---|
| Maturity guarantee | The percentage of deposits guaranteed at maturity, the maturity date, and how the guarantee is calculated when deposits are made at different times |
| Death benefit guarantee | The guaranteed percentage on death, any age limits, and how the benefit is paid |
| Resets | Whether guarantees can be reset to a higher market value, whether resets are automatic or elected, and whether a reset restarts the maturity period |
| Guarantee levels and series | The different guarantee combinations offered on the same contract and how their costs differ |
| Withdrawals | How withdrawals reduce the guarantees - for example, proportionally to the market value withdrawn - and any withdrawal fees |
| Costs | Management expense ratio including the insurance fee for the guarantees, any separate guarantee fees, sales and surrender charges, and how each affects returns |
| Investment options | For each fund option: objectives, underlying fund or manager, potential volatility, time horizon and performance history |
| Insurance features | Features that arise from the insurance structure, such as naming beneficiaries, and the conditions and limits on them |
| Rescission | The contract holder's right to rescind, and its time limits |
| Compensation and conflicts | How the advisor and distributor are paid under each sales charge option, and the conflicts that creates |
| Annuity Type | Key Features to Assess |
|---|---|
| Payout (income) annuity | Payment basis (life, joint life, term), guarantee periods, indexation, the insurer's financial strength, and the irreversibility of the purchase |
| Fixed deferred annuity | Guaranteed rate and its duration, renewal rate practices, surrender charge schedule, market value adjustments |
| Fixed indexed annuity | Crediting method, caps, participation rates and spreads, how and when the insurer can change them, index choice, surrender schedule, rider costs |
| Variable annuity | Sub-account options and their costs, mortality and expense charges, living and death benefit riders and their fees, how withdrawals affect rider values, surrender schedule |
Two points recur across annuity types. First, many of the terms that drive returns - renewal rates, caps, participation rates - can be changed by the insurer after issue within contractual limits, so the assessment has to capture the limits as well as today's values. Second, the product depends on the insurer's ability to pay, so the insurer's financial strength is part of the product assessment, not a separate question.
The guidance requires intermediaries to understand "the impact of withdrawals on the guarantees."[1] The reason is that withdrawals can reduce a guarantee by more than the amount withdrawn. The example below uses a hypothetical contract that reduces its guarantee in proportion to the market value withdrawn - a common approach, but not universal; each contract's terms decide.
| Step | Market Value | 75% Maturity Guarantee |
|---|---|---|
| Deposit | $100,000 | $75,000 |
| Market falls 20% | $80,000 | $75,000 |
| Withdraw $20,000 (25% of market value) | $60,000 | $56,250 (reduced by 25%) |
The $20,000 withdrawal reduced the guarantee by $18,750, which is close to the full amount withdrawn. Had the guarantee been reduced dollar-for-dollar instead, it would have fallen to $55,000. Neither is wrong; they are different product designs with different consequences, and an advisor offering the contract needs to know which one applies. Variable annuity living-benefit riders raise the same question, often with their own rules for withdrawals above a set annual amount.
Three parties share the product knowledge for these products: the insurer that designs them, the firm or agency that decides which ones to distribute, and the advisor who sells them.
In the KYP HubHow products are approved onto the shelf, whatever their type: Product Approval.
The insurer designs and trains; the distributing firm decides which insurers and contracts it offers. That decision is the insurance-side equivalent of shelf approval, and it deserves the same discipline: a documented assessment of each contract, not just an agency agreement with the insurer.
In the KYP HubHow monitoring rules, the engine and alerts work: Material Change. What happens when an alert fires: From Alert to Decision. When a change should reopen KYP: Material Change: When to Reopen a KYP Assessment. The same lifecycle for other security types: equities, mutual funds and ETFs, structured products, model portfolios and alternatives and private markets.
The Canadian guidance requires insurers to update training promptly when any material change is made to a contract and to notify intermediaries.[1] Distributing firms should not rely on that notice alone. Significant changes for these products typically include:
In the KYP HubWhat the KYP file must show: KYP Documentation: What Your File Must Show. How supervision tests it: Supervising a KYP Program.
The example below shows what a distributing firm's written process might cover. It is illustrative; each firm's process should reflect its own business, its distribution arrangements and the requirements of each province or state where it operates.