Insurance Dedicated Funds (“IDF”)

Insurance Dedicated Funds (“IDF’s”) are fund shares owned by the insurance company separate accounts rather than the underlying contract owner. The use of IDF’s is primarily to satisfy the two tests required by the Internal Revenue Service for favorable tax treatment – the diversification rule and the investor control rule.

  1. The diversification rules state that the investments made through a segregated asset account by an insurance company will be diversified only if:
  2. no single investment constitutes more than 55% of the value of the total assets of the account;
  3. no two investments constitute more than 70% of the value of the total assets of the account;
  4. no three investments constitute more than 80% of the value of the total assets of the account; and
  5. no four investments constitute more than 90% of the total value of the account.

The investor control rules state that the contract owner may not exert “incidents of ownership” through “direct investment control” over the underlying assets of the policy. The insurance company is the owner of the assets.