LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A client asks whether a segregated fund is 'safer' than a mutual fund. The accurate answer is:
- AYes, completely, since the insurer guarantees the client cannot lose money at any point
- BNo, it is riskier, since the higher fees mean the client is more likely to end up with less at the end of the term
- The underlying risk is the same; the floor applies only at maturity and death, and it costs more
- DThey are identical in every respect apart from the name on the contract
Correct answer: C) The underlying risk is the same; the floor applies only at maturity and death, and it costs more
Precision matters: the guarantee changes outcomes at defined dates, not the fund's volatility.
Why the other options are wrong
- AInterim risk is unchanged; the guarantee applies only at set dates.
- BThe floor reduces risk at maturity and death.
- DThe guarantee and estate features differ.
Exam tip
Same fund risk; added floor at maturity/death; higher cost.
Common mistake
Answering 'yes, it's guaranteed' without qualification.
What this tests
CISRO competency component 2.2 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.