LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client asks whether she needs life insurance to cover taxes on her RRIF at death if she has no spouse. The need is:
- ANone, since a RRIF passes to named beneficiaries free of income tax
- Real, since the balance is taxed as income on her final return unless a dependant rollover applies
- CMet by probate, since the estate's administration covers the tax before distribution
- DMet by the RRIF itself, since the plan pays the tax out of its own balance before the beneficiary receives anything
Correct answer: B) Real, since the balance is taxed as income on her final return unless a dependant rollover applies
Without a spousal rollover, the full RRIF is taxed at death. Insurance is one way to fund the liability.
Why the other options are wrong
- AThe balance is taxable income on the final return.
- CProbate does not pay taxes; it is a fee.
- DThe RRIF is the source of the liability, not its solution.
Exam tip
No spouse → RRIF fully taxable at death; fund the tax.
Common mistake
Assuming named beneficiaries avoid the income tax on a RRIF.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
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