LLQP Segregated Funds & Annuities · Component 3.1 · 25% of the exam
A client asks whether she should borrow to invest in segregated funds. The agent should:
- ADecline to discuss it, since leveraged investing is outside the scope of an insurance agent's licence
- Explain that leverage magnifies losses, the guarantee does not cover interest, and it suits few clients
- CRecommend it because of the guarantee, since the maturity guarantee protects the borrowed capital
- DArrange the loan through a lender without recording it, since the loan is separate from the contract
Correct answer: B) Explain that leverage magnifies losses, the guarantee does not cover interest, and it suits few clients
Leverage is high risk. Regulators expect leverage recommendations to be documented and rarely made.
Why the other options are wrong
- AThe client deserves a clear answer.
- CThe guarantee does not make leverage safe.
- DLeverage must be disclosed and documented.
Exam tip
Leverage: magnified risk; guarantee does not cover interest; rarely suitable.
Common mistake
Using the guarantee to justify borrowing to invest.
What this tests
CISRO competency component 3.1 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 3
- A client's spouse must sign for:
- When the insurer requests additional information after the application (for example, source of wealth for a large deposit), the agent should:
- The implementation of a recommendation involving a switch from one seg fund to another within a contract requires:
- A client wishes to designate a charity as beneficiary of a segregated fund. Implementation should:
- For a deferred annuity implemented for a client, the agent should confirm:
- The agent's record of the implementation should be retained:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.