LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A client asks whether the guaranteed amount on her segregated fund contract keeps pace with the cost of living. The agent should explain that:
- Athe insurer adjusts the guarantee annually to match the rate paid on government bonds
- Bthe guarantee rises each year by the published consumer price index for the province
- the guarantee is a fixed amount based on deposits and is not adjusted for inflation
- Dthe guarantee is indexed whenever the client continues to make regular contributions
Correct answer: C) the guarantee is a fixed amount based on deposits and is not adjusted for inflation
The guarantee promises a percentage of what was deposited, in dollars, at maturity or death. Purchasing power is protected by the growth of the investments, not by the guarantee, which is why a long-horizon client still needs real growth.
Why the other options are wrong
- AGuarantees are not adjusted to track any interest rate.
- BNo segregated fund guarantee is tied to a consumer price index.
- DNew deposits add their own guarantee; they do not index the existing one.
Exam tip
Guarantees are nominal; only the investment return protects purchasing power.
Common mistake
Presenting the guarantee as protection against inflation as well as market loss.
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
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