LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A client asks why a contract with full maturity and death guarantees costs more than one at the lowest guarantee level. The agent should explain that:
- Athe higher guarantee is provided free and the difference in fee reflects the portfolio held
- Bthe fee difference is a sales commission paid to the agent and is refunded at maturity
- the insurer must set aside more capital for the larger promise, and the fee reflects that cost
- Dthe higher guarantee level is required by law for all clients over the age of sixty
Correct answer: C) the insurer must set aside more capital for the larger promise, and the fee reflects that cost
The insurance fee inside the management expense ratio pays for the guarantee. A larger promise means more risk and more required capital for the insurer, so the client should weigh the extra cost against how likely the guarantee is to pay.
Why the other options are wrong
- AThe portfolio is the same across guarantee levels; only the insurance cost differs.
- BThe insurance fee funds the guarantee and is not refunded to the contract holder.
- DNo law requires a particular guarantee level based on the client's age.
Exam tip
Higher guarantee equals higher insurance fee; justify it by the client's horizon and need.
Common mistake
Selling the highest guarantee by default without discussing what the extra fee buys.
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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