LLQP Segregated Funds & Annuities · Component 2.3 · 30% of the exam
A client buying a life annuity wants assurance that his children receive something if he dies shortly after purchase. The most direct way to achieve this is:
- to add a guarantee period so payments continue to the estate for the remainder of that term
- Bto buy an indexed annuity so that the payments rise each year for the benefit of the children
- Cto name the children as contingent annuitants so that the payments continue on their own lives
- Dto request a commutation clause allowing the children to cancel the annuity after his death
Correct answer: A) to add a guarantee period so payments continue to the estate for the remainder of that term
A guarantee period means payments continue to the named beneficiary or estate if the annuitant dies before the period ends. A cash refund option achieves a similar result by returning the unpaid balance of the purchase price.
Why the other options are wrong
- BIndexing addresses purchasing power and gives the children nothing on an early death.
- CLife annuity payments are measured on the annuitant's life and cannot pass to children that way.
- DAnnuities are generally not commutable once income has begun.
Exam tip
Estate concern on a life annuity equals guarantee period or cash refund.
Common mistake
Believing a life annuity always leaves nothing, without considering a guarantee period.
What this tests
CISRO competency component 2.3 — 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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