LLQP Segregated Funds & Annuities · Component 2.3 · 30% of the exam
A client compares converting her registered savings to a life annuity with converting them to a registered retirement income fund. A key difference is that the annuity:
- Aleaves the remaining capital to her estate in full whenever she happens to die
- gives income that cannot outlive her, but with no flexibility to change the amount later
- Cis taxed more favourably, since registered annuity payments are received entirely free of tax
- Dallows her to change the payment amount each year to suit whatever her needs happen to be
Correct answer: B) gives income that cannot outlive her, but with no flexibility to change the amount later
An annuity converts capital into a promise of income for life, removing longevity and investment risk while removing flexibility. An income fund keeps flexibility and any remaining capital, but the client carries the investment and longevity risk.
Why the other options are wrong
- AOnly a guarantee period or refund feature leaves anything to the estate on an annuity.
- CPayments from a registered annuity are fully taxable as income when received.
- DFlexible annual amounts describe an income fund, not an annuity.
Exam tip
Annuity equals certainty without flexibility; income fund equals flexibility without certainty.
Common mistake
Presenting the annuity purely as a loss of capital and ignoring the longevity protection.
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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