LLQP Segregated Funds & Annuities · Component 4.1 · 10% of the exam
A client holds two non-registered segregated fund contracts with the same insurer and asks to merge them into one. The agent should explain that:
- Athe insurer is obliged to merge the contracts on request under the applicable regulations
- Bmerging is automatic once both contracts are with the same insurer and the same owner
- Cthe guarantees of both contracts would be added together with no other consequence at all
- combining them generally means redeeming one, which triggers tax and restarts its guarantee
Correct answer: D) combining them generally means redeeming one, which triggers tax and restarts its guarantee
Each contract has its own deposits, guaranteed amounts and maturity dates. Collapsing one to fund the other is a taxable disposition and starts a new guarantee period, so the administrative tidiness usually costs more than it is worth.
Why the other options are wrong
- ANo regulation requires an insurer to merge existing contracts.
- BNothing merges automatically; contracts remain separate agreements.
- CGuarantees attach to their own contract and do not simply combine.
Exam tip
Consolidating non-registered contracts is a disposition, not an administrative merge.
Common mistake
Recommending consolidation for simplicity without pricing the tax and lost guarantee.
What this tests
CISRO competency component 4.1 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 4
- A client's daughter was born last month and the client wants her added to the segregated fund designation. The agent should:
- A client wants to withdraw part of his segregated fund before maturity. The agent should explain:
- A client's segregated fund contract is approaching its maturity date. The insurer will:
- A client asks to add her adult son as a joint owner of her non-registered segregated fund contract. The agent should explain that:
- A client wants to replace the beneficiary on a contract where the current designation was made irrevocable. The agent must explain that:
- A client who has lost her job asks to pause her pre-authorized monthly contributions for six months. The agent should:
Practice the whole Segregated Funds & Annuities module
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