LLQP Segregated Funds & Annuities · Component 1.2 · 35% of the exam
A client mentions that she already owns a universal life policy with a substantial investment account inside it. The review should note that:
- Athe investment account inside a policy is fully taxable each year on its growth
- Bthe policy must be surrendered before any segregated fund contract can be issued to her
- Cthe policy is purely protection and the investment account may be ignored in the plan
- the accumulated value grows on a tax-sheltered basis and forms part of her overall picture
Correct answer: D) the accumulated value grows on a tax-sheltered basis and forms part of her overall picture
Value accumulating inside an exempt policy grows without annual taxation, so it can be a meaningful part of a client's savings. The agent should record it, check how it is invested and consider it before recommending new deposits elsewhere.
Why the other options are wrong
- AGrowth inside an exempt policy is not taxed annually to the policyholder.
- BExisting coverage does not have to be surrendered to buy another contract.
- CAn accumulating account is savings and belongs in the assessment.
Exam tip
Cash value inside a permanent policy counts as part of the client's savings.
Common mistake
Ignoring accumulated policy value when assessing what the client already holds.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.