LLQP Segregated Funds & Annuities · Component 4.1 · 10% of the exam
A client's segregated fund contract is being used as collateral for a bank loan. This requires:
- AA new contract issued in the bank's name, since a segregated fund cannot be pledged while the client remains the registered owner
- BCancelling the beneficiary designation, since a designated beneficiary cannot coexist with a lender's interest
- A collateral assignment recorded with the insurer, consent of any irrevocable beneficiary, and reduced creditor protection
- DNothing beyond the loan agreement, since the bank's security interest arises automatically under the loan
Correct answer: C) A collateral assignment recorded with the insurer, consent of any irrevocable beneficiary, and reduced creditor protection
Collateral assignments are amendments the insurer must record. Their effects on beneficiaries and protection must be explained.
Why the other options are wrong
- AA collateral assignment is recorded on the existing contract.
- BThe designation remains, subject to the assignment.
- DRecording the assignment with the insurer is required.
Exam tip
Collateral assignment: record with insurer, irrevocable consent, priority over beneficiary.
Common mistake
Assigning a contract without telling the client it weakens creditor protection.
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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