LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A client's segregated fund contract reaches its maturity date during a severe market decline. The maturity guarantee means that:
- the insurer tops the contract up to the guaranteed amount if the market value is lower
- Bthe insurer extends the maturity date until the market has fully recovered its earlier level
- Cthe client must annuitize the proceeds immediately in order to receive anything at all
- Dthe client receives the highest value the fund reached at any point during the contract term
Correct answer: A) the insurer tops the contract up to the guaranteed amount if the market value is lower
The maturity guarantee compares the market value on the maturity date with the guaranteed amount, which is the chosen percentage of deposits adjusted for withdrawals. If the market value is lower, the insurer pays the difference into the contract.
Why the other options are wrong
- BThe guarantee is tested on the stated date; the insurer does not wait for a recovery.
- CThe client may take the proceeds, reinvest them or annuitize, as the contract allows.
- DOnly a reset locks in a high point, and only on the dates the contract allows it.
Exam tip
A guarantee is a top-up tested on one date, not a promise of the best value ever reached.
Common mistake
Believing the guarantee pays the peak value the fund reached during the term.
What this tests
CISRO competency component 2.2 — 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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