LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A client switches from an equity fund to a bond fund inside the same segregated fund contract. The effect on the guarantees is that:
- Athe guarantees are cancelled because a switch is treated as a redemption and a new deposit
- Bthe guarantees transfer to the new fund only if the client signs a fresh application form
- the guarantees are normally unaffected, since the money has not left the contract
- Dthe guarantees are automatically reset upward to the value on the date of the switch
Correct answer: C) the guarantees are normally unaffected, since the money has not left the contract
A switch moves money between funds within the same contract, so the guaranteed amounts continue. A withdrawal, by contrast, takes money out of the contract and reduces the guarantees proportionally or dollar for dollar.
Why the other options are wrong
- AA switch is not a redemption from the contract, so guarantees are not cancelled.
- BNo new application is needed for a switch within an existing contract.
- DOnly an election of a reset, where the contract offers one, raises the guaranteed amount.
Exam tip
Switch equals no effect on guarantees; withdrawal equals a reduction of them.
Common mistake
Confusing a fund switch with a withdrawal when explaining guarantee effects.
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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