LLQP Segregated Funds & Annuities · Component 3.1 · 25% of the exam
A client with a large accrued gain in a non-registered segregated fund is offered a similar contract by another insurer. The agent should explain that moving:
- Acan be done as a tax-free rollover between insurers using the prescribed transfer form
- Bis always beneficial when the new contract has a lower management expense ratio attached
- means redeeming the existing contract, which triggers tax on the accrued gain
- Drestarts the guarantee at the original deposit amount rather than the current market value
Correct answer: C) means redeeming the existing contract, which triggers tax on the accrued gain
There is no rollover between non-registered contracts at different insurers. The existing units are redeemed, the gain becomes taxable and the new guarantee starts from the amount actually deposited, so the switch has a real cost.
Why the other options are wrong
- ANo prescribed tax-free transfer exists for non-registered contracts between insurers.
- BA lower fee rarely offsets an immediate tax bill and a restarted guarantee period.
- DThe new guarantee is based on the amount deposited into the new contract.
Exam tip
Non-registered replacement equals a taxable disposition plus a fresh guarantee period.
Common mistake
Comparing fees on a replacement without pricing the tax on the accrued gain.
What this tests
CISRO competency component 3.1 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 3
- A client's spouse must sign for:
- When the insurer requests additional information after the application (for example, source of wealth for a large deposit), the agent should:
- The implementation of a recommendation involving a switch from one seg fund to another within a contract requires:
- A client wishes to designate a charity as beneficiary of a segregated fund. Implementation should:
- For a deferred annuity implemented for a client, the agent should confirm:
- The agent's record of the implementation should be retained:
Practice the whole Segregated Funds & Annuities module
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