LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A GMWB contract's 'income bonus' (deferral bonus):
- AGuaranteed interest credited to the contract's market value each year, in the same way as a guaranteed interest option
- A notional increase to the guaranteed withdrawal base in deferral years, not a return and not cash
- CIncreases the market value of the contract each year the client does not take a withdrawal
- DIs cash paid to the client at the end of each year in which no withdrawal was taken
Correct answer: B) A notional increase to the guaranteed withdrawal base in deferral years, not a return and not cash
Bonuses reward deferral and are often misrepresented as returns. Precise explanation is a compliance issue.
Why the other options are wrong
- AThe bonus is not guaranteed interest and does not accrue to market value.
- CMarket value is separate from the base.
- DThe bonus is notional and is never paid out as cash.
Exam tip
GMWB bonus = notional base increase; never call it a return.
Common mistake
Describing the bonus as a guaranteed return on investment.
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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