LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A retired client wants a predictable monthly amount from a non-registered segregated fund. The agent explains that a systematic withdrawal plan:
- Aguarantees the payments for life because the insurer assumes the longevity risk involved
- pays a chosen amount by redeeming units, which can erode the capital over time
- Cpays only the income the fund earns, so the amount changes from one month to the next
- Dis prohibited on a segregated fund contract because withdrawals would reduce the guarantees
Correct answer: B) pays a chosen amount by redeeming units, which can erode the capital over time
A systematic withdrawal plan redeems units to fund each payment. If the chosen amount exceeds what the fund earns, capital is consumed and the guarantees are reduced proportionally, so the payment level must be set with care.
Why the other options are wrong
- AOnly an annuity or a guaranteed withdrawal benefit provides an income promised for life.
- CThe client sets the amount; it is not limited to whatever the fund happened to earn.
- DWithdrawals do reduce guarantees, but they are permitted and widely used.
Exam tip
A systematic withdrawal plan is a redemption schedule, not a guaranteed income stream.
Common mistake
Presenting systematic withdrawals as though they were guaranteed lifetime income.
What this tests
CISRO competency component 2.1 — 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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