LLQP Segregated Funds & Annuities · Component 2.3 · 30% of the exam
A retiring client fears that a fixed monthly annuity payment will buy less in twenty years. The annuity feature that addresses this concern directly is:
- Aa cash refund provision, which returns any unpaid balance of the purchase price at death
- Ba joint and survivor design, which continues payments to the surviving spouse after a death
- indexing, which increases the payment each year by a set percentage or an inflation measure
- Da longer guarantee period, which protects the estate if the client dies early in retirement
Correct answer: C) indexing, which increases the payment each year by a set percentage or an inflation measure
An indexed annuity raises the payment over time, preserving purchasing power. The starting payment is lower than a level annuity bought with the same amount, which is the trade-off the client must accept.
Why the other options are wrong
- AA cash refund is an estate feature and leaves the payment level unchanged.
- BA survivor benefit addresses the risk of a death, not the erosion of purchasing power.
- DA guarantee period protects the estate but does nothing about rising prices.
Exam tip
Inflation concern equals indexing; death concern equals guarantee period or refund.
Common mistake
Offering a longer guarantee period when the client's stated worry is rising prices.
What this tests
CISRO competency component 2.3 — 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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