LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- AReset to zero, since any withdrawal before maturity is treated as a surrender of the guarantee
- BUnchanged, since the guarantee is a percentage of deposits and deposits are not affected by a withdrawal
- Reduced by the same percentage the withdrawal represents of market value at the time
- DReduced by the cash amount withdrawn, so the guarantee always equals deposits less withdrawals
Correct answer: C) Reduced by the same percentage the withdrawal represents of market value at the time
Proportional reduction is the standard method; it can cut the guarantee by more than the cash taken when the market is down.
Why the other options are wrong
- AOnly a full surrender ends the guarantee.
- BWithdrawals always reduce guarantees.
- DThat is the dollar-for-dollar method, not proportional reduction.
Exam tip
Proportional: guarantee × (1 − withdrawal ÷ market value).
Common mistake
Assuming the guarantee falls only by the cash withdrawn.
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 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:
- An 'excess withdrawal' under a GMWB contract:
Practice the whole Segregated Funds & Annuities module
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