LLQP Segregated Funds & Annuities · Component 2.3 · 30% of the exam
A sixty-five-year-old client asks whether to buy a life annuity now or at age seventy-five. The agent should explain that waiting generally:
- produces a higher payment per dollar, but leaves the client exposed to rate and market risk meanwhile
- Bproduces a lower payment because the client will have fewer years left in which to receive it
- Chas no effect on the payment, since annuity pricing depends only on the amount invested
- Dis prohibited, because annuities must be purchased in the calendar year the client turns sixty-five
Correct answer: A) produces a higher payment per dollar, but leaves the client exposed to rate and market risk meanwhile
An older annuitant has a shorter expected payment period, so each dollar buys more income. Against that, the client bears investment and interest rate risk in the meantime and gives up the certainty an early purchase would have provided.
Why the other options are wrong
- BA shorter expected period raises the payment per dollar rather than lowering it.
- CAge and prevailing interest rates are central to how an annuity payment is calculated.
- DThere is no rule requiring an annuity purchase at any particular age.
Exam tip
Older annuitant equals higher payment; the cost of waiting is rate and market risk.
Common mistake
Assuming waiting is always better without naming the risks borne while waiting.
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
Timed sets weighted like the exam, and review of every question you miss. Free to start.