LLQP Segregated Funds & Annuities · Component 2.3 · 30% of the exam
An annuity's 'commutation' refers to:
- AIncreasing the payments in exchange for shortening the guarantee period
- BCancelling the annuity for a refund of the premium less payments already received, at any time during the contract
- Converting remaining guaranteed payments to a lump sum, usually only for the guarantee period at death
- DChanging the annuitant to a younger life so that payments continue for longer
Correct answer: C) Converting remaining guaranteed payments to a lump sum, usually only for the guarantee period at death
Irrevocability is a defining feature. Commutation exists mainly for a beneficiary's remaining guaranteed payments or term-certain balances.
Why the other options are wrong
- ACommutation is a lump-sum conversion, not a payment increase.
- BAnnuities in payment are not refundable.
- DThe annuitant is fixed.
Exam tip
Life annuities in payment: irrevocable; commutation mainly for guarantee balances.
Common mistake
Implying a client can 'get their money back' from a life annuity.
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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