LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
An 'excess withdrawal' under a GMWB contract:
- Reduces the guaranteed withdrawal base proportionally, permanently lowering future guaranteed income
- BIs prohibited under the contract, so the insurer will refuse any withdrawal above the guaranteed amount
- CHas no effect on the guarantee, since the base is set at issue and adjusted only by bonuses and resets
- DIncreases the base, since the insurer treats an excess withdrawal as a request to accelerate income
Correct answer: A) Reduces the guaranteed withdrawal base proportionally, permanently lowering future guaranteed income
GMWB income guarantees depend on disciplined withdrawals. Excess withdrawals are the main way clients damage the guarantee.
Why the other options are wrong
- BExcess withdrawals are permitted but costly.
- CAn excess withdrawal has a lasting effect on the base.
- DAn excess withdrawal reduces the guaranteed base; it never increases it.
Exam tip
GMWB excess withdrawal → proportional base reduction → lower lifetime income.
Common mistake
Taking an extra withdrawal for a purchase without understanding the base reduction.
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 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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