LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
An insurer announces that one of its segregated funds is closed to new deposits. For an existing contract holder this normally means:
- Athe guarantees on the existing holding are cancelled from the date the closure takes effect
- Bthe holding is transferred automatically into the insurer's money market fund at the closing date
- Cthe contract is terminated and the market value is paid out to the holder within thirty days
- the existing holding continues, but further deposits must be directed to another fund
Correct answer: D) the existing holding continues, but further deposits must be directed to another fund
A fund may be capped when further growth would harm the manager's ability to run the mandate. Existing units are unaffected, and the agent helps the client choose where new deposits and any pre-authorized contributions should go.
Why the other options are wrong
- AGuarantees attach to the contract and continue on the units the client already owns.
- BAn automatic transfer would be a fund change, which a deposit closure does not trigger.
- CClosing a fund to deposits does not terminate contracts or force a redemption.
Exam tip
Closed to new deposits is not the same as wound up; existing units keep running.
Common mistake
Assuming a fund closure forces the client out of the investment entirely.
What this tests
CISRO competency component 2.1 — 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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