LLQP Segregated Funds & Annuities · Component 2.2 · 30% of the exam
'Dollar-for-dollar' reduction of guarantees on withdrawal, where offered, is:
- AIllegal, since regulators require every segregated fund contract to reduce its guarantees proportionally on withdrawal
- BWorse than proportional reduction, since the guarantee falls by the full cash amount every time
- CThe same as proportional reduction, since both methods produce the same guarantee over time
- More favourable than proportional when markets are down, since the guarantee falls only by cash taken
Correct answer: D) More favourable than proportional when markets are down, since the guarantee falls only by cash taken
Understanding reduction methods lets the agent compare contracts and advise on withdrawal timing.
Why the other options are wrong
- AIt is a legitimate contract term.
- BIt is better when values are below deposits.
- CThey differ whenever market value differs from deposits.
Exam tip
Dollar-for-dollar beats proportional when the market is down.
Common mistake
Ignoring the reduction method when comparing contracts.
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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