LLQP - Life License Qualification Program Segregated Funds and Annuities Questions and Answers

Question 1

An investor owns a segregated fund contract with a 75% maturity guarantee.
The contract matures today.
He initially invested $100,000, and due to poor market performance, the current market value is $70,000.
How much is the investor entitled to receive upon maturity?

Accepted Answer

$75,000, based on the maturity guarantee.

Answer

$70,000, the current market value.

Answer

$100,000, his original investment.

Answer

$52,500, which is 75% of the current market value.

Question 2

Which of the following scenarios would most likely result in a segregated fund's assets being protected from the contract holder's creditors?

Accepted Answer

The contract holder has named their spouse as the beneficiary.

Answer

The contract holder has named their wholly-owned corporation as the beneficiary.

Answer

The contract holder has named their best friend as an irrevocable beneficiary.

Answer

The contract holder has not named any beneficiary, allowing the proceeds to flow to their estate.

Question 3

An annuitant is looking for a retirement income stream that will last for their entire life but is concerned about dying shortly after payments begin. They want to ensure that if they die within the first 15 years, their spouse will continue to receive payments for the remainder of that 15-year period. Which type of annuity would best meet these specific needs?

Accepted Answer

A Life Annuity with a 15-year guarantee period.

Answer

A Term Certain Annuity for 15 years.

Answer

A Straight Life Annuity.

Answer

A Joint and Last Survivor Annuity.

Question 4

What is the primary function of the 'reset' feature in a segregated fund contract?

Accepted Answer

To lock in investment gains by increasing the guaranteed death benefit and/or maturity value to the current higher market value.

Answer

To switch the investment portfolio to a more conservative allocation automatically.

Answer

To allow the contract holder to make a lump-sum withdrawal without penalty.

Answer

To change the named beneficiary on the contract without undergoing new underwriting.

Question 5

A client uses non-registered funds to purchase an annuity. They want their after-tax income from the annuity to be as level and predictable as possible throughout the payment period. Which tax treatment should they choose?

Accepted Answer

Prescribed taxation.

Answer

Accrual taxation.

Answer

Deferred taxation.

Answer

Capital gains taxation.

Question 6

Which of the following is a key difference between segregated funds and mutual funds?

Accepted Answer

Segregated funds are classified as insurance contracts, which provides features like death benefit guarantees and potential creditor protection.

Answer

Mutual funds can only be held in registered accounts (RRSPs, TFSAs), while segregated funds cannot.

Answer

The management expense ratios (MERs) for segregated funds are typically lower than for mutual funds.

Answer

Investors in mutual funds can name a beneficiary to bypass probate, whereas segregated fund investors cannot.