Segregated Funds and Annuities Flashcards

A client's segregated fund contract matures and the market value is below the guarantee amount. Who bears the cost of the maturity guarantee shortfall?

Answer: The insurance company

The insurance company bears the cost of making up the shortfall between the market value and the guaranteed maturity amount.

Which feature of a segregated fund contract allows a beneficiary to bypass the estate and receive proceeds directly upon the annuitant's death?

Answer: Named beneficiary designation

A named beneficiary designation allows death benefit proceeds to pass directly to the beneficiary, bypassing the estate and avoiding probate.

A life annuity with a 10-year guarantee period pays out for life but guarantees payments for at least 10 years. If the annuitant dies after 3 years, how many more years will payments continue to a beneficiary?

Answer: 7 years

Since 3 of the 10 guaranteed years have elapsed, payments will continue to the beneficiary for the remaining 7 years.

What distinguishes a variable annuity from a fixed annuity?

Answer: Variable annuity payments fluctuate based on investment performance

Variable annuity payments fluctuate because they are linked to the performance of underlying investment sub-accounts.

A segregated fund's Management Expense Ratio (MER) is typically higher than a comparable mutual fund MER because it includes:

Answer: The cost of insurance guarantees

Segregated funds carry a higher MER than mutual funds primarily because the MER includes the cost of the insurance guarantee features.

Under LLQP principles, which of the following best describes the 'reset' option in a segregated fund?

Answer: Locks in a higher market value as the new guarantee base on a specified date

A reset option allows the policyholder to lock in a higher market value as the new guaranteed amount, typically restarting the maturity period.

An indexed annuity links its growth to a market index but typically includes which protective feature?

Answer: A floor that prevents negative returns

Indexed annuities typically include a floor (often 0%) that protects the contract value from negative index returns.