Segregated Funds and Annuities: How to Pass the LLQP’s Toughest Module

Segregated Funds and Annuities had the lowest first-time pass rate of any LLQP module in 2024: 69%, according to CISRO figures reported by Advisor.ca. Nearly one candidate in three had to rewrite it.

The module is hard for a simple reason. Most questions are small calculations wrapped in a client story: a deposit, a market drop, a reset, a withdrawal, a death. If you can run those numbers quickly and know which guarantee applies, the module becomes predictable. This guide works through the arithmetic first, then covers annuities, creditor protection and the traps that cost candidates marks.

Segregated funds in one paragraph

A segregated fund is an investment fund sold inside an insurance contract. Only licensed life insurance representatives can sell them, and the money is held separately (segregated) from the insurer’s general assets. What makes them different from a mutual fund is the insurance layer: a guarantee that the contract will pay back a set percentage of your deposits at maturity or on death, even if markets fall. Quebec’s regulator, the AMF, describes them as individual variable insurance contracts, the formal name you will also see in course material.

Four parties appear in almost every exam question, so learn them before anything else:

• Contract holder: owns the contract and makes the decisions.
• Annuitant: the person whose life the death benefit guarantee is based on. Often the same person as the contract holder, but not always.
• Beneficiary: receives the death benefit.
• Insurer: issues the contract and stands behind the guarantees.

How the guarantees work: a worked example

Guarantees are written as two numbers. The AMF explains the notation clearly: in a 75/100 contract, the first figure is the minimum percentage of deposits guaranteed at maturity and the second is the minimum guaranteed at death. Contracts are commonly sold as 75/75, 75/100 or 100/100. Maturity dates typically fall 10 to 20 years out, and the guarantee only applies if the contract is held until maturity or death.

Take one client and follow her through five situations. Priya deposits $100,000 into a 75/100 contract.

What happens	Market value	Guarantee that applies	Paid out	Insurer top-up
Contract matures after a bad decade	$68,000	Maturity: 75% of $100,000 = $75,000	$75,000	$7,000
Contract matures after a good decade	$120,000	Maturity guarantee is lower than market value	$120,000	$0
Priya dies while markets are down	$82,000	Death: 100% of $100,000 = $100,000	$100,000 to her beneficiary	$18,000
Priya redeems early, before maturity	$90,000	None (guarantee needs maturity or death)	$90,000, less any fees	$0
Priya dies when markets are up	$140,000	Death guarantee is lower than market value	$140,000	$0

The rule underneath every row: the payout is the greater of market value and the guaranteed amount, and the guarantee only exists at maturity or death. Early redemption gets market value, full stop. That fourth row is one of the most common trick questions in the module.

Resets: locking in gains

Suppose Priya’s contract grows to $130,000 in year four and she resets. A reset raises the guaranteed base to current market value. Her new maturity guarantee becomes 75% of $130,000, or $97,500, and her death benefit guarantee becomes $130,000. The catch, which exam writers love: a reset typically extends the maturity date, so she must wait longer to collect the maturity guarantee. The AMF also notes that contracts limit how often you can reset and that some stop allowing resets past a certain age, such as 80.

Withdrawals shrink the guarantee

Withdrawals reduce guarantees in proportion to the share of market value taken out, as Canada Life explains for its own contracts. Work it like this:

1. Priya’s contract is worth $80,000 and carries a $100,000 death benefit guarantee.
2. She withdraws $20,000. That is 25% of the current market value.
3. Her guarantee falls by the same 25%: $100,000 × 0.75 = $75,000.

Notice the guarantee dropped by $25,000 even though she only took $20,000. Proportional reductions hurt more when markets are down, and that is exactly the scenario the exam will give you.

Fees, disclosure and the June 2023 change

Guarantees cost money. Management fees on segregated funds are generally higher than on comparable mutual funds because they include the cost of insurance. Richer guarantees (100/100, frequent resets) cost more than basic 75/75 contracts.

The AMF also points out a sales charge rule you need to know: deferred sales charges are prohibited on contracts entered into on or after June 1, 2023. Older contracts can still carry a declining redemption schedule, so expect questions that ask you to identify what a client pays to leave an older contract early.

Creditor protection and estate benefits

Because a segregated fund is an insurance contract, it can offer two advantages a mutual fund cannot:

• Bypassing the estate. With a named beneficiary, the death benefit goes directly to that person rather than through the will, which can be faster and avoid probate costs.
• Potential creditor protection. Provincial insurance law can shield the contract from the owner’s creditors, most strongly when a family member such as a spouse, child, grandchild or parent is the beneficiary. Canada Life is careful to note that this protection “can never be guaranteed” and depends on legislation and court decisions, so treat it as a feature to explain, never a promise to make.

Our segregated funds study chapter covers beneficiary classes and the provincial differences in more detail.

Annuities: three questions decide everything

The second half of the module covers annuities, which the Financial Consumer Agency of Canada defines as a product that “provides you with a guaranteed regular income.” Most annuity questions resolve once you answer three things: how long payments last, who they continue to, and when they start.

Feature	Life annuity	Term-certain annuity
How long payments last	For the annuitant’s lifetime	A fixed number of years
If the annuitant dies early	Payments usually stop, unless a guarantee period or cashback option was added	Remaining payments go to the beneficiary or estate
Main risk it solves	Outliving your money	Income for a known period, such as until a pension starts

Options change the payment amount, and every option lowers it:

• Joint and survivor: payments continue as long as either annuitant is alive.
• Guarantee period: payments continue to a beneficiary if the annuitant dies within a set period.
• Cashback: a one-time payment to the beneficiary, usually up to the purchase price, if the annuitant dies before receiving that much.
• Deferred start: payments begin later. The FCAC notes deferred life annuities pay higher regular amounts than immediate ones, because fewer payments are expected.

The FCAC’s own example is a useful anchor: $100,000 buys roughly $500 a month for a 65-year-old, who recovers the $100,000 by about age 82. It also lists what drives the payment: age, sex, health, the amount invested, interest rates at purchase, the options chosen and the provider. One more point that shows up in suitability questions: once purchased, an annuity usually can’t be changed or cashed in.

Taxation depends on where the money came from. Annuities bought with registered savings are taxed differently from those bought with non-registered savings, which our annuities chapter breaks down with examples.

Assuris: what is protected if an insurer fails

Assuris protects policyholders of its member insurers. For segregated fund guarantees, it protects $100,000 or 90% of the guaranteed amount, whichever is higher, according to Assuris’s current protection limits. Two quick checks show how it works:

• A $75,000 guarantee is below $100,000, so it is fully protected.
• A $150,000 guarantee is above $100,000, so 90% applies: $135,000 is protected.

Assuris also protects annuity and other monthly income at $5,000 a month or 90%, whichever is higher. These limits were raised in recent years, so older study material may show lower figures. Learn the method (dollar amount or percentage, whichever is higher) and check which figures your course provider’s exam is built on.

Six traps that cost candidates marks

1. Applying a guarantee to an early redemption. No maturity, no death, no guarantee.
2. Forgetting that a reset moves the maturity date. A higher guarantee usually means a longer wait.
3. Reducing guarantees dollar for dollar. Withdrawals reduce them proportionally to market value.
4. Mixing up contract holder and annuitant. The death benefit is triggered by the annuitant’s death.
5. Promising creditor protection. It is possible, not guaranteed, and depends on the beneficiary and the province.
6. Assuming annuity options are free. Every guarantee, survivor or cashback feature lowers the regular payment.

Practise until the numbers are automatic

Read the module once for understanding, then switch to drilling. Work through the Segregated Funds and Annuities practice tests until guarantee calculations take seconds, keep the key terms fresh with the module flashcards, and finish with a timed run in the exam simulator. If you are still deciding when to book, our guide to how the LLQP exam is structured covers question counts, pass marks and rewrite rules.

Quick answers

Are segregated funds covered on the life licence only?

Yes. Segregated funds and annuities are part of the life insurance licence. An accident and sickness licence on its own does not let you sell them.

Is a 100/100 contract always the better choice?

Not necessarily. It offers stronger protection but costs more in fees. The suitable choice depends on the client’s time horizon, risk tolerance and estate goals, which is exactly how the exam frames it.

This guide is for exam preparation and general education. It reflects regulator and industry sources available in October 2026. Contract features vary by insurer, so always check the information folder and contract for a specific product.