SIE Understanding Products and Their Risks Question 55: Answer and Explanation

Question: 55

Which of the following is NOT an expected part of recommending an investor replace an annuity or life insurance product in order to fund the purchase of a variable contract of EIC?

• A. The replaced product is less than thirty-six months old.
• B. The representative provides no comparison of the benefits of the replaced product and the new product.
• C. The representative is expected to know enough about the investor's overall financial objectives, liquidity, and net worth to determine the suitability for recommending a variable annuity.
• D. The representative may be expected to document that the investor owns liquid assets equal to living expenses for a certain period of time, such as one year.

Correct Answer: B

Explanation:

B: Choice B is correct because the representative is expected to provide a comparison of the benefits of the replaced product and the new product. Choice A is incorrect because if a representative is recommending the replacement of an annuity or life insurance product that is less than thirty-six months old, justification is expected, especially if the replaced product incurs a surrender charge. Choice C is incorrect because the representative is expected to know enough about the investor's overall financial objectives, liquidity, and net worth to determine the suitability for recommending a variable annuity. Choice D is incorrect because the representative may be expected to document that the investor owns liquid assets equal to living expenses for a certain period of time, such as one year, in order to be reasonably certain that the investor will not need to make a premature withdrawal, which would incur a surrender charge.