Reset Provision: Locking In Segregated Fund Gains (LLQP Guide)
A reset provision lets a segregated fund contract holder lock in market gains by resetting the guaranteed base — maturity and death benefit guarantees are recalculated using the current, higher market value instead of the original deposits.
The trade-off: exercising a reset typically restarts the maturity guarantee clock. If the contract required 10 years to reach maturity, a reset in year 6 pushes the maturity date out to year 16. You raise the floor, but you wait longer to use it.
Why it matters on the LLQP exam
Reset provisions appear in scenario questions where markets have risen and the client asks how to protect the gains. Know the mechanics:
- When to reset — only after growth; resetting when the market value is below deposits does nothing (the guarantee already covers more).
- What changes — guaranteed values step up to the current market value; the maturity date extends by the full guarantee period from the reset date.
- Limits — contracts may cap the number of resets, the ages between which resets are allowed, or offer automatic resets on anniversaries.
- Cost — contracts with generous reset features carry higher management expense ratios.
Exam trap: a reset does not reset the death benefit to a locked-in future growth path — it simply re-bases the guarantee. And after the annuitant passes a certain age (often 80), resets may no longer be permitted.
Example question
A client's seg fund deposits of $100,000 have grown to $130,000. Exercising the reset provision will:
- Pay out the $30,000 gain in cash
- Raise the guaranteed values to $130,000 and extend the maturity date
- Convert the contract to an annuity
- Reduce the management expense ratio
Answer: B — resets lift the guarantee base to current market value, at the cost of a new maturity period.
Tie this back to the guaranteed minimum death benefit and the segregated fund in the segregated funds hub.