LLQP Accident & Sickness · Component 1.2 · 35% of the exam
A client pays 100% of the premium for her group LTD coverage through payroll deduction. Her benefits, if she becomes disabled, will be:
- ATaxable on half the benefit, because the employer sponsors the plan
- BFully taxable, because all group disability benefits are treated as employment income
- Non-taxable, because she paid the entire premium with after-tax dollars
- DTax-free until age 65, then taxable when the benefit converts to a pension
Correct answer: C) Non-taxable, because she paid the entire premium with after-tax dollars
Where the employee pays the whole LTD premium (and it is not treated as a taxable benefit), benefits are received tax-free. This is why many plans are designed with employee-paid LTD. The curriculum lists the rationale for having employees pay group LTD premiums.
Why the other options are wrong
- AThere is no half-taxation rule for disability benefits.
- BGroup benefits are taxable only when the employer pays some part of the premium.
- DThe tax treatment does not change at 65; it depends on who paid the premium.
Exam tip
Who pays the LTD premium decides whether benefits are taxable. Employee-paid → tax-free.
Common mistake
Sizing the net benefit without knowing who pays the premium.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Accident & Sickness module. Written against the published curriculum.
More from component 1
- The single most important fact for sizing a client's disability income need is:
- A client's beneficiaries for assets are listed in the fact-finding. Why does this matter for A&S planning?
- A client asks why the agent wants to know how assets are owned (jointly or individually). In the A&S context the answer is:
- A client mentions a back injury five years ago that fully resolved. The agent should:
- Which element of a client's situation most affects the definition of disability that should be recommended?
- Which of the following health facts is most relevant to a client's disability insurance situation?
Practice the whole Accident & Sickness module
Timed sets weighted like the exam, and review of every question you miss. Free to start.