LLQP Accident & Sickness · Component 1.2 · 35% of the exam
A client's existing individual DI policy is owned and paid for by his corporation, with the corporation as beneficiary. The review should note that:
- ABenefits to him are tax-free because the corporation paid the premiums
- BThe policy is void because a corporation cannot own personal disability coverage
- The corporation receives the benefit, and passing it to him has tax consequences
- DThe arrangement is ideal because the premiums are deductible and benefits flow to him
Correct answer: C) The corporation receives the benefit, and passing it to him has tax consequences
The curriculum lists tax implications of a personal insurance policy being corporately held. Corporate ownership of personal DI usually produces taxable benefits when paid to the individual.
Why the other options are wrong
- ABenefits routed through a corporation are generally taxable when paid to the individual.
- BThe policy is valid; the ownership structure is the issue.
- DDeducting the premium usually costs more in tax on the benefit than it saves.
Exam tip
Personal DI should usually be personally owned with after-tax premiums → tax-free benefits.
Common mistake
Letting the corporation own a personal DI policy to deduct 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.