LLQP Accident & Sickness · Component 1.3 · 35% of the exam
A client's individual DI benefits will be tax-free because she pays the premiums personally. In articulating her need this means:
- The benefit compares directly with after-tax expenses, so less gross benefit is needed
- BShe needs a larger gross benefit to make up for the tax the insurer will withhold at claim
- CThe benefit will be grossed up by the insurer to reflect her marginal tax rate at claim
- DThe premium is deductible on her return, which offsets the cost of buying a higher benefit
Correct answer: A) The benefit compares directly with after-tax expenses, so less gross benefit is needed
Tax-free benefits replace net income efficiently. The need should be stated after tax and matched to a tax-free benefit. Premiums for personal DI are not deductible.
Why the other options are wrong
- BTax-free benefits reduce, not increase, the required gross amount.
- CNothing is grossed up; the benefit is simply not taxed.
- DPersonal DI premiums are not deductible.
Exam tip
Personally paid DI: premium not deductible, benefit not taxable.
Common mistake
Telling a client personal DI premiums are deductible.
What this tests
CISRO competency component 1.3 — 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.