LLQP Accident & Sickness · Component 3.2 · 25% of the exam
A corporately employed client asks whether the corporation should own her personal disability policy. The agent should explain that:
- ACorporate ownership has no tax consequences, since disability benefits are always tax-free
- Corporate ownership makes the premium deductible, but the benefit then becomes taxable
- CCorporate ownership is required whenever the client is paid through her own corporation
- DCorporate ownership makes the premium deductible and the benefit tax-free to the client
Correct answer: B) Corporate ownership makes the premium deductible, but the benefit then becomes taxable
The deduction and the taxability move together, so a corporation that deducts the premium produces a taxable benefit, which usually leaves the client worse off than personal ownership.
Why the other options are wrong
- ATaxability depends on who paid the premium and how.
- COwnership is a planning choice, not a requirement.
- DA deducted premium cannot produce a tax-free benefit.
Exam tip
Deduct the premium and you tax the benefit.
Common mistake
Letting a corporation own personal disability coverage to save tax on the premium.
What this tests
CISRO competency component 3.2 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Accident & Sickness module. Written against the published curriculum.
More from component 3
- An underwriter assigns a disability applicant to occupational class 2 rather than class 4. The practical effect is that:
- A disability applicant discloses a back condition that resolved four years ago with no recurrence. The likely underwriting outcome is:
- Financial underwriting for an individual disability application exists to:
- A critical illness applicant's mother and sister both had breast cancer before fifty. The underwriter is likely to:
- An applicant for long-term care coverage is seventy-two. The insurer is most likely to require:
- Group long-term disability coverage within the non-evidence maximum is issued without individual medical questions because:
Practice the whole Accident & Sickness module
Timed sets weighted like the exam, and review of every question you miss. Free to start.