LLQP Accident & Sickness · Component 3.2 · 25% of the exam
An employer asks whether to pay the long-term disability premium or have employees pay it. The agent should explain that:
- AEmployer payment makes the benefit tax-free and is therefore always the better arrangement
- BEmployees may deduct their share of the premium, which offsets the tax on any benefit
- Employer payment makes the benefit taxable, while employee payment leaves it tax-free
- DThe choice has no tax consequences, since group disability benefits are never taxable
Correct answer: C) Employer payment makes the benefit taxable, while employee payment leaves it tax-free
Where the employee bears the whole cost with after-tax dollars the benefit is received tax-free, which materially improves the net replacement rate for the same formula.
Why the other options are wrong
- AEmployer payment produces a taxable benefit, which is usually the worse outcome.
- BEmployees cannot deduct group disability premiums.
- DTaxability turns directly on who pays the premium.
Exam tip
Employee-paid premium buys a tax-free benefit.
Common mistake
Designing a plan without considering the tax treatment of the benefit.
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.