LLQP Accident & Sickness · Component 3.2 · 25% of the exam
For a corporately owned CI policy on a shareholder, the agent should explain that:
- AThe premiums are deductible to the corporation as an ordinary business expense, in the same way as group insurance premiums
- The corporation pays and receives the benefit, but moving funds to the shareholder is taxable
- CThe benefit is paid tax-free to the shareholder personally, since the corporation is merely the payer of the premium
- DIt is identical to personal CI in every respect, so the choice of owner makes no difference to the outcome
Correct answer: B) The corporation pays and receives the benefit, but moving funds to the shareholder is taxable
Corporate CI ownership has been a tax planning area with pitfalls (including arrangements with ROP riders). Clear explanation of who receives what is required.
Why the other options are wrong
- ACI premiums are not deductible.
- CExtraction from the corporation is taxable.
- DOwnership changes the tax outcome.
Exam tip
Corporate CI: corporation gets the benefit; extraction taxed. Personal CI: benefit direct and tax-free.
Common mistake
Promising the shareholder personally receives a tax-free CI benefit under corporate ownership.
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.