LLQP Accident & Sickness · Component 2.1 · 30% of the exam
Key person disability insurance is owned and paid for by the business. Its benefits are:
- APaid to the key person as tax-free income replacement during the disability
- Paid to the business as taxable income, with premiums generally not deductible
- CPaid to the key person's family if the disability proves to be permanent
- DTax-free to the key person because the business paid all of the premiums
Correct answer: B) Paid to the business as taxable income, with premiums generally not deductible
Key person coverage compensates the business. The curriculum lists tax implications of key person insurance; premiums are generally not deductible and benefits are generally taxable to the business.
Why the other options are wrong
- AThe business is the beneficiary, not the key person.
- CThe family is not a beneficiary of key person coverage.
- DThe key person receives nothing directly.
Exam tip
Key person DI: business owns, pays, receives; premium not deductible, benefit taxable.
Common mistake
Assuming the key person receives the benefit.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Accident & Sickness module. Written against the published curriculum.
More from component 2
- A group benefits booklet lists AD&D coverage alongside life and LTD. The AD&D benefit pays:
- A hospital indemnity (hospital cash) policy pays:
- Employment Insurance sickness benefits are available to:
- Which government program coordinates with an individual DI policy through a possible offset AND also affects the definition of insurable income?
- A group plan's 'eligibility waiting period' (probationary period) is:
- A CI policy that is 'convertible' allows the insured to:
Practice the whole Accident & Sickness module
Timed sets weighted like the exam, and review of every question you miss. Free to start.