LLQP Accident & Sickness · Component 1.3 · 35% of the exam
The income replacement need in a disability analysis is best calculated as:
- AGross income before tax, since the benefit must replace everything the client earned
- BTotal outstanding debt divided by the number of months remaining to retirement
- After-tax continuing expenses less after-tax income from other sources, monthly
- DNet worth divided by twelve, since assets are what the client would actually draw on
Correct answer: C) After-tax continuing expenses less after-tax income from other sources, monthly
The need is the monthly shortfall. Because individual DI benefits are tax-free when the client pays the premium, the analysis works in after-tax terms and nets out resources that continue.
Why the other options are wrong
- AFull gross replacement is neither needed after tax nor available from insurers.
- BDebt payments are one component of expenses, not the whole need.
- DNet worth is a resource, not a measure of the monthly shortfall.
Exam tip
Monthly need = continuing after-tax expenses − continuing after-tax resources.
Common mistake
Computing the need in gross pre-tax terms when the benefit will be tax-free.
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.