LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A client fears his adult son would spend a lump sum quickly. The settlement options provision allows the client to:
- direct that the proceeds be paid as an income stream rather than as a single amount
- Brequire the son to obtain the agent's approval before spending any part of the proceeds
- Cappoint the insurer as guardian of the son's financial affairs for the rest of his life
- Dcancel the designation automatically if the son's spending is later judged excessive
Correct answer: A) direct that the proceeds be paid as an income stream rather than as a single amount
Settlement options let the policyholder specify payment over a period or for life instead of a lump sum. This protects a beneficiary who may struggle to manage money, without the cost of establishing a formal trust.
Why the other options are wrong
- BNo agent supervises a beneficiary's spending of proceeds.
- CAn insurer does not act as guardian of a beneficiary's affairs.
- DA designation cannot be made conditional on later conduct in that way.
Exam tip
Settlement options are the simple alternative to a trust for a vulnerable beneficiary.
Common mistake
Recommending a trust when a settlement option would do the job.
What this tests
CISRO competency component 1.4 — Integrate into practice the legal aspects of insurance and annuity contracts — which is weighted at 60% of the Ethics & Professional Practice module. Written against the published curriculum.
More from component 1
- An 'assignee' of a life insurance policy is:
- A corporation as policyowner and beneficiary of a policy on a key employee:
- A 'trustee' named to receive proceeds on behalf of a beneficiary:
- The 'automatic premium loan' (APL) provision:
- A life insurance contract 'matures' when:
- The 'assignment' provision typically states that:
Practice the whole Ethics & Professional Practice module
Timed sets weighted like the exam, and review of every question you miss. Free to start.