LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A client points to an illustration showing dividends increasing every year and asks whether that is promised. The agent must explain that:
- Adividends are set by the regulator each year and are therefore the same at every insurer
- Bthe illustration understates the dividends, so the client can safely expect more than shown
- Cthe illustrated dividends are contractual and the insurer must pay at least those amounts
- the dividend scale is not guaranteed and depends on the insurer's future experience
Correct answer: D) the dividend scale is not guaranteed and depends on the insurer's future experience
Dividends reflect mortality, investment and expense experience, and the scale can be reduced. Illustrations must show alternative scenarios so the client understands that the values shown are not promises.
Why the other options are wrong
- ARegulators do not set dividend scales for insurers.
- BAn illustration is a projection, not a conservative floor.
- COnly the guaranteed elements of the contract are contractual.
Exam tip
Only the guaranteed column is a promise; the dividend scale can change.
Common mistake
Presenting an illustration's dividend values as though they were guaranteed.
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.