LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A client takes a policy loan against her whole life contract and asks how it affects her family. The agent should explain that:
- Athe death benefit is unaffected but the policy terminates once the loan is repaid
- any outstanding loan and its accrued interest are deducted from the death benefit
- Cthe loan has no effect on the death benefit because it is secured by the cash value
- Dthe beneficiary becomes personally responsible for repaying the loan after the death
Correct answer: B) any outstanding loan and its accrued interest are deducted from the death benefit
A policy loan is an advance against the contract's values. If it is unpaid at death, the insurer deducts the loan and the accumulated interest from the proceeds, reducing what the beneficiary receives.
Why the other options are wrong
- ARepaying a loan restores values rather than terminating the contract.
- CBeing secured by the cash value is exactly why the death benefit is reduced.
- DA beneficiary has no personal liability for a policy loan.
Exam tip
An unpaid policy loan plus interest comes out of the death benefit.
Common mistake
Describing a policy loan as free money because no lender approval is needed.
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.