LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A client wants the proceeds used only for her granddaughter's education. The appropriate structure is to:
- Awrite the instruction on the designation form and rely on the insurer to enforce it
- name a trustee to receive and apply the proceeds, with the terms set out properly
- Cname the granddaughter directly and trust her parents to apply the money sensibly
- Dleave the proceeds to the estate so the executor can supervise the spending personally
Correct answer: B) name a trustee to receive and apply the proceeds, with the terms set out properly
An insurer pays according to the designation and does not police how money is spent. Directing proceeds to a trustee under terms drafted with legal advice is the way to impose a purpose on the funds.
Why the other options are wrong
- AAn insurer will not enforce conditions written on a designation form.
- CA direct designation gives the recipient free use of the money.
- DAn estate designation loses probate bypass and still needs trust terms.
Exam tip
Conditions on proceeds require a trustee and drafted terms, not a note on a form.
Common mistake
Writing an instruction on a designation form and assuming it binds anyone.
What this tests
CISRO competency component 1.5 — 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.