LLQP Ethics & Professional Practice · Component 1.2 · 60% of the exam
A client wants to insure the life of his business partner to fund a buy-sell agreement. Insurable interest:
- must exist at the time the contract is made, and a business relationship can supply it
- Bis satisfied simply because the partner has agreed to the policy being taken out
- Cmust exist continuously, so the policy ends the day the partnership is dissolved
- Ddoes not apply to business relationships, so the policy cannot be issued on those facts
Correct answer: A) must exist at the time the contract is made, and a business relationship can supply it
Insurable interest is tested when the contract is made. A financial interest arising from a partnership qualifies, and the life insured's consent is also required for a policy owned by another person.
Why the other options are wrong
- BConsent is required in addition to insurable interest, not instead of it.
- CThe requirement is tested at inception; the policy does not lapse on dissolution.
- DBusiness relationships are a recognized source of insurable interest.
Exam tip
Insurable interest is tested at inception; consent of the life insured is separate.
Common mistake
Believing insurable interest must continue for the life of the policy.
What this tests
CISRO competency component 1.2 — 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.