LLQP Ethics & Professional Practice · Component 2.2 · 40% of the exam
A client wants to surrender a permanent policy with a large gain to buy a new policy the agent is offering. The agent should:
- ASkip the replacement form, since a surrender followed by a new application is two separate transactions rather than a replacement
- BAdvise cancelling the old policy first, so the surrender value is available to fund the first premium on the new one
- Treat it as a replacement: disclose, explain the tax and lost features, consider alternatives, and document the decision
- DProceed immediately with the surrender and application, since the client has already made an informed decision
Correct answer: C) Treat it as a replacement: disclose, explain the tax and lost features, consider alternatives, and document the decision
Surrender-and-rebuy is replacement; tax and contractual consequences must be disclosed.
Why the other options are wrong
- AReplacement rules apply.
- BKeep the old policy until the new one is in force.
- DAnalysis and disclosure must come first.
Exam tip
Surrender-to-rebuy = replacement with tax consequences.
Common mistake
Ignoring the taxable policy gain on surrender.
What this tests
CISRO competency component 2.2 — Integrate into practice the rules governing the activities of life insurance agents — which is weighted at 40% of the Ethics & Professional Practice module. Written against the published curriculum.
More from component 2
- A prospective client wants to confirm that an agent is properly licensed before meeting him. She should:
- A dual-licensed agent's mutual fund business is reviewed following a client complaint. The review will be conducted by:
- Assuris coverage applies to:
- OLHI's services are available to:
- Complaints about an agent's conduct (as opposed to an insurer's claim decision) should be directed to:
- The best summary of an agent's ethical obligations is to:
Practice the whole Ethics & Professional Practice module
Timed sets weighted like the exam, and review of every question you miss. Free to start.