LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A client with a family class beneficiary collaterally assigns his policy to a lender. The effect on creditor protection is that:
- Athe exemption is permanently destroyed, even after the secured loan has been repaid in full
- Bnothing changes, because a family class designation overrides every assignment made
- Cthe beneficiary must consent to the assignment even though the designation is revocable
- the lender's secured claim takes priority over the beneficiary to the extent of the debt
Correct answer: D) the lender's secured claim takes priority over the beneficiary to the extent of the debt
An assignment the owner has validly given is honoured to the extent of the debt secured, and the beneficiary takes what remains. The exemption continues to operate against other creditors who hold no such security.
Why the other options are wrong
- AThe exemption operates again once the secured debt has been discharged.
- BA validly granted security interest is not defeated by the designation.
- COnly an irrevocable beneficiary's consent is required for an assignment.
Exam tip
A secured lender ranks ahead of the beneficiary for the debt secured.
Common mistake
Promising complete creditor protection on a policy pledged to a lender.
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
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