LLQP Ethics & Professional Practice · Component 1.2 · 60% of the exam
A corporation owns a policy on a departing shareholder and wants to transfer ownership to him personally. The agent should explain that:
- the transfer may create a taxable benefit or disposition, so tax advice should be obtained
- Bthe transfer is purely administrative and carries no tax consequence for the company or the individual
- Cthe policy must be surrendered, since ownership can never move between parties
- Dsuch a transfer is prohibited, since a corporate policy cannot pass to an individual
Correct answer: A) the transfer may create a taxable benefit or disposition, so tax advice should be obtained
Moving a policy out of a corporation can produce a disposition for the corporation and a shareholder benefit for the individual, measured against the policy's value. The agent should flag the issue and refer it to a tax adviser.
Why the other options are wrong
- BAn ownership transfer from a corporation has real tax consequences.
- COwnership can be transferred without surrendering the contract.
- DTransfers between a corporation and a shareholder are permitted.
Exam tip
Any policy leaving a corporation needs tax advice before the transfer.
Common mistake
Processing a corporate ownership transfer as a simple change of name.
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.