LLQP Ethics & Professional Practice · Component 1.2 · 60% of the exam
A corporation owns key person coverage and asks what happens if it is wound up. The agent should explain that a successor owner designation:
- generally suits individual owners, so the corporation should plan the transfer deliberately
- Btransfers the policy automatically to the largest shareholder of the corporation involved
- Cis unnecessary because a policy simply terminates when its corporate owner ceases to exist
- Dapplies to corporations in the same way it applies to individual owners on death
Correct answer: A) generally suits individual owners, so the corporation should plan the transfer deliberately
A successor owner provision is designed for the death of an individual owner. A corporation that may be wound up or sold should address the policy explicitly in the planning, with tax advice on any transfer.
Why the other options are wrong
- BNothing transfers a corporate asset automatically to a shareholder.
- CThe policy remains an asset and must be dealt with in the winding up.
- DThe provision is built around an owner's death, which a corporation does not have.
Exam tip
Successor owner suits individuals; corporate ownership needs explicit planning.
Common mistake
Relying on a successor owner clause for a corporately owned 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.