LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A 'cost of insurance' (COI) provision in universal life:
- AApplies to term policies, which deduct the cost of insurance from a notional fund each year
- Sets the mortality charges deducted from the fund, level or yearly renewable, guaranteed or adjustable
- CIs the same as the premium, since the owner pays exactly the cost of insurance and nothing more
- DIs always guaranteed level for the life of the contract, since the insurer cannot change a charge after the policy has been issued
Correct answer: B) Sets the mortality charges deducted from the fund, level or yearly renewable, guaranteed or adjustable
COI structure is central to UL sustainability; adjustable COI is a risk the client must understand.
Why the other options are wrong
- ACost-of-insurance provisions are a universal life feature.
- CThe premium is the deposit; the COI is the charge.
- DIt may be yearly renewable or adjustable.
Exam tip
UL COI: level vs YRT, guaranteed vs adjustable.
Common mistake
Illustrating a UL policy without showing the YRT cost escalation.
What this tests
CISRO competency component 1.4 — 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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