LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A creditor of a policy owner seeks to seize a policy on which the owner's spouse is named beneficiary. In the common law provinces the policy is generally:
- Aavailable to the creditor because the owner retains control of the contract throughout
- Bexempt only where the policy has no cash surrender value at the date of the claim
- exempt from seizure while the designation is in favour of a family class beneficiary
- Dexempt only if the designation was made irrevocably at the time the policy was issued
Correct answer: C) exempt from seizure while the designation is in favour of a family class beneficiary
Insurance legislation protects a policy from the owner's creditors while a spouse, child, grandchild or parent is designated. The protection can be lost where the designation was made to defeat a creditor already pursuing the owner.
Why the other options are wrong
- ARetaining ownership does not defeat the statutory exemption.
- BThe exemption does not depend on the policy having no cash value.
- DA family class designation need not be irrevocable to attract the exemption.
Exam tip
Family class designation equals exemption from the owner's creditors.
Common mistake
Believing only an irrevocable designation produces creditor protection.
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
Timed sets weighted like the exam, and review of every question you miss. Free to start.