LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A deceased client named her estate as beneficiary and left substantial unpaid debts. The proceeds will be:
- applied to the estate's debts before anything is distributed to the beneficiaries of the will
- Bbe paid to the named heirs under the will before any creditor of the estate is entitled to be considered
- Creturned to the insurer if the debts exceed the total value of the estate's assets
- Dprotected from creditors because insurance money retains its exempt character always
Correct answer: A) applied to the estate's debts before anything is distributed to the beneficiaries of the will
Once the proceeds enter the estate they lose their protected character. Debts, taxes and administration costs are paid first, and the beneficiaries under the will receive only what remains.
Why the other options are wrong
- BCreditors of an estate rank ahead of the beneficiaries under the will.
- CProceeds are never returned to the insurer because of estate insolvency.
- DThe exemption applies to a named family class beneficiary, not to an estate.
Exam tip
Insurance money in an estate is ordinary estate property, creditors included.
Common mistake
Assuming insurance proceeds keep their protection after entering the estate.
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.