LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A participating policyholder selects the paid-up additions dividend option. This means each dividend will:
- Areduce the following year's premium by exactly the amount of the dividend declared
- buy a small amount of additional permanent coverage that itself earns future dividends
- Cbe paid to her in cash each year as a tax-free return of the premiums that she has already paid
- Daccumulate with the insurer at interest until she instructs otherwise in writing
Correct answer: B) buy a small amount of additional permanent coverage that itself earns future dividends
Paid-up additions purchase extra fully paid coverage, increasing both the death benefit and the cash value. Those additions earn dividends in turn, which is why the option compounds more than the alternatives.
Why the other options are wrong
- AReducing the premium is the premium offset option.
- CTaking dividends in cash is a different option entirely.
- DLeaving dividends on deposit at interest is another separate option.
Exam tip
Paid-up additions compound because the additions themselves earn dividends.
Common mistake
Confusing paid-up additions with leaving dividends on deposit.
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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