LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A participating policyholder was told his premiums would eventually be covered by dividends, but the insurer is still billing him. The agent should explain that:
- Athe contract guarantees that dividends will cover the premium from the tenth year onward
- Bthe insurer has breached the contract by continuing to bill after the stated offset year
- Cpremiums always stop at the date shown, so the billing must be an administrative error
- a premium offset date is a projection, and a reduced dividend scale pushes it further out
Correct answer: D) a premium offset date is a projection, and a reduced dividend scale pushes it further out
Premium offset depends on dividends reaching a level sufficient to cover the premium. Because the dividend scale is not guaranteed, a reduction moves the offset year later, and the policyholder remains responsible for the premium until it arrives.
Why the other options are wrong
- ADividends are not guaranteed and no offset year is promised.
- BNo contractual promise was broken because the offset year was never guaranteed.
- CThe offset date is a projection rather than a contractual term.
Exam tip
Premium offset is a projection that moves when the dividend scale changes.
Common mistake
Presenting a premium offset year as the date premiums are guaranteed to stop.
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
Timed sets weighted like the exam, and review of every question you miss. Free to start.