LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A shareholder personally owns a policy and wants his corporation named as beneficiary. The agent should warn that:
- Aa corporation is not permitted to be the beneficiary of a personally owned policy
- the mismatch between owner and beneficiary can create a shareholder benefit, so tax advice is needed
- Cthe arrangement is straightforward and has no tax consequence for anyone involved
- Dthe corporation would then be obliged to pay all of the premiums falling due on the contract
Correct answer: B) the mismatch between owner and beneficiary can create a shareholder benefit, so tax advice is needed
Where the corporation benefits from a policy whose premiums are paid personally, or the reverse, tax consequences can follow. These structures need an accountant's review before the designation is put in place.
Why the other options are wrong
- AA corporation may be designated; the question is the tax treatment.
- COwner and beneficiary mismatches between related parties carry tax risk.
- DDesignation as beneficiary does not create an obligation to pay premiums.
Exam tip
Any owner and beneficiary mismatch involving a corporation needs tax advice.
Common mistake
Arranging a corporate beneficiary on a personal policy without tax review.
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.