LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A universal life policyholder complains that his monthly deduction has climbed steeply over the past decade. The agent should explain that:
- a yearly renewable cost of insurance rises with the insured's attained age under the contract
- Bthe increase reflects investment losses inside the policy fund rather than the cost of coverage
- Cthe insurer has increased its profit margin, which the contract permits it to do each year
- Dthe cost of insurance is fixed at issue, so the increase must be an administrative error
Correct answer: A) a yearly renewable cost of insurance rises with the insured's attained age under the contract
Universal life offers a choice between a level cost and a yearly renewable cost. The renewable option starts lower but rises each year with age, which can strain the policy fund in later years if it was not planned for.
Why the other options are wrong
- BInvestment results affect the fund value, not the cost of insurance rate.
- CThe increase follows the contract's cost structure rather than a change in margin.
- DOnly a level cost option is fixed; the renewable option is designed to rise.
Exam tip
Yearly renewable cost of insurance climbs with age; level cost does not.
Common mistake
Selling the lower early cost without explaining how steeply it later rises.
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.