LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
A whole life policyholder receives a notice from the insurer and fears his guaranteed premium will rise. The agent should explain that:
- Athe premium rises every five years under all permanent life insurance contracts
- Bthe premium can be increased only with the written agreement of the policyholder
- Cguaranteed premiums may be increased whenever the insurer's claims experience worsens
- a guaranteed premium is fixed by the contract and cannot be changed by the insurer
Correct answer: D) a guaranteed premium is fixed by the contract and cannot be changed by the insurer
Where a contract states the premium is guaranteed, the insurer is bound by it for the stated period. Adjustable elements such as a dividend scale or a universal life cost of insurance are a different matter.
Why the other options are wrong
- APermanent contracts commonly carry a level guaranteed premium.
- BNo agreement is needed because the premium cannot be changed.
- CExperience affects adjustable elements, not a guaranteed premium.
Exam tip
Distinguish a guaranteed premium from adjustable charges and dividend scales.
Common mistake
Treating every element of a permanent policy as adjustable by the insurer.
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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