LLQP Ethics & Professional Practice · Component 1.1 · 60% of the exam
Bankruptcy legislation affects life insurance and annuities by:
- AHaving no effect on insurance, since life insurance proceeds and cash values are exempt from seizure in every case without exception
- BCancelling beneficiary designations automatically, so that all policies fall into the bankrupt's estate for creditors
- CSeizing all policies the bankrupt owns, regardless of who is named as beneficiary
- Letting the trustee challenge transfers made to defeat creditors within look-back periods, while respecting valid exemptions
Correct answer: D) Letting the trustee challenge transfers made to defeat creditors within look-back periods, while respecting valid exemptions
Creditor protection is real but not a tool for fraud; bankruptcy law provides the look-back and challenge mechanisms.
Why the other options are wrong
- AIt provides challenge mechanisms.
- BValid designations survive bankruptcy.
- CExempt contracts are protected.
Exam tip
Protection holds for legitimate designations; transfers to defeat creditors can be reversed.
Common mistake
Advising a client facing bankruptcy to move assets into a seg fund.
What this tests
CISRO competency component 1.1 — 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.