LLQP Ethics & Professional Practice · Component 1.6 · 60% of the exam
If a policy has an outstanding loan at death:
- The loan plus interest is deducted from the death benefit before payment, along with any premium due
- BThe estate repays the loan from its other assets, so the beneficiary receives the full face amount
- CThe loan is forgiven at death, since the insurer's security for the loan was the policy itself
- DThe beneficiary must repay the loan separately after receiving the full death benefit from the insurer
Correct answer: A) The loan plus interest is deducted from the death benefit before payment, along with any premium due
Loans reduce the net benefit; agents should explain this when loans are taken.
Why the other options are wrong
- BThe loan is netted from the proceeds, not paid by the estate.
- CLoans are deducted, not forgiven.
- DThe loan is netted from the proceeds before payment.
Exam tip
Death benefit paid net of loans, interest and grace-period premium.
Common mistake
Not warning a beneficiary that a loan reduces the payout.
What this tests
CISRO competency component 1.6 — 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.