LLQP Ethics & Professional Practice · Component 1.1 · 60% of the exam
Life insurance is generally not a contract of 'indemnity'. This means:
- AThe insurer pays only the actual financial loss the beneficiary can prove, up to the face amount stated in the policy
- The face amount is paid on the insured event regardless of the beneficiary's actual financial loss
- CBenefits are taxable to the beneficiary, since they exceed the loss actually suffered
- DThe policy is void if the beneficiary cannot show a financial loss at the time of the claim
Correct answer: B) The face amount is paid on the insured event regardless of the beneficiary's actual financial loss
The valued-contract nature of life insurance allows multiple policies to pay in full. Disability and health insurance have some indemnity features (for example, reimbursement plans).
Why the other options are wrong
- AThat describes indemnity contracts such as property insurance.
- CTax is unrelated to the indemnity concept.
- DThe distinction does not affect validity.
Exam tip
Life insurance = valued contract, not indemnity; each policy pays its face amount.
Common mistake
Assuming two life policies cannot both pay in full.
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.