LLQP Ethics & Professional Practice · Component 1.3 · 60% of the exam
'Surrender' of a permanent policy by the owner:
- Ends the contract for the cash value less charges and loans, needs an irrevocable beneficiary's consent, and may be taxable
- BIs prohibited once the policy has been in force for two years, since the insurer has then relied on the premiums to fund its reserves
- CIs free of tax in every case, since the owner is simply recovering money that was already taxed when earned
- DRequires the consent of every named beneficiary, since each has a vested interest in the policy's continuation
Correct answer: A) Ends the contract for the cash value less charges and loans, needs an irrevocable beneficiary's consent, and may be taxable
Surrender is an ownership right with tax consequences; irrevocable beneficiaries and assignees must consent.
Why the other options are wrong
- BSurrender is a permitted ownership right.
- CGains above the adjusted cost basis are taxable.
- DOnly an irrevocable beneficiary must consent.
Exam tip
Surrender: CSV less charges, irrevocable consent, possible tax.
Common mistake
Processing a surrender without explaining the tax.
What this tests
CISRO competency component 1.3 — 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.