LLQP Ethics & Professional Practice · Component 1.4 · 60% of the exam
The 'dividend' provision in a participating policy:
- AGuarantees a minimum dividend each year, since the insurer sets aside part of the premium for that purpose in its reserves
- Explains that dividends are not guaranteed and offers cash, premium reduction, accumulation or paid-up additions
- CRequires the dividend to be paid in cash each year, since it is a return of premium under the Income Tax Act
- DApplies to term policies, which participate in the insurer's surplus through reduced renewal premiums
Correct answer: B) Explains that dividends are not guaranteed and offers cash, premium reduction, accumulation or paid-up additions
Dividend options are ownership choices with tax consequences (accumulations earn taxable interest; paid-up additions grow tax-sheltered within the exempt policy).
Why the other options are wrong
- ADividends are never guaranteed.
- CSeveral dividend options exist.
- DTerm policies are non-participating.
Exam tip
Dividends: not guaranteed; options cash, premium, accumulate, PUA, term.
Common mistake
Illustrating dividends as guaranteed.
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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