LLQP Ethics & Professional Practice · Component 1.1 · 60% of the exam
The Income Tax Act affects life insurance contracts by:
- ANot at all, since life insurance benefits are tax-free and the Act has no interest in how policies are structured
- Defining exempt policies, taxing gains on disposition, governing registered plans, and setting benefit treatment
- CSetting the premiums that insurers may charge, so that the tax-free growth inside a policy is not abused
- DLicensing agents who sell tax-advantaged products, since the CRA must approve anyone who advises on them
Correct answer: B) Defining exempt policies, taxing gains on disposition, governing registered plans, and setting benefit treatment
Tax law is part of the legal framework: exempt-test rules, adjusted cost basis, deemed dispositions, and registered plan rules all flow from it.
Why the other options are wrong
- ATax law shapes product design and advice.
- CInsurers set premiums.
- DProvinces license agents.
Exam tip
ITA: exempt policies, dispositions, registered plans, benefit taxation.
Common mistake
Ignoring the tax consequences of policy transfers and surrenders.
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.