LLQP Ethics & Professional Practice · Component 1.6 · 60% of the exam
The named beneficiary of a death benefit is an adult who lacks capacity to manage money. The proceeds will generally:
- require payment to a guardian of property or under a settlement option arrangement
- Bbe paid to the estate instead, since an incapable person cannot be a beneficiary
- Cbe held by the insurer until the beneficiary regains the capacity to give a receipt
- Dbe paid directly into her personal bank account as they would for any other adult
Correct answer: A) require payment to a guardian of property or under a settlement option arrangement
An incapable beneficiary cannot give a valid receipt, so the insurer needs someone authorized to receive the money. Naming a trustee in the designation or arranging a settlement option avoids the cost and delay of a court appointment.
Why the other options are wrong
- BAn incapable person may be named; the issue is who receives the money.
- CThe insurer does not simply hold funds awaiting a recovery of capacity.
- DA person unable to manage money cannot validly receive the proceeds.
Exam tip
Plan for an incapable beneficiary with a trustee or a settlement option.
Common mistake
Naming a vulnerable adult without arranging who will receive the money.
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.