LLQP Life Insurance · Component 1.1 · 35% of the exam
A 58-year-old client plans to retire at 65 and has a pension that will pay a survivor benefit. How does time to retirement affect the life insurance need?
- AIt does not; the income-replacement need stays constant for life regardless of how many working years remain
- BThe need increases every year until retirement, since the client's salary is at its highest in the final years
- CCoverage should end at 58, since a client within seven years of retirement has little income left to protect
- The income-replacement need typically declines as retirement approaches, since fewer working years remain
Correct answer: D) The income-replacement need typically declines as retirement approaches, since fewer working years remain
Income replacement covers the earnings a survivor would have relied on until the client's retirement. With seven working years left and a pension survivor benefit thereafter, the replacement need is smaller and shorter than for a 30-year-old — which affects both the amount and the term recommended.
Why the other options are wrong
- AThe income-replacement need shrinks as the remaining working years shrink.
- BThe need falls as retirement nears, because fewer years of earnings remain to replace.
- CEnding coverage at 58 ignores the seven remaining working years and any permanent needs.
Exam tip
Match the term of coverage to the years of income being replaced; a client near retirement usually needs less, not more.
Common mistake
Recommending the same amount and term to a 58-year-old as to a 35-year-old.
What this tests
CISRO competency component 1.1 — Assess the client's needs and situation — which is weighted at 35% of the Life Insurance module. Written against the published curriculum.
More from component 1
- A client's existing policies were all sold by another agent who has left the business. The reviewing agent should:
- A client supports an adult child with a permanent disability who will never be self-sufficient. In the needs analysis this is:
- A self-employed client's income fluctuates widely year to year. When determining the income to replace, the agent should:
- Which of the following is a capital expense arising at death, rather than an ongoing income need?
- A client is the sole income earner in a household with a stay-at-home spouse and two young children. The greatest risk that life insurance on the client addresses is:
- A client owns a cottage that has appreciated substantially. Why does this matter in a life insurance needs analysis?
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.