LLQP Life Insurance · Component 1.1 · 35% of the exam
A business owner intends to sell his company in about five years. The needs analysis should treat the business as:
- an asset whose value and timing are uncertain, with tax arising on a deemed disposition
- Birrelevant, because a business is not part of a personal needs analysis
- Ca liability, since businesses generally cost more to wind up than they are worth
- Da certain source of cash at the anticipated sale price, available to the family at any time
Correct answer: A) an asset whose value and timing are uncertain, with tax arising on a deemed disposition
A private company is illiquid and its value is uncertain, particularly if the owner dies before the sale. Accrued gains are realized on death unless a spouse inherits, which can create a liquidity problem.
Why the other options are wrong
- BA closely held business is central to an owner's personal analysis.
- CA profitable business is an asset, not a liability.
- DA private business cannot be turned into cash on demand.
Exam tip
A private business is an illiquid asset with a tax bill attached at death.
Common mistake
Valuing a business at the owner's hoped-for sale price.
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:
- 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?
- 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:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.