LLQP Life Insurance · Component 1.3 · 35% of the exam
A business wants to protect itself against the loss of its top salesperson, who is not an owner. The appropriate coverage is:
- AGroup life with the salesperson as beneficiary of the plan
- Key person insurance owned by and payable to the business itself
- CA buy-sell agreement funded by insurance on the salesperson
- DA personal policy owned by the salesperson with premiums from salary
Correct answer: B) Key person insurance owned by and payable to the business itself
Key person coverage applies to any individual whose death would cause the business measurable loss, not just owners. The business owns the policy and receives the proceeds to replace lost profit and recruit a successor.
Why the other options are wrong
- AGroup life pays the employee's family, not the business.
- CBuy-sell agreements concern ownership transfer, and the salesperson is not an owner.
- DA personal policy protects the salesperson's family, not the employer.
Exam tip
Key person need = the financial loss to the business from that person's death.
Common mistake
Assuming key person insurance is only for owners.
What this tests
CISRO competency component 1.3 — 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.