LLQP Life Insurance · Component 4.1 · 10% of the exam
A client asks to transfer ownership of her non-registered policy to a family trust. The agent should explain that:
- Athe trustees automatically become the beneficiaries of the contract once it is transferred
- the transfer is a disposition that may create a policy gain, so tax advice is needed
- Can ownership change is purely administrative and carries no tax consequence
- Da trust is not permitted to own a life insurance policy in Canada
Correct answer: B) the transfer is a disposition that may create a policy gain, so tax advice is needed
Transferring a policy is a disposition at fair market value except where a specific rollover applies. The trust's terms then govern the policy, so both an accountant and a lawyer should be involved.
Why the other options are wrong
- AOwnership and beneficiary designation are separate matters.
- CAn ownership change has tax consequences and changes control.
- DTrusts commonly hold life insurance policies.
Exam tip
Any ownership change is a disposition; get tax advice first.
Common mistake
Processing an ownership transfer as a simple change of name.
What this tests
CISRO competency component 4.1 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.