LLQP Life Insurance · Component 2.1 · 30% of the exam
A client asks whether the premiums on a policy assigned to her bank as loan security are deductible. The answer is that:
- Ano deduction is ever available for a life insurance premium in any circumstances
- Ball life insurance premiums are deductible once a policy has been assigned to a lender
- Cthe deduction is available only where the borrower is an individual rather than a corporation
- a limited deduction may be available where the lender requires the assignment for a business loan
Correct answer: D) a limited deduction may be available where the lender requires the assignment for a business loan
Where a policy is assigned as collateral for a loan used to earn income, and the lender required it, a portion of the premium related to the net cost of pure insurance may be deductible. The conditions are specific and need professional advice.
Why the other options are wrong
- AA limited deduction does exist in the collateral assignment situation.
- BAssignment alone does not make premiums deductible.
- CThe relief is not restricted to individual borrowers.
Exam tip
Collateral assignment for a business loan is the main premium deduction exception.
Common mistake
Telling a business client that premiums are never deductible in any case.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Life Insurance module. Written against the published curriculum.
More from component 2
- A client has a need lasting about twenty years and compares a ten-year and a twenty-year term policy. The main point to explain is that:
- A client exercises the conversion privilege on his term policy. The permanent premium will be based on:
- A client notices that a small policy costs proportionately more per unit of coverage than a larger one. The explanation is that:
- A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- A client asks why dividends from her participating policy are not taxed like interest from a bank. The reason is that a dividend is:
- A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.