LLQP Life Insurance · Component 1.2 · 35% of the exam
A client has a corporately owned policy on his life with the corporation as beneficiary, but he wants the proceeds to go to his family. The review should point out that:
- AThe family is the beneficiary regardless, since the shareholder's family inherits his shares and therefore the proceeds
- The proceeds go to the corporation; reaching the family requires a capital dividend from the CDA or another planned distribution
- CThe corporation will pay the family automatically, since the Income Tax Act requires insurance proceeds to flow to the shareholder's heirs
- DThe policy must be cancelled and replaced with a personally owned policy, since a corporate policy cannot benefit a family
Correct answer: B) The proceeds go to the corporation; reaching the family requires a capital dividend from the CDA or another planned distribution
The beneficiary designation controls. Corporate receipt plus a capital dividend can move the proceeds to shareholders tax-free up to the CDA credit; beyond that, distributions are taxable. The plan must be deliberate.
Why the other options are wrong
- AThe corporation, not the family, is the named beneficiary.
- CNothing is automatic; a distribution must be declared.
- DCancelling loses the coverage.
Exam tip
Corporate-owned policy → corporate proceeds → CDA capital dividend to shareholders. Plan the path to the family.
Common mistake
Assuming a corporate-owned policy pays the shareholder's family directly.
What this tests
CISRO competency component 1.2 — 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.