LLQP Life Insurance · Component 1.1 · 35% of the exam
A client has a large line of credit secured by his home, mostly undrawn. In the needs analysis the relevant figure is:
- The drawn balance, which is the debt that would need to be repaid at death
- BZero, because a line of credit is a facility rather than a loan and carries no obligation until used
- CThe full credit limit, since the family could draw the whole amount after the client's death
- DThe home's value, since the line of credit is secured against it and the lender could force a sale
Correct answer: A) The drawn balance, which is the debt that would need to be repaid at death
Only the amount actually borrowed is a liability. The undrawn portion is capacity, not debt. The agent records the balance and, because it fluctuates, reviews it periodically.
Why the other options are wrong
- BA drawn line of credit is real debt.
- CThe limit is not owed; only the drawn balance is.
- DThe home's value is an asset, not the debt.
Exam tip
Lines of credit: record the balance, not the limit, and revisit it at each review.
Common mistake
Insuring the full credit limit or ignoring the line entirely.
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.