LLQP Life Insurance · Component 2.1 · 30% of the exam
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:
- the ten-year policy costs less at first but renews at a much higher rate midway through
- Bthe ten-year policy is cheaper throughout, since its premium is lower at the outset
- Cthe twenty-year policy requires new evidence of insurability after the first ten years
- Dthe two products produce an identical total cost over the whole twenty-year period
Correct answer: A) the ten-year policy costs less at first but renews at a much higher rate midway through
Matching the term to the need usually costs less overall and removes the renewal shock. The shorter term may suit a client whose need will actually end sooner or who plans to convert.
Why the other options are wrong
- BThe renewal premium generally makes the shorter term more expensive overall.
- CA twenty-year level term needs no evidence during its term.
- DTotal costs differ, usually in favour of matching the term to the need.
Exam tip
Match the term to the need; renewals are where the cost escalates.
Common mistake
Comparing term products on the first year premium alone.
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 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:
- A client takes a partial withdrawal from the fund of his universal life policy. The tax consequence is that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.