LLQP Life Insurance · Component 1.2 · 35% of the exam
A client has a participating whole life policy on 'premium offset' — dividends are paying the premiums. What should the review warn about?
- AThe death benefit is reduced each year the dividends are used for premiums, since the policy is consuming its own value
- BPremium offset is guaranteed by the insurer once it begins, so the client will never pay another premium
- Dividends are not guaranteed; if the scale falls, the client may have to resume paying premiums out of pocket
- DThe policy has no cash value under offset, since the dividends that would have built it are paying the premiums instead
Correct answer: C) Dividends are not guaranteed; if the scale falls, the client may have to resume paying premiums out of pocket
Premium offset relies on projected dividends. A reduction in the insurer's dividend scale can mean offset is delayed or interrupted and premiums become payable again. The curriculum lists the impact of a changing dividend scale on a premium-offset policy as a specific point to explain.
Why the other options are wrong
- AThe death benefit is not reduced each year under offset.
- BPremium offset is not guaranteed; it depends on the dividend scale.
- DA participating whole life policy has cash value under offset.
Exam tip
Premium offset rests on non-guaranteed dividends. Tell the client premiums may resume if the scale falls.
Common mistake
Describing a premium-offset policy as 'paid up'.
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.