LLQP Life Insurance · Component 1.2 · 35% of the exam
A client has a term policy with a 'return of premium' feature. In the review the agent should understand that:
- AThe feature is free, since the insurer funds the refund from the investment return on the premiums it has held
- BIt converts the policy to whole life at the end of the term, with the refunded premiums forming the initial cash value
- The premiums are higher than plain term in exchange for a refund on survival, and cancelling early usually forfeits it
- DThe refund is paid annually as a rebate, so the effective premium is lower than the amount shown on the policy
Correct answer: C) The premiums are higher than plain term in exchange for a refund on survival, and cancelling early usually forfeits it
Return-of-premium term is priced above ordinary term; the refund typically vests only at the end of the term. A client considering replacement should know what they would give up.
Why the other options are wrong
- AThe feature is paid for through higher premiums.
- BIt remains term insurance.
- DThe refund comes at the end of the term, not annually.
Exam tip
Check what an existing policy's special features cost and when they vest before recommending any change.
Common mistake
Replacing return-of-premium term shortly before the refund would have been paid.
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.