LLQP Life Insurance · Component 1.2 · 35% of the exam
A client has creditor life insurance attached to a car loan. In the existing coverage review the agent should note that:
- the benefit pays the lender and declines as the loan balance is repaid
- Bthe client can name a beneficiary and redirect the proceeds as circumstances change
- Cthe coverage continues at the same amount once the loan has been fully repaid
- Dthe premium falls each year in line with the declining loan balance
Correct answer: A) the benefit pays the lender and declines as the loan balance is repaid
Creditor coverage pays the lender rather than the family, reduces as the balance falls and ends when the loan is repaid. It is rarely the most efficient protection but should be recorded as covering that debt.
Why the other options are wrong
- BThe lender is the beneficiary and the client cannot redirect the proceeds.
- CThe coverage ends when the obligation it secures is discharged.
- DThe premium is often level even as the benefit declines.
Exam tip
Creditor coverage pays the lender, shrinks with the loan and then ends.
Common mistake
Counting creditor coverage as protection available to the family.
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.