LLQP Life Insurance · Component 1.1 · 35% of the exam
A client has just bought a business financed partly by the vendor. His situation now includes:
- Ano new exposure, since the vendor carries the risk until the balance is fully repaid
- Ban asset the estate could sell instantly at the full purchase price if he died
- Ca guaranteed income stream that removes the need for any personal coverage
- an obligation his estate would owe, which the vendor may require to be insured
Correct answer: D) an obligation his estate would owe, which the vendor may require to be insured
Vendor financing is a debt of the purchaser or the company. Vendors commonly require life coverage so the balance is repaid on death, and the client's family would otherwise inherit both the debt and an unsold business.
Why the other options are wrong
- AThe purchaser owes the balance; the vendor holds a claim, not the risk.
- BA private business is rarely sold quickly at full value.
- COwning a business does not guarantee income to a family after a death.
Exam tip
Vendor financing is a debt on death and often an insurance requirement.
Common mistake
Recording a business purchase as an asset without recording the financing.
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.