LLQP Life Insurance · Component 1.1 · 35% of the exam
A client holds non-registered investments with substantial accrued gains. The needs analysis should record that on death:
- Aonly the income earned in the year of death is included on the final return
- a deemed disposition realizes the gains, creating tax unless a spouse inherits them
- Cthe investments pass to the beneficiaries with no tax consequence of any kind
- Dthe gains are taxed in the beneficiaries' hands in the year they receive the assets
Correct answer: B) a deemed disposition realizes the gains, creating tax unless a spouse inherits them
Capital property is treated as sold at fair market value immediately before death. The resulting tax falls on the final return, and a rollover defers it only where a spouse or a spousal trust receives the property.
Why the other options are wrong
- AThe deemed disposition goes well beyond the year's income.
- CAccrued gains are realized on death, producing a tax liability.
- DThe tax arises on the deceased's return, not the beneficiaries'.
Exam tip
Accrued gains equal a tax bill at death unless a spouse inherits.
Common mistake
Listing investments as resources without deducting the tax they trigger.
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.