LLQP Life Insurance · Component 2.1 · 30% of the exam
A client notices that a small policy costs proportionately more per unit of coverage than a larger one. The explanation is that:
- a fixed policy fee is spread across less coverage, raising the cost per unit
- Bmortality rates are higher among people who purchase smaller amounts of coverage
- Cinsurers deliberately discourage small policies by charging a penalty premium
- Dsmall policies are underwritten far more strictly than larger amounts of coverage
Correct answer: A) a fixed policy fee is spread across less coverage, raising the cost per unit
Administration costs are broadly the same whatever the amount, so a policy fee and banded rates make larger policies cheaper per unit. It is often worth checking the next band up before settling an amount.
Why the other options are wrong
- BMortality is assessed on the individual, not on the amount bought.
- CThe effect comes from fixed costs, not a deliberate penalty.
- DUnderwriting is usually less intensive at smaller amounts.
Exam tip
Check the next band: more coverage sometimes costs little or nothing extra.
Common mistake
Settling an amount without testing the band boundaries.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Life Insurance module. Written against the published curriculum.
More from component 2
- A client has a need lasting about twenty years and compares a ten-year and a twenty-year term policy. The main point to explain is that:
- A client exercises the conversion privilege on his term policy. The permanent premium will be based on:
- A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- A client asks why dividends from her participating policy are not taxed like interest from a bank. The reason is that a dividend is:
- A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
- A client takes a partial withdrawal from the fund of his universal life policy. The tax consequence is that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.