LLQP Life Insurance · Component 1.2 · 35% of the exam
A client owns a whole life policy issued before December 2, 1982. Why does the issue date matter?
- AThe policy must be replaced, since insurers no longer service contracts issued under the old tax rules
- Policies issued before that date are grandfathered from the exempt-test rules, provided they are not materially changed
- COlder policies pay no death benefit, since the reserves were exhausted under the pre-1982 pricing basis
- DThe premiums are tax-deductible, since the policy was issued before the deduction was withdrawn
Correct answer: B) Policies issued before that date are grandfathered from the exempt-test rules, provided they are not materially changed
Two grandfathering dates matter in Canadian life insurance taxation: December 2, 1982 and January 1, 2017 (the 2015 rules). Older policies keep their original tax treatment unless certain changes are made. An agent who recommends changes to such a policy must understand that the grandfathering can be lost.
Why the other options are wrong
- AReplacing a grandfathered policy is usually the wrong move.
- COlder policies pay death benefits like any other.
- DPersonal life insurance premiums are not deductible regardless of issue date.
Exam tip
Two dates to remember: December 2, 1982 and January 1, 2017. Material changes to grandfathered policies can cost them their status.
Common mistake
Recommending changes to an old policy without checking whether they end its grandfathering.
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.