LLQP Life Insurance · Component 1.2 · 35% of the exam
A client pays her life insurance premium monthly by pre-authorized debit. Compared with paying annually, she will generally:
- Pay somewhat more over the year, because insurers apply a modal factor to monthly premiums
- BPay less in total each year, since the insurer rewards the certainty of pre-authorized payments with a discount
- CPay exactly the same, since the annual premium is simply divided by twelve for monthly payment
- DReceive a dividend for paying monthly, since participating policies credit the extra administrative work
Correct answer: A) Pay somewhat more over the year, because insurers apply a modal factor to monthly premiums
Insurers price monthly (or quarterly) modes with a factor that recovers the cost of collecting instalments and the lost investment income, so the annual total exceeds the annual-pay premium. The review notes the mode and, where cash flow allows, the saving from annual payment.
Why the other options are wrong
- BMonthly payment never totals less than annual payment.
- CThe totals are not the same; the monthly mode carries a loading.
- DDividends are not tied to premium mode.
Exam tip
Modal factor: paying more often costs more per year. It is a fair point of advice for clients with cash flow to pay annually.
Common mistake
Assuming twelve monthly premiums equal one annual premium.
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.