LLQP Life Insurance · Component 1.1 · 35% of the exam
A client's business partner has a personal guarantee on the company's bank loan, as does the client. At the client's death:
- AThe bank must forgive the loan, since a guarantor's death releases the guarantee under banking law and the estate owes nothing
- The guarantee may bind the client's estate, exposing personal assets to the business's debt, a capital need
- COnly the surviving partner is liable, since the guarantee passes entirely to the remaining guarantor
- DThe guarantee is cancelled automatically, since a personal guarantee cannot survive the guarantor
Correct answer: B) The guarantee may bind the client's estate, exposing personal assets to the business's debt, a capital need
Personal guarantees survive death and can be enforced against the estate. This is one of the business-related capital needs that insurance can cover, and a reason lenders often require coverage on guarantors.
Why the other options are wrong
- ABanks do not forgive loans on a guarantor's death.
- CThe estate remains liable under the guarantee.
- DDeath does not cancel a personal guarantee.
Exam tip
Ask business owners about personal guarantees; they are hidden liabilities of the estate.
Common mistake
Treating business debt as the business's problem only.
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.