LLQP Life Insurance · Component 1.2 · 35% of the exam
A client's existing policy is collaterally assigned to a bank securing a business loan. In the review the agent should note that:
- Athe assignment ends automatically when the client's beneficiary designation is changed
- the lender is paid first from the proceeds, so the family's protection is reduced accordingly
- Cthe bank becomes responsible for paying the premiums for as long as the loan is outstanding
- Dthe policy is no longer owned by the client and cannot be changed in any respect
Correct answer: B) the lender is paid first from the proceeds, so the family's protection is reduced accordingly
A collateral assignment gives the lender a first claim for the outstanding debt, with the balance going to the beneficiary. The analysis must count only the portion the family would actually receive.
Why the other options are wrong
- AA designation change does not release a lender's security.
- CThe owner remains responsible for the premiums.
- DOwnership remains with the client, subject to the lender's interest.
Exam tip
Count only the amount left after a collateral assignment is satisfied.
Common mistake
Recording the full face amount of an assigned policy as family protection.
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.