LLQP Life Insurance · Component 1.3 · 35% of the exam
A client's needs analysis shows a shortfall, but he already has enough liquid investments to cover it. The correct conclusion is:
- AHe must still buy insurance for the full shortfall, since investments can lose value and cannot be counted
- BHe should sell the investments now and hold cash, so the money is certain to be available to the survivors
- The investments reduce or eliminate the shortfall, though he may prefer insurance to preserve them for other goals
- DInvestments cannot be counted in a needs analysis, since only insurance proceeds are guaranteed to be available at death
Correct answer: C) The investments reduce or eliminate the shortfall, though he may prefer insurance to preserve them for other goals
Available resources offset needs. A wealthy client may choose insurance anyway — to keep investments intact, for tax efficiency, or because insurance is cheaper than depleting capital — but that is a choice, not a shortfall.
Why the other options are wrong
- AResources offset the need.
- BSelling now solves nothing and is not the agent's call.
- DLiquid investments are a legitimate resource.
Exam tip
Resources reduce the need; preference may still favour insurance. Distinguish need from choice.
Common mistake
Ignoring the client's assets when calculating the shortfall.
What this tests
CISRO competency component 1.3 — 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.