LLQP Life Insurance · Component 2.1 · 30% of the exam
A client's operating company is owned by a holding company, and the family wants insurance on the shareholder. Placing the policy in the holding company may:
- Aallow the premiums to be deducted against the operating company's income
- protect the policy values from the operating company's creditors, subject to advice
- Cmake the death benefit taxable to the holding company when it is received
- Deliminate the need for any shareholders' agreement between the parties
Correct answer: B) protect the policy values from the operating company's creditors, subject to advice
A holding company is usually less exposed to trade creditors, so policy values are better protected there. The structure has real tax and corporate consequences, so an accountant and a lawyer should design it.
Why the other options are wrong
- ALife insurance premiums are generally not deductible.
- CThe death benefit is received free of tax by a corporate beneficiary.
- DA shareholders' agreement remains necessary whatever owns the policy.
Exam tip
Holding company ownership can shelter policy values; get professional advice.
Common mistake
Recommending a corporate structure without tax and legal input.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Life Insurance module. Written against the published curriculum.
More from component 2
- A client has a need lasting about twenty years and compares a ten-year and a twenty-year term policy. The main point to explain is that:
- A client exercises the conversion privilege on his term policy. The permanent premium will be based on:
- A client notices that a small policy costs proportionately more per unit of coverage than a larger one. The explanation is that:
- A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- A client asks why dividends from her participating policy are not taxed like interest from a bank. The reason is that a dividend is:
- A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.