LLQP Life Insurance · Component 1.2 · 35% of the exam
A client's participating policy has been using dividends to buy paid-up additions for many years. The review should note that:
- the death benefit and cash value have grown beyond the original face amount
- Bthe additions must be surrendered before the base policy can pay a death benefit
- Cthe additions are taxable to the policyholder in each year they are purchased
- Dthe additions are a temporary benefit that disappears at the policy's anniversary
Correct answer: A) the death benefit and cash value have grown beyond the original face amount
Paid-up additions increase both the death benefit and the cash value, and they earn dividends themselves. The review should use the current total rather than the face amount printed on the original contract.
Why the other options are wrong
- BThe additions are paid alongside the base coverage at death.
- CGrowth inside an exempt policy is not taxed annually.
- DPaid-up additions are permanent coverage, not a temporary credit.
Exam tip
Use current total coverage, not the original face amount, on a participating policy.
Common mistake
Recording the original face amount and missing years of paid-up additions.
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.