LLQP Life Insurance · Component 1.1 · 35% of the exam
A client's savings consist largely of shares in the employer she works for. The agent should note that:
- Aemployer shares are the safest holding because the client understands the business
- Bthe employer would repurchase the shares at full value immediately on her death
- Cemployer shares are exempt from the deemed disposition rules that apply at death
- her income and her savings depend on one company, which concentrates the household's risk
Correct answer: D) her income and her savings depend on one company, which concentrates the household's risk
A setback at the employer could reduce her income and her savings together. The concentration also matters for liquidity, since shares in a private company may be difficult to sell when the family needs money.
Why the other options are wrong
- AFamiliarity is not diversification and does not reduce the risk.
- BNo employer is obliged to repurchase shares on a death.
- CShares are capital property subject to the deemed disposition.
Exam tip
Employer shares concentrate income risk and savings risk together.
Common mistake
Recording employer shares as ordinary diversified savings.
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.