LLQP Life Insurance · Component 1.1 · 35% of the exam
A client says he is very risk-tolerant and would rather self-insure. The agent should explain that:
- AThe insurer will refuse him, since applicants who describe themselves as risk-tolerant are poor insurance risks
- BRisk-tolerant clients should never buy insurance, since they are better off investing the premiums themselves
- CRisk tolerance is irrelevant to life insurance, since the only question is whether the client can afford the premium each month
- Self-insuring works only where assets could absorb the loss; a death leaving dependants without income is too severe
Correct answer: D) Self-insuring works only where assets could absorb the loss; a death leaving dependants without income is too severe
Risk tolerance is one of the three risk concepts in the curriculum. Self-insurance is rational for small, absorbable losses; the death of a family's earner is neither. The agent reframes the decision around the survivors' exposure.
Why the other options are wrong
- AInsurers do not refuse based on attitude to risk.
- BTolerance does not remove the survivors' exposure.
- CRisk tolerance is explicitly part of the analysis.
Exam tip
Self-insure what you can afford to lose. A family cannot afford to lose its income.
Common mistake
Accepting 'I'll self-insure' without quantifying what the family would lose.
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.