LLQP Life Insurance · Component 4.1 · 10% of the exam
A client sells the business that owned a key person policy on his life. The service review should address:
- whether the policy should be transferred, maintained or terminated, and the tax consequences
- Ban automatic transfer of the policy to the client personally on completion of the sale
- Cnothing, since the policy simply continues under its existing ownership
- Dthe buyer's obligation to continue paying the premiums on the former owner's life
Correct answer: A) whether the policy should be transferred, maintained or terminated, and the tax consequences
The company no longer has the insurable purpose, and the policy is an asset in the transaction. Transferring it out has tax consequences, so the structure should be settled with professional advice before closing.
Why the other options are wrong
- BNothing transfers automatically on a sale of the business.
- CA change of control makes the arrangement worth revisiting.
- DA buyer has no obligation to insure the former owner.
Exam tip
A business sale should trigger a review of every corporate-owned policy.
Common mistake
Leaving a key person policy behind in a company that has been sold.
What this tests
CISRO competency component 4.1 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.