LLQP Life Insurance · Component 2.2 · 30% of the exam
A client wants a rider that increases his death benefit each year without evidence, to keep pace with inflation. He should understand that:
- AThe increases are taxable to him as a benefit, since the added coverage is received without evidence of insurability
- BThe increases are free, since the insurer funds them from the investment return on the premiums already paid
- Each increase carries an additional premium at his attained age, so the policy's cost rises over time
- DThe premium stays the same throughout, since the rider was priced at issue to include all future increases
Correct answer: C) Each increase carries an additional premium at his attained age, so the policy's cost rises over time
Cost-of-living increases are new coverage bought without underwriting but not without cost. Over many years the premium can grow substantially; clients should know they can usually decline an increase.
Why the other options are wrong
- ADeath benefit increases are not taxable events.
- BNo increase is free; each is new coverage priced at attained age.
- DPremiums rise with each increase.
Exam tip
Indexing riders: no underwriting, but each increase costs more at attained age.
Common mistake
Presenting an indexing rider as a cost-free way to keep up with inflation.
What this tests
CISRO competency component 2.2 — 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.