LLQP Life Insurance · Component 2.1 · 30% of the exam
A client wants insurance that will pay off her mortgage if she dies. Compared with the lender's mortgage insurance, an individually owned term policy typically offers:
- A level benefit paid to her chosen beneficiary, portability if she changes lenders, and underwriting at issue
- BNo beneficiary designation, since the proceeds must be paid to the lender to discharge the mortgage
- CNothing different in substance, since both products pay off the same debt if she dies
- DA lower benefit, since the lender's product is priced on the full mortgage while a personal policy is capped by the insurer's issue limits
Correct answer: A) A level benefit paid to her chosen beneficiary, portability if she changes lenders, and underwriting at issue
Lender mortgage insurance pays the lender a declining balance and is often underwritten only when a claim is made (post-claim underwriting). A personal policy is owned and controlled by the client, pays her beneficiary a level amount, and survives refinancing.
Why the other options are wrong
- BA personal policy allows a beneficiary designation of the client's choice.
- CThere are material differences in ownership, beneficiary, portability and underwriting.
- DA personal policy can be for any amount.
Exam tip
Personal term versus lender mortgage insurance: owner control, chosen beneficiary, level benefit, portability, underwriting at issue rather than at claim.
Common mistake
Assuming lender mortgage insurance is underwritten when purchased.
What this tests
CISRO competency component 2.1 — 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.