LLQP Life Insurance · Component 1.3 · 35% of the exam
A client wants the family cottage kept rather than sold. The insurance need arising is to:
- Afund the legal cost of transferring the title into the children's names
- Bcover the annual costs of maintaining the cottage for the next generation
- Creplace the cottage's market value so the heirs can buy an equivalent property
- provide liquidity for the tax on the deemed disposition so the property need not be sold
Correct answer: D) provide liquidity for the tax on the deemed disposition so the property need not be sold
A recreational property is not a principal residence, so accrued gains are realized on death. Without cash the heirs may be forced to sell the very asset the client wanted to keep, which insurance can prevent.
Why the other options are wrong
- ATransfer costs are modest compared with the tax liability.
- BOngoing upkeep is not what forces a sale at death.
- CThe need is to keep the existing property, not to replace it.
Exam tip
A recreational property equals a tax bill at death and a liquidity need.
Common mistake
Overlooking that only a principal residence escapes the deemed disposition.
What this tests
CISRO competency component 1.3 — 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.