LLQP Life Insurance · Component 2.1 · 30% of the exam
A client wants to pay monthly rather than annually. The agent should explain that monthly payment:
- Ais unavailable on individual life policies, which must be paid annually
- costs slightly more over the year because of the modal factor applied
- Ccosts less in total because the insurer receives the money sooner each year
- Dreduces the death benefit in proportion to the payments still outstanding
Correct answer: B) costs slightly more over the year because of the modal factor applied
Insurers apply a modal factor to reflect the loss of investment income and the extra administration. The convenience is often worth it, but the client should know the annual cost is higher.
Why the other options are wrong
- AMonthly payment is standard on individual policies.
- CMonthly payment costs more over the year, not less.
- DPayment frequency does not affect the death benefit.
Exam tip
Monthly convenience carries a modal factor; state the annual difference.
Common mistake
Quoting a monthly figure without mentioning the annual cost.
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 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:
- A client takes a partial withdrawal from the fund of his universal life policy. The tax consequence is that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.