LLQP Life Insurance · Component 2.1 · 30% of the exam
A client wants to use a universal life policy as a wealth-transfer vehicle to her children. Which feature makes UL suited to that goal?
- AIts guaranteed investment returns, which ensure the fund will be large enough to pass on to the children when she dies
- Tax-sheltered growth within the exempt limit and a tax-free death benefit that can pass outside the estate
- CIts lack of any death benefit, which means the whole fund passes to the children as an inheritance
- DIts low premiums, which leave more of her money available to gift to the children during her lifetime
Correct answer: B) Tax-sheltered growth within the exempt limit and a tax-free death benefit that can pass outside the estate
The curriculum lists wealth transfer to children as a situation where UL is appropriate: deposits beyond the cost of insurance grow tax-deferred inside the exemption, and the whole amount passes tax-free to named beneficiaries. It suits clients who have maxed out registered plans.
Why the other options are wrong
- AUL investment returns are not guaranteed except in guaranteed accounts.
- CUL has a death benefit; that is what passes tax-free.
- DUL premiums are not low; the appeal is tax treatment.
Exam tip
Wealth transfer with UL: tax-deferred growth inside the exemption plus a tax-free death benefit outside the estate — for clients who have used up registered room.
Common mistake
Presenting UL as a tax-free investment account without insurance costs.
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.