LLQP Life Insurance · Component 4.1 · 10% of the exam
A client wants to withdraw part of the fund from his universal life policy. Before processing the request the agent should explain that the withdrawal may:
- trigger an income inclusion and reduce the fund supporting future costs of insurance
- Bbe received entirely tax-free, since the client is taking back his own deposits
- Cbe reversed at any time within the following twelve months if the client changes his mind
- Dincrease the death benefit by the amount withdrawn under the level benefit option
Correct answer: A) trigger an income inclusion and reduce the fund supporting future costs of insurance
A partial withdrawal is a partial disposition, so a share of any policy gain is taxable. It also leaves less fund to meet rising deductions, which can shorten how long the policy remains in force.
Why the other options are wrong
- BOnly the portion representing cost basis comes out untaxed.
- CWithdrawals are not reversible on request.
- DA withdrawal reduces the fund and can reduce the benefit.
Exam tip
A universal life withdrawal costs tax now and fund durability later.
Common mistake
Processing a withdrawal without projecting the effect on the policy.
What this tests
CISRO competency component 4.1 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.