LLQP Life Insurance · Component 1.3 · 35% of the exam
A commissioned salesperson's income has varied widely over recent years. For the income replacement calculation the agent should:
- Adecline to complete the calculation until the income becomes stable and predictable
- Buse the best year, since that shows what the client is genuinely capable of earning
- Cuse the worst year, so that the recommendation is as conservative as it can be
- use a multi-year average and note the variability in the documented assumptions
Correct answer: D) use a multi-year average and note the variability in the documented assumptions
An average across several years reflects what the household has actually lived on. Recording the range and the years used lets the reasoning be understood later, when the recommendation may be reviewed.
Why the other options are wrong
- AVariable income is normal and is handled by averaging.
- BA single strong year overstates the household's sustainable income.
- CThe worst year understates the income the family depends on.
Exam tip
Average variable income over several years and record the years used.
Common mistake
Building a plan on a single exceptional year of earnings.
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.