LLQP Life Insurance · Component 2.2 · 30% of the exam
A cost-of-living rider on a life policy:
- AFreezes the premium at the issue level, so inflation does not increase the cost of coverage over time
- Increases the face amount periodically in line with inflation, without evidence, for an additional premium
- CReduces the premium over time as the insurer's costs fall with inflation-driven investment returns
- DPays a benefit during periods of high inflation to compensate the owner for the loss of purchasing power in the death benefit
Correct answer: B) Increases the face amount periodically in line with inflation, without evidence, for an additional premium
Inflation erodes a fixed death benefit. A cost-of-living (indexing) rider raises the coverage automatically, usually with an option to decline increases. It is one answer to the inflation problem identified in needs analysis.
Why the other options are wrong
- AIt does not freeze the premium; premiums rise with each increase.
- CA cost-of-living rider raises coverage; it does not lower premiums.
- DIt does not pay a benefit; it adjusts the face amount.
Exam tip
Indexing riders answer the inflation problem in needs analysis by raising the face amount automatically without evidence.
Common mistake
Assuming increases under an indexing rider are free.
What this tests
CISRO competency component 2.2 — 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.