LLQP Life Insurance · Component 1.3 · 35% of the exam
A needs analysis assumes the surviving spouse would move from full-time to part-time work to care for young children. The effect is that:
- the income replacement need rises, since less household income would be earned
- Bthe need is unchanged, because the survivor's own income is never part of the calculation
- Cthe analysis becomes invalid, since it cannot model a change in working hours
- Dthe income replacement need falls, because the survivor would have more free time
Correct answer: A) the income replacement need rises, since less household income would be earned
Replacement income must cover the gap between what the household needs and what the survivor would actually earn. A deliberate reduction in hours widens that gap and should be built into the assumptions.
Why the other options are wrong
- BThe survivor's expected earnings are central to the calculation.
- CChanged working hours are a standard assumption in an analysis.
- DFewer hours worked means less income, not a smaller need.
Exam tip
Model the survivor's actual expected earnings, not their current ones.
Common mistake
Assuming a survivor continues working exactly as before.
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.