LLQP Life Insurance · Component 2.1 · 30% of the exam
A parent transfers a policy insuring her child's life to that child. The tax rules generally permit:
- Ano transfer at all, since a policy cannot change ownership during the insured's life
- a rollover at the policy's adjusted cost basis, so no immediate gain arises
- Ca transfer at fair market value, producing a policy gain for the parent
- Da transfer only after the child has reached the age of majority in the province
Correct answer: B) a rollover at the policy's adjusted cost basis, so no immediate gain arises
A specific rule allows a policy to be transferred to a child on a tax-deferred basis where the child is the life insured. This lets a parent hand over a juvenile policy without triggering a policy gain.
Why the other options are wrong
- APolicies change ownership routinely during the insured's lifetime.
- CThe rollover avoids the fair market value treatment in this case.
- DThe relief is not conditional on the child's age.
Exam tip
Parent to child transfer rolls at cost basis where the child is the life insured.
Common mistake
Applying fair market value treatment to a juvenile policy transfer.
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.