LLQP Life Insurance · Component 2.1 · 30% of the exam
A participating policyholder chooses the 'premium reduction' dividend option. The effect is that:
- ADividends buy one-year term insurance, so the total death benefit rises each year the option is in effect
- Each year's dividend is applied against the premium due, lowering the out-of-pocket cost
- CThe death benefit increases, since the dividends are used to purchase paid-up additions to the base policy
- DThe dividend is paid in cash to the policyholder, who may use it to pay the premium or for any other purpose
Correct answer: B) Each year's dividend is applied against the premium due, lowering the out-of-pocket cost
The five dividend options in the curriculum are cash, premium reduction, accumulation at interest, paid-up additions and term insurance. Premium reduction lowers cost; paid-up additions and term insurance raise coverage; accumulation grows a side fund.
Why the other options are wrong
- ABuying one-year term is the enhanced dividend option.
- CPremium reduction leaves the death benefit unchanged.
- DCash payment is the cash option, not premium reduction.
Exam tip
Five dividend options: cash, premium reduction, accumulation, paid-up additions, term. Know what each does to coverage and cost.
Common mistake
Mixing up which options raise coverage and which lower cost.
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.