LLQP Life Insurance · Component 4.1 · 10% of the exam
A participating policyholder wants to change her dividend option from paid-up additions to cash. The agent should explain that:
- Athe accumulated paid-up additions will be cancelled as soon as the dividend option changes
- Bthe change is not permitted once an option has been selected at issue
- the change is generally allowed, and it will slow the growth of her policy values
- Dcash dividends are taxable in full as ordinary income when received
Correct answer: C) the change is generally allowed, and it will slow the growth of her policy values
Dividend options can usually be changed. Taking cash stops the compounding effect of paid-up additions, so the death benefit and cash value will grow more slowly from that point onward.
Why the other options are wrong
- AAdditions already purchased remain part of the policy.
- BDividend options are generally changeable by the policyholder.
- DCash dividends are treated as a return of premium until cost basis is exhausted.
Exam tip
Changing to cash stops the compounding but keeps past additions.
Common mistake
Switching to cash without explaining the effect on future values.
What this tests
CISRO competency component 4.1 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.