LLQP Life Insurance · Component 2.1 · 30% of the exam
A participating whole life policy's dividend scale is cut. A policyholder using the 'term insurance' (enhanced) dividend option will most likely see:
- A reduction in the enhanced coverage, or a requirement to pay more to maintain it, because fewer dividends are available
- BA refund of the premiums paid for the enhanced portion in prior years, since the insurer failed to deliver the projected scale
- CNo change at all, since the enhanced coverage was guaranteed at issue and the dividend scale affects only the cash value
- DA larger death benefit, since the insurer must make up the shortfall from its own surplus to honour the illustration
Correct answer: A) A reduction in the enhanced coverage, or a requirement to pay more to maintain it, because fewer dividends are available
The enhanced total depends on dividends funding the term layer each year. A lower scale means less term can be bought. Many contracts guarantee the enhancement for a period; after that the risk is the policyholder's.
Why the other options are wrong
- BNo refund arises from a dividend scale cut.
- CThe enhancement is directly exposed to the scale.
- DFewer dividends buy less term, not more.
Exam tip
Enhanced coverage rises and falls with dividends; check any guarantee period in the contract.
Common mistake
Promising a client the enhanced amount is permanent.
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.