LLQP Life Insurance · Component 2.1 · 30% of the exam
A premium tax is charged on universal life deposits. This means:
- A provincial tax on premiums is deducted from each deposit before it is credited to the policy's account
- BThe policyholder must file a special return each year reporting the deposits made to the policy
- CDeposits are tax-deductible up to the premium tax paid, in the same way as RRSP contributions are deductible from income
- DThe death benefit is taxed at the premium tax rate when it is paid to the beneficiary
Correct answer: A) A provincial tax on premiums is deducted from each deposit before it is credited to the policy's account
Provinces levy a tax on insurance premiums. In UL it is visible as a deduction from deposits (along with other charges), which is one reason a UL illustration's early-year values look low relative to deposits.
Why the other options are wrong
- BNo special return is required; the insurer deducts it.
- CDeposits are not deductible.
- DThe premium tax is on deposits, not on the death benefit.
Exam tip
Provincial premium tax is deducted from UL deposits — one reason early-year values trail the deposits made.
Common mistake
Confusing premium tax with income tax on the policy.
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.