LLQP Life Insurance · Component 1.2 · 35% of the exam
A review reveals that a client's whole life policy has an automatic premium loan running for several years. The agent should explain that:
- Athe insurer will write off the loan if the client resumes paying premiums directly
- the loan and its interest will reduce the death benefit and may eventually exhaust the value
- Cthe coverage has been provided at no cost, since no premiums were actually paid
- Dthe loan is forgiven automatically once the policy reaches its maturity date
Correct answer: B) the loan and its interest will reduce the death benefit and may eventually exhaust the value
The provision keeps coverage in force by advancing premiums from the cash value, with interest compounding. Left unchecked it consumes the values and the policy can eventually terminate.
Why the other options are wrong
- AResuming payments does not erase the accumulated loan.
- CThe premiums were advanced as a loan and must be repaid or deducted.
- DOutstanding loans are not forgiven at maturity.
Exam tip
An automatic premium loan preserves coverage but erodes the values.
Common mistake
Reading an in-force policy as healthy without checking for a premium loan.
What this tests
CISRO competency component 1.2 — Assess the client's needs and situation — which is weighted at 35% of the Life Insurance module. Written against the published curriculum.
More from component 1
- A client's existing policies were all sold by another agent who has left the business. The reviewing agent should:
- A client supports an adult child with a permanent disability who will never be self-sufficient. In the needs analysis this is:
- A self-employed client's income fluctuates widely year to year. When determining the income to replace, the agent should:
- A 58-year-old client plans to retire at 65 and has a pension that will pay a survivor benefit. How does time to retirement affect the life insurance need?
- Which of the following is a capital expense arising at death, rather than an ongoing income need?
- A client is the sole income earner in a household with a stay-at-home spouse and two young children. The greatest risk that life insurance on the client addresses is:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.