LLQP Life Insurance · Component 2.1 · 30% of the exam
A shareholders' agreement fixes the share value for buy-sell purposes at an amount set years ago. The agent should point out that:
- an outdated value can leave the coverage badly mismatched to the actual purchase price
- Ba fixed value is preferable because it removes any possibility of later dispute
- Cthe insurer will increase the coverage automatically as the business grows
- Da valuation clause has no bearing on the amount of insurance required
Correct answer: A) an outdated value can leave the coverage badly mismatched to the actual purchase price
If the business has grown, the fixed figure may badly underpay the estate or oblige the survivor to find the difference. A valuation formula and a regular review keep the coverage aligned with the obligation.
Why the other options are wrong
- BCertainty is worthless if the figure no longer reflects the business.
- CNo insurer adjusts coverage to track a company's value.
- DThe agreed price is exactly what determines the coverage needed.
Exam tip
Review the valuation clause and the coverage together, regularly.
Common mistake
Leaving buy-sell coverage unchanged as a business grows.
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.