LLQP Life Insurance · Component 1.3 · 35% of the exam
A sole proprietor has no partners and no plans to sell. Which business-related life insurance need still applies?
- AShare redemption, since the sole proprietor's estate must be able to redeem the owner's interest at death
- BNone, since a business without partners or a buyer has no continuation need that insurance could address
- CBuy-sell funding, since the proprietor's family will need cash to buy the business from the estate
- Repayment of business debts and personal guarantees, and an orderly wind-down of the business at death
Correct answer: D) Repayment of business debts and personal guarantees, and an orderly wind-down of the business at death
Without partners there is no buy-sell, but the proprietor's death still leaves business debts, leases and obligations that fall on the estate, and a business that may need to be closed or sold under pressure. Insurance funds that transition.
Why the other options are wrong
- AA sole proprietorship has no shares to redeem.
- BDebts and wind-down costs remain.
- CThere is no one to buy the business under a buy-sell.
Exam tip
For sole proprietors, size the business need by debts, guarantees and wind-down costs.
Common mistake
Assuming business insurance needs exist only where there are partners.
What this tests
CISRO competency component 1.3 — 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.