LLQP Life Insurance · Component 2.1 · 30% of the exam
A universal life policy offers a choice between a guaranteed and an adjustable cost of insurance. The adjustable option means:
- Athe policyholder may change the cost of insurance rate whenever markets move
- the insurer may change the rates within contract limits, so future costs are uncertain
- Cthe cost of insurance is waived in any year the fund produces a positive return
- Dthe death benefit is adjusted annually rather than the cost of insurance itself
Correct answer: B) the insurer may change the rates within contract limits, so future costs are uncertain
Adjustable rates start lower but can be increased within the contract's stated maximums if experience deteriorates. A guaranteed rate costs more initially but removes the risk of an increase later.
Why the other options are wrong
- AOnly the insurer can adjust the rates, and only within the contract.
- CInvestment results do not suspend the cost of insurance.
- DThe adjustment applies to the cost of insurance, not the benefit.
Exam tip
Adjustable cost of insurance is cheaper now and uncertain later.
Common mistake
Comparing universal life quotations without checking which rates are guaranteed.
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.