LLQP Life Insurance · Component 2.1 · 30% of the exam
A universal life policy's 'face plus fund' death benefit option results in:
- ANo cost of insurance being charged at all, since the fund is paid in addition to the face amount rather than offsetting the insurer's risk
- BA lower death benefit than the level option, since the fund is added to a reduced face amount
- A level net amount at risk, so cost of insurance is charged on the full face amount throughout
- DA shrinking net amount at risk as the fund grows, so the cost of insurance falls each year the policy is in force
Correct answer: C) A level net amount at risk, so cost of insurance is charged on the full face amount throughout
Under face plus fund, the insurer is always at risk for the whole face amount, so charges do not decline as the fund grows. The beneficiary gets more; the policyholder pays more.
Why the other options are wrong
- ACost of insurance applies under every option.
- BFace plus fund pays more than the level option.
- DThe amount at risk shrinks under the level option, not face plus fund.
Exam tip
Face plus fund: higher benefit, higher ongoing cost. Level: benefit fixed, cost falls as the fund grows.
Common mistake
Assuming the death benefit option has no effect on the policy's charges.
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.