LLQP Life Insurance · Component 2.1 · 30% of the exam
A universal life policyholder is choosing among the investment options inside her policy. She should understand that:
- Aswitching between options triggers a taxable disposition of the amounts moved
- Bthe policy fund is invested by the insurer without any input from the policyholder
- Call options carry a guaranteed rate set by the insurer at the start of each year
- index-linked accounts can credit negative returns, unlike a guaranteed interest account
Correct answer: D) index-linked accounts can credit negative returns, unlike a guaranteed interest account
Index-linked accounts track a market measure and can fall, which reduces the fund available to pay the cost of insurance. A guaranteed interest account offers certainty at a lower expected return.
Why the other options are wrong
- ASwitching within the policy does not trigger a disposition.
- BThe policyholder selects among the available options.
- COnly the guaranteed accounts carry a declared rate.
Exam tip
Index accounts inside universal life can lose value and strain the fund.
Common mistake
Presenting universal life investment options as uniformly safe.
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 client takes a partial withdrawal from the fund of his universal life policy. The tax consequence is that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.