LLQP Life Insurance · Component 1.1 · 35% of the exam
An incorporated professional pays herself in dividends rather than salary. For the needs analysis this matters because:
- it affects benefit entitlements and the way her income should be measured and verified
- Bdividend income cannot be replaced by life insurance under the tax rules
- Cinsurers refuse to insure income that is paid as dividends rather than as employment income
- Ddividends are received tax-free, so the replacement amount needed is correspondingly smaller
Correct answer: A) it affects benefit entitlements and the way her income should be measured and verified
Dividends do not generate contribution room or pension plan entitlement, so the government benefits a family could expect are smaller. Verification also differs, since corporate statements rather than pay slips show the picture.
Why the other options are wrong
- BLife insurance replaces the household's income whatever its form.
- CInsurers routinely insure business owners paid by dividend.
- DDividends are taxable, at a different rate from employment income.
Exam tip
Dividends build no pension entitlement, so survivor benefits are smaller.
Common mistake
Assuming a business owner's family will receive the same government benefits.
What this tests
CISRO competency component 1.1 — 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.