LLQP Life Insurance · Component 4.2 · 10% of the exam
An insured dies holding a policy collaterally assigned to a bank, with his spouse named beneficiary. The proceeds will be applied:
- first to the outstanding loan, with the balance paid to the named beneficiary
- Bentirely to the bank, whatever the outstanding balance of the loan happens to be
- Centirely to the spouse, since a named beneficiary always ranks ahead of a lender
- Dto the estate, so the executor can determine the appropriate division between them
Correct answer: A) first to the outstanding loan, with the balance paid to the named beneficiary
A collateral assignment secures the debt rather than transferring the policy. The lender recovers what it is owed at the date of death, and the remainder goes to the beneficiary under the contract.
Why the other options are wrong
- BThe lender's claim is limited to the outstanding indebtedness.
- CA validly granted security interest ranks ahead of the beneficiary.
- DThe proceeds do not fall into the estate where a beneficiary is named.
Exam tip
Collateral assignment pays the debt first, beneficiary second.
Common mistake
Quoting the full benefit to a family without checking for an assignment.
What this tests
CISRO competency component 4.2 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Life Insurance module. Written against the published curriculum.
More from component 4
- After a policy is reinstated, the contestability period:
- A revocable beneficiary designation is changed by:
- A client asks the agent to hold the beneficiary change form 'until next week' and dies in the meantime. The consequence is that:
- A client wants to reduce the face amount of her policy because her needs have fallen. The agent should note that:
- A client is unable to pay premiums temporarily on a whole life policy. Before letting it lapse, the agent should suggest:
- A client's term policy is being replaced with a new one from another insurer because it is cheaper and he remains healthy. To protect the client, the agent should ensure that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.