LLQP Life Insurance · Component 3.1 · 25% of the exam
Financial underwriting is used to:
- ASet the dividend scale for participating policies, based on the insurer's experience with similar applicants
- Confirm the amount applied for is reasonable relative to income, net worth and purpose, to prevent over-insurance
- CDetermine the cash value the policy will build, based on the applicant's ability to pay premiums over time
- DCheck the applicant's credit score so the premium can be adjusted for the risk of non-payment over the life of the contract
Correct answer: B) Confirm the amount applied for is reasonable relative to income, net worth and purpose, to prevent over-insurance
Large face amounts must be justified by the economic loss the death would cause. Underwriters ask for income, net worth and the purpose (income replacement, buy-sell, key person) and apply guidelines. Multiple applications with several insurers are checked for the same reason.
Why the other options are wrong
- ADividend scales are set by the insurer's experience, not financial underwriting.
- CCash value is determined by the contract.
- DCredit scores are not used to set life premiums.
Exam tip
Financial underwriting checks that the amount applied for is justified by income, net worth and purpose — to prevent over-insurance.
Common mistake
Applying for a very large amount without documenting the purpose.
What this tests
CISRO competency component 3.1 — Implement a recommendation adapted to the client's needs and situation — which is weighted at 25% of the Life Insurance module. Written against the published curriculum.
More from component 3
- At policy delivery, the agent should obtain:
- The effective date of a life insurance policy is generally:
- A client's application is approved but he has not paid the first premium when the policy is delivered. The agent should:
- A pre-authorized debit form is part of implementation because:
- During implementation, the agent learns the client wants the policy owned by her corporation instead of personally, as first applied for. The correct step is:
- Which of the following is a legitimate reason an insurer might refuse to issue a policy even after favourable underwriting?
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.