LLQP Life Insurance · Component 1.3 · 35% of the exam
Key person insurance is best described as:
- Insurance the business owns on an employee or owner whose death would cause financial loss, with the business as beneficiary
- BInsurance the employee owns on the employer, so the employee is compensated if the business fails on the owner's death
- CCoverage that pays the key person's family a benefit in recognition of the person's contribution to the business
- DGroup life for executives, which pays a larger multiple of salary than the plan provides for other employees
Correct answer: A) Insurance the business owns on an employee or owner whose death would cause financial loss, with the business as beneficiary
The business is policyholder, premium payer and beneficiary. The proceeds compensate for lost profits, the cost of recruiting a replacement, and creditors' concerns. Premiums are not deductible and the benefit is received tax-free by the business.
Why the other options are wrong
- BThe business is the owner and beneficiary, not the employee.
- CKey person proceeds go to the business, not to the family.
- DGroup life for executives is a benefit to the executives' families.
Exam tip
Key person: business is policyholder, payor and beneficiary; premiums not deductible; benefit tax-free to the business.
Common mistake
Thinking key person proceeds are paid to the key person's family.
What this tests
CISRO competency component 1.3 — 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.