LLQP Life Insurance · Component 2.1 · 30% of the exam
Leveraging a universal life policy means:
- AIncreasing the face amount so that the policy carries a larger death benefit than the original need required
- BTaking a policy loan from the insurer against the cash value, with interest charged at the policy rate and deducted from the death benefit
- Assigning the policy as collateral for a lender's loan, so cash is accessed without a disposition and repaid from the death benefit
- DSurrendering the policy in stages over several years, so the policy gain is spread across tax years
Correct answer: C) Assigning the policy as collateral for a lender's loan, so cash is accessed without a disposition and repaid from the death benefit
A collateral loan against a UL policy is not a disposition, so no policy gain is triggered while the insured is alive; at death the lender is repaid from the proceeds and the balance goes to the beneficiary. The risks — interest cost, lender calls, policy performance — must be explained.
Why the other options are wrong
- AIncreasing the face amount is not leveraging.
- BA policy loan from the insurer is a disposition and can be taxable.
- DStaged surrender is a disposition and the opposite of leveraging.
Exam tip
Leveraging: collateral loan from a lender, no disposition while alive, repaid from the death benefit. Explain interest cost and lender risk.
Common mistake
Ignoring that the lender can call the loan or that poor policy performance can unravel the strategy.
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 universal life policyholder is choosing among the investment options inside her policy. She should understand that:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.