LLQP Life Insurance · Component 3.2 · 25% of the exam
'Leveraging or borrowing to invest' appears in the curriculum as a tax strategy because:
- AInsurers require it as a condition of issuing large permanent policies to clients with modest incomes, so the premium can be financed
- Interest on money borrowed to earn investment income is generally deductible, whereas personal borrowing is not
- CAll borrowing is tax-free, so a client who borrows to invest pays no tax on the investment returns
- DIt eliminates capital gains tax, since the gains are offset by the interest paid on the loan
Correct answer: B) Interest on money borrowed to earn investment income is generally deductible, whereas personal borrowing is not
Deductibility of investment loan interest is the basis of leveraged strategies, including some using life insurance as collateral. The agent must present the risks — leverage magnifies losses — and stay within the scope of a life licence.
Why the other options are wrong
- AInsurers do not require leveraging.
- CBorrowing is not tax-free; interest is deductible only when used to earn income.
- DLeveraging does not eliminate capital gains tax.
Exam tip
Interest on money borrowed to earn investment income is generally deductible; interest on personal borrowing is not. Leverage magnifies losses too.
Common mistake
Presenting leverage without its downside.
What this tests
CISRO competency component 3.2 — 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.