LLQP Life Insurance · Component 2.1 · 30% of the exam
Premiums for a life insurance policy owned by an individual for personal protection are:
- ADeductible if the beneficiary is a child, since the premium is then treated as support for a dependant
- Not deductible, and the death benefit is received tax-free
- CDeductible from income in the same way as RRSP contributions, up to a percentage of earned income
- DDeductible only for term insurance, since term premiums are pure protection with no savings element
Correct answer: B) Not deductible, and the death benefit is received tax-free
Personal life insurance is paid with after-tax dollars; the trade-off is a tax-free death benefit. A narrow exception allows a deduction for part of the premium when a policy is assigned as collateral for a business or investment loan that meets specific conditions.
Why the other options are wrong
- AThe beneficiary's identity does not make premiums deductible.
- CPersonal life insurance premiums are not deductible.
- DTerm versus permanent makes no difference to deductibility.
Exam tip
Personal premiums: after-tax dollars, tax-free death benefit. The narrow exception is collateral insurance for qualifying loans.
Common mistake
Telling a client premiums can be written off.
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.