LLQP Life Insurance · Component 1.3 · 35% of the exam
'Severity of risk' in a life insurance needs analysis refers to:
- The financial impact of the client's death on the survivors
- BThe premium amount the insurer charges, since a higher premium reflects a more severe risk to the insurer
- CHow likely the client is to die during the term, based on age, health and lifestyle
- DThe insurer's rating of the client after underwriting, expressed as a percentage above standard
Correct answer: A) The financial impact of the client's death on the survivors
The curriculum separates the severity of risk (what death would cost the survivors financially), the probability of risk, and the client's risk tolerance. Severity is the size of the hole; probability is how likely it is to open.
Why the other options are wrong
- BThe premium is the cost of transferring the risk, not a measure of its severity.
- CLikelihood of death is the probability of risk, not its severity.
- DThe insurer's rating reflects probability, not the survivors' financial exposure.
Exam tip
Severity = how bad financially; probability = how likely; risk tolerance = how much the client is willing to self-insure. Three separate concepts.
Common mistake
Using 'severity' to mean how likely the client is to die.
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.