LLQP Life Insurance · Component 2.1 · 30% of the exam
The 'enhanced' or 'term insurance' dividend option uses dividends to:
- AReduce the premiums the client pays each year, so the policy costs less to keep in force over time
- BRepay any policy loans outstanding, so the loan does not erode the death benefit or cause the policy to lapse
- CFund a TFSA in the client's name, so the dividends grow tax-free outside the policy
- Buy one-year term insurance, typically to maintain a higher total death benefit than the base policy alone
Correct answer: D) Buy one-year term insurance, typically to maintain a higher total death benefit than the base policy alone
Enhanced coverage combines a base par policy with a term component bought each year by dividends. If dividends fall, the enhancement may not be fully funded — a risk the client must understand, since it is not guaranteed.
Why the other options are wrong
- AReducing premiums is a different dividend option.
- BDividends are not automatically applied to policy loans under this option.
- CDividends cannot be directed to a TFSA.
Exam tip
Enhanced coverage depends on dividends buying term each year; if the scale falls, the enhancement can shrink. Explain that it is not guaranteed.
Common mistake
Selling the enhanced total as if it were guaranteed coverage.
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.