LLQP Life Insurance · Component 3.3 · 25% of the exam
The first premium is significant in contract formation because:
- AIt is paid to the agent personally, who forwards it to the insurer once the policy has been issued and delivered to the client
- BIt is refundable at any time during the first year, since the client has a right to change their mind
- CIt sets all future premiums, since the insurer cannot increase what the client agreed to pay at the outset
- Payment of the first premium is typically a condition of the policy taking effect, making the contract binding
Correct answer: D) Payment of the first premium is typically a condition of the policy taking effect, making the contract binding
Offer (the application), acceptance (issue and delivery) and consideration (the first premium) form the contract. Without the first premium, coverage under a delivered policy generally has not begun.
Why the other options are wrong
- APremiums are paid to the insurer, not to the agent personally.
- BThe first premium is not freely refundable except under the free-look right.
- CThe first premium does not set all future premiums.
Exam tip
Contract formation: offer (application), acceptance (issue/delivery), consideration (first premium). Coverage generally begins when all three are in place.
Common mistake
Assuming coverage began at application without the first premium.
What this tests
CISRO competency component 3.3 — 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.