LLQP Life Insurance · Component 1.3 · 35% of the exam
Two equal partners run a business worth a substantial amount. If one dies, the survivor wants to keep the business and the deceased's family wants cash. The instrument that meets both needs is:
- ABusiness overhead expense insurance, which pays the business's fixed costs after a death
- BKey person insurance, which pays the business enough to compensate the family
- A buy-sell agreement funded with life insurance on each partner's life
- DA group life plan covering both partners, paying each family the deceased's interest
Correct answer: C) A buy-sell agreement funded with life insurance on each partner's life
A buy-sell agreement obliges the survivor to buy and the estate to sell at an agreed price. Life insurance provides the purchase money at exactly the moment it is needed, so the survivor keeps control and the family receives fair value in cash.
Why the other options are wrong
- ABusiness overhead expense insurance covers fixed expenses during disability, not a buyout.
- BKey person insurance compensates the business; it does not transfer ownership or pay the family.
- DGroup life pays a modest benefit and has nothing to do with buying out a partner.
Exam tip
Buy-sell = the agreement that fixes price and obligation; life insurance = the money to perform it. Both are needed.
Common mistake
Confusing key person insurance with buy-sell funding.
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.