LLQP Life Insurance · Component 2.1 · 30% of the exam
Two shareholders must decide between a criss-cross and a corporate redemption buy-sell structure. A criss-cross arrangement means:
- Athe corporation owns policies on each shareholder and redeems the shares at death
- Bthe shares pass automatically to the survivor without any purchase being made
- Cthe shareholders' estates each retain the shares and receive dividends indefinitely
- each shareholder owns a policy on the other and uses the proceeds to buy the shares
Correct answer: D) each shareholder owns a policy on the other and uses the proceeds to buy the shares
Under a criss-cross the survivor buys the shares personally, which increases the adjusted cost base of the shares acquired. Corporate redemption uses the capital dividend account instead, and the choice needs tax advice.
Why the other options are wrong
- AThat describes the corporate redemption structure.
- BShares do not pass automatically; the agreement governs the purchase.
- CThe purpose of the arrangement is to buy out the estate.
Exam tip
Criss-cross equals personal ownership; redemption equals corporate ownership.
Common mistake
Choosing a buy-sell structure without tax advice on the consequences.
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.