LLQP Life Insurance · Component 1.1 · 35% of the exam
Under the needs analysis, an 'emergency fund' for the survivors is:
- AThe same as the funeral fund, since both cover the immediate costs that arise in the weeks after death
- BProhibited, since insurance proceeds must be applied to identified needs rather than held as a reserve
- A capital need providing readily available cash for the months after death, before other proceeds arrive
- DUnnecessary if income is replaced, since the survivors will have a monthly income from the invested proceeds
Correct answer: C) A capital need providing readily available cash for the months after death, before other proceeds arrive
Estates take time to settle and benefits take time to arrive. A liquid emergency reserve bridges the gap so survivors are not forced into debt or fire sales. It is a standard line in a capital needs analysis.
Why the other options are wrong
- AFuneral costs are a separate, specific expense.
- BNothing prohibits it; it is good practice.
- DIncome replacement is invested capital; an emergency fund is immediate cash.
Exam tip
Capital needs list: final expenses, debts, taxes, emergency fund, education, bequests, then capital for income.
Common mistake
Leaving the survivors with insurance that is invested but no cash for the first six months.
What this tests
CISRO competency component 1.1 — 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.