LLQP Life Insurance · Component 3.2 · 25% of the exam
What is the purpose and the main limitation of a policy illustration?
- It shows how the policy could perform under stated assumptions; its non-guaranteed columns are projections, not promises
- BIt replaces the contract as the definitive statement of what the policy will pay and when
- CIt guarantees future values, since the insurer is bound by the figures it puts in front of the client and cannot later pay less
- DIt is only for the agent's use in pricing the policy and is not intended to be shown to the client
Correct answer: A) It shows how the policy could perform under stated assumptions; its non-guaranteed columns are projections, not promises
The curriculum lists 'purpose and limitations of using scenarios or illustrations'. Illustrations are indispensable for comparing products, but dividends, interest rates and returns are not guaranteed, and a client who treats projected values as guaranteed has been misled.
Why the other options are wrong
- BAn illustration is not the contract.
- CIllustrated non-guaranteed values are not guaranteed.
- DIllustrations are for the client's understanding.
Exam tip
Illustrations compare products under assumptions. Point to the guaranteed columns and say the rest are projections.
Common mistake
Letting a client treat projected values as promises.
What this tests
CISRO competency component 3.2 — 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.