LLQP Life Insurance · Component 1.3 · 35% of the exam
What role does 'probability of risk' play in a life insurance needs analysis?
- AIt is the same as severity, since both measure how much the family stands to lose if the client dies
- It informs the client's decision and the premium, but the amount of coverage is driven by severity
- CIt sets the amount of coverage, since a client who is more likely to die needs more insurance
- DIt determines the beneficiary, since the person most likely to survive the client should be named
Correct answer: B) It informs the client's decision and the premium, but the amount of coverage is driven by severity
Probability (how likely death is in the period) affects price and the client's sense of urgency; severity (the financial consequence) sets the amount. A young, healthy client has low probability but may have very high severity.
Why the other options are wrong
- AProbability and severity are distinct concepts.
- CAmount is set by severity, not probability.
- DBeneficiaries are chosen by the client, not by risk analysis.
Exam tip
Low probability does not mean low need. Young parents are the classic case.
Common mistake
Under-insuring young clients because they are unlikely to die soon.
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.