LLQP Life Insurance · Component 2.1 · 30% of the exam
When a corporation owns a life insurance policy on a shareholder and is the beneficiary, the premiums are:
- Generally not deductible, and the death benefit is received tax-free by the corporation
- BA taxable benefit to the shareholder, since the coverage is on the shareholder's life and the family benefits indirectly
- CDeductible as a business expense, since the corporation pays them for a business purpose
- DDeductible only for key person coverage, where the corporation can show it would suffer a loss on the death
Correct answer: A) Generally not deductible, and the death benefit is received tax-free by the corporation
Corporate ownership does not make premiums deductible. The advantage is paying them with corporate after-tax dollars (often taxed at a lower rate than personal income) and the CDA credit on the death benefit. If the shareholder personally benefits without paying, a taxable shareholder benefit can arise.
Why the other options are wrong
- BPremiums on a policy the corporation owns and benefits from are not a shareholder benefit.
- CCorporate ownership does not make premiums deductible.
- DKey person premiums are not deductible either.
Exam tip
Corporate-owned: premiums non-deductible but paid with lower-taxed corporate dollars; death benefit tax-free to the corporation; CDA on the excess over ACB.
Common mistake
Assuming any business-related premium is deductible.
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.