LLQP Life Insurance · Component 1.2 · 35% of the exam
Which change to a policy issued before 2017 could cause it to lose its grandfathered tax status?
- AChanging the beneficiary, since a new designation is treated as a new contract for tax purposes
- BChanging the premium mode from annual to monthly, since the modal factor alters the premium the policy was tested on
- A change that requires medical underwriting or adds coverage, such as increasing the face amount
- DUpdating the address, since the policy is then governed by a different province's insurance legislation
Correct answer: C) A change that requires medical underwriting or adds coverage, such as increasing the face amount
Grandfathering under the 2017 rules is generally lost when a policy is changed in a way that would require underwriting or that adds coverage. Administrative changes — beneficiary, mode, address — do not affect it. The review must weigh grandfathering before recommending any increase.
Why the other options are wrong
- ABeneficiary changes do not affect grandfathering.
- BPremium mode is administrative.
- DAddress updates are administrative.
Exam tip
Before increasing coverage on a pre-2017 policy, check whether the change forfeits grandfathering; a separate new policy may be better.
Common mistake
Adding coverage to an old policy without considering its tax status.
What this tests
CISRO competency component 1.2 — 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.