LLQP Life Insurance · Component 1.3 · 35% of the exam
Which is a reason a lender might require life insurance on a business owner?
- ATo increase the interest rate on the loan, since an insured borrower is charged a premium for the added security
- To ensure the loan can be repaid if the owner dies, typically through a collateral assignment to the lender
- CTo avoid FINTRAC reporting, since insured business loans are exempt from the large-transaction rules
- DBecause it is required by CISRO as a condition of any commercial loan to a licensed business owner
Correct answer: B) To ensure the loan can be repaid if the owner dies, typically through a collateral assignment to the lender
Business continuation needs include creditors. A lender may make a loan conditional on life insurance on the owner, assigned to the lender as collateral. The need is quantified by the loan balance and term.
Why the other options are wrong
- AInsurance does not raise the interest rate; lenders require it to protect repayment.
- CInsurance requirements have nothing to do with FINTRAC reporting.
- DCISRO sets exam standards; it does not require borrowers to carry insurance.
Exam tip
Creditors are part of business continuation needs. Size the coverage to the loan and assign it as collateral.
Common mistake
Overlooking business debt when calculating the owner's insurance need.
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.