LLQP Life Insurance · Component 2.1 · 30% of the exam
Which of the following best describes a 'preferred' underwriting class in term insurance pricing?
- AA class for policies over ten years old, whose premiums fall once the insurer has recovered the costs of issuing the contract
- A class with lower premiums for applicants meeting stricter health and lifestyle criteria
- CA class for group members, who receive lower rates because the employer pays part of the premium
- DA class for smokers, who are placed in a separate pool so that non-smokers do not subsidize their claims
Correct answer: B) A class with lower premiums for applicants meeting stricter health and lifestyle criteria
Insurers subdivide standard risks into preferred tiers based on measurable criteria — blood pressure, cholesterol, build, family history, driving record. Meeting the criteria earns a lower rate; the classification is set at issue.
Why the other options are wrong
- AAge of the policy is irrelevant to class.
- CGroup coverage is not classed this way.
- DSmokers are a separate, higher class.
Exam tip
Preferred classes reward measurable health factors. Know the criteria before promising a client a preferred rate.
Common mistake
Quoting preferred rates to an applicant who does not meet the criteria.
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.