LLQP Life Insurance · Component 1.1 · 35% of the exam
Which of the following best describes 'tax exposure of the beneficiaries' as a needs-analysis item?
- Tax the beneficiaries or estate will owe on the deceased's assets, such as deemed gains and registered plans
- BTax the beneficiaries pay on the life insurance death benefit when they receive it from the insurer
- CGST on the funeral and other final expenses that the estate must pay before distribution
- DThe beneficiaries' own income tax rates, which determine how much of the inheritance they keep
Correct answer: A) Tax the beneficiaries or estate will owe on the deceased's assets, such as deemed gains and registered plans
The death benefit itself is tax-free. The exposure is the tax triggered by the client's death on the client's assets. Quantifying it — and funding it — is one of the classic uses of permanent insurance.
Why the other options are wrong
- BLife insurance death benefits are tax-free to beneficiaries.
- CGST on the funeral is trivial and not what the term means.
- DThe beneficiaries' own tax rates are not what the term refers to.
Exam tip
The tax exposure at death is on the deceased's assets — capital gains, registered plans — not on the insurance proceeds.
Common mistake
Thinking the beneficiary pays tax on the death benefit.
What this tests
CISRO competency component 1.1 — 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.