LLQP Life Insurance · Component 2.1 · 30% of the exam
Which statement about T-100 and the exemption test is correct?
- AThe exemption test sets T-100 premiums, since the insurer must price the policy so that no accumulating fund can ever arise within it
- BT-100 always fails the exemption test, since it is a permanent policy without the cash value the test requires
- T-100 has little or no cash value, so it stays within the exempt limits by a wide margin
- DT-100 is not a life insurance policy for tax purposes, so the exemption test does not apply to it at all
Correct answer: C) T-100 has little or no cash value, so it stays within the exempt limits by a wide margin
The exemption test compares the policy's accumulating fund with a benchmark. A product with minimal cash value has no accumulation to exceed the limit. The test is a UL and over-funded whole life concern.
Why the other options are wrong
- APremiums are set by mortality and expenses, not the exempt test.
- BT-100 easily passes the exemption test.
- DT-100 is a permanent life policy.
Exam tip
Exempt test = accumulation concern. Low-cash-value products are not the issue.
Common mistake
Worrying about the exemption test on a policy with no fund.
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.