LLQP Life Insurance · Component 2.1 · 30% of the exam
Why might a business owner prefer to hold a permanent policy inside the corporation rather than personally?
- ACorporate policies have no contestability period, since the corporation is a sophisticated applicant
- BThe corporation is exempt from underwriting, so the shareholder's health does not affect the premium
- Premiums are paid with lower-taxed corporate dollars, and the death benefit above ACB flows to the CDA for tax-free distribution
- DCorporate premiums are deductible as a business expense, which lowers the after-tax cost of coverage for the corporation and its shareholders
Correct answer: C) Premiums are paid with lower-taxed corporate dollars, and the death benefit above ACB flows to the CDA for tax-free distribution
The curriculum lists corporately owned policies and the CDA under tax implications. The advantages are real but come with complexity: shareholder benefit rules, the need for the corporation to be beneficiary, and planning for what happens if the business is sold.
Why the other options are wrong
- AContestability applies to corporate-owned policies too.
- BCorporations are underwritten like any applicant; the insured's health still matters.
- DCorporate premiums are not deductible.
Exam tip
Corporate ownership advantages: lower-taxed corporate dollars for premiums; CDA on the death benefit above ACB. Disadvantages: complexity, shareholder-benefit rules, sale of the business.
Common mistake
Overlooking what happens to a corporate-owned policy when the business is sold.
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.