LLQP practice exams

In 2021, Yusuf and Clara, equal shareholders, each insured the other for $600,000 under a criss-cross plan, when their company was worth $1,200,000. At this year's review, the company is worth $2,000,000, and their agreement sets the price at fair market value. If Clara died today, how much would Yusuf have to find from other sources to buy her shares?

• A$0
• B$400,000
• C$1,000,000
• D$800,000

First find the current value of Clara's 50%.

Linda, 72, of Ontario, a widow, names her son Kevin as beneficiary of her $400,000 RRIF. Her will leaves the rest of her estate, a $400,000 home that is her principal residence, to her daughter Mia. The tax on the RRIF at her death, about $180,000, will be paid by the estate. How much permanent insurance, payable to Mia, would equalize their inheritances?

• A$90,000
• B$400,000
• C$180,000
• D$360,000

Who receives the RRIF, and who bears the tax on it?

How does optional life insurance in a group plan generally differ from basic life?

• AThe employee chooses the amount and pays the premium, and evidence is often required
• BIt pays an extra benefit when the employee dies as the result of an accident at work
• CIt covers the employee's spouse and children for flat amounts set by the plan
• DThe employer pays the premium, and the amount is set at a multiple of salary

Who decides, and who pays?

Which statement about riders is correct?

• AA rider ends when its stated expiry age is reached or when the base policy ends
• BA rider can be added by the owner at any time, whatever the insured's health
• CA rider is included in the base premium at no extra cost, with no stated expiry
• DA rider is a separate contract, so it stays in force after the base policy is surrendered

Think about the link between a rider and the policy it is attached to.

For which former employee is the group conversion privilege generally most valuable?

• AOne whose health has deteriorated and who might be declined or rated if underwritten
• BOne who already owns enough individual coverage to meet all of her needs
• COne who is starting a new job next week with group life equal to three times salary
• DOne who is young, healthy and a non-smoker, and who wants the lowest possible premium

Conversion skips one step of the usual application process.

When issuing Ana's policy, the insurer found that her date of birth on the application was wrong by one year and issued the policy at the correct age, with a lower premium. What does the agent need at delivery?

• AAna's signature on an amendment correcting the application
• BThe agent's initials next to the corrected date, as a clerical change
• CA new application and a new paramedical exam, since the age changed
• DNothing, since the insurer may correct its own records when the change favours Ana

Changes to the application must become part of the contract.

The MIB report on Daniel, 50, shows a code reported by another insurer three years ago for an abnormal ECG. Daniel's application mentions no heart problem. What should the underwriter do?

• ADecline the application on the basis of the MIB code alone
• BAsk the other insurer for its decision and apply the same one
• CInvestigate further, for example with an APS or tests, before deciding
• DIgnore the code, since MIB codes older than two years are no longer used

MIB rules limit how a member insurer may use a code.

Hui-min, 66, has a $300,000 term policy with a $300,000 ADB rider. The rider terminates at age 65, while the base policy continues. She dies in a car accident. What does her beneficiary receive?

• A$0
• B$150,000
• C$600,000
• D$300,000

Check whether the rider was still in force on the date of the accident.

Six months ago, Pierre's application was postponed until the results of a colonoscopy were known. The results are now normal (two benign polyps were removed). What should the agent do?

• ANothing, since a postponed applicant must wait five years before reapplying
• BSubmit a new application to another insurer without mentioning the postponement
• CAsk the insurer to reconsider the application, providing the new results
• DAsk for temporary insurance covering the six months the file was on hold

Why was the decision postponed in the first place?

Raj, 48, owns a $500,000 term policy that is convertible without evidence to age 65. The contract allows partial conversions of at least $50,000, and he converts $200,000 to a permanent plan. What happens to the rest of his coverage?

• AThe remaining $300,000 of term stays in force on its original terms
• BThe remaining $300,000 is repriced at the new permanent plan's rate for his attained age
• CThe remaining $300,000 stays but needs a new medical exam to confirm that his health is unchanged
• DThe remaining $300,000 is cancelled, since a conversion must apply to the whole policy

A partial conversion changes only the part that is converted.

In a death claim, who normally completes the claimant's statement?

• AThe beneficiary making the claim
• BThe insurer's underwriter
• CThe life insured's physician
• DThe agent who sold the policy

Who is making the claim?

Why is the capital dividend account important when a corporation owns life insurance?

• AIt is what makes the death benefit non-taxable when the corporation receives it
• BIt lets tax-free insurance proceeds flow to shareholders as tax-free dividends
• CIt protects the death benefit from the corporation's creditors
• DIt makes the premiums deductible to the corporation from the first year

Think about what happens when the money leaves the corporation.

Harold, of Ontario, named "my estate" as beneficiary of his $200,000 policy. His other estate assets total $600,000. What is the tax impact of the insurance proceeds?

• ANo income tax and no Estate Administration Tax on the insurance
• BIncome tax on the $200,000 in his final return, at his marginal rate
• CNo income tax, but about $3,000 more in Estate Administration Tax
• DNo income tax, but $2,250 more in Estate Administration Tax

Paid to the estate, the proceeds stay free of income tax but join the estate's value.

Sandra, 58, has a universal life policy with $300 monthly deposits. Her latest statement shows the account value is below the original illustration. What is the best service action?

• ATell her to stop deposits, since charges are paid from the death benefit
• BAdvise her to surrender immediately, as a shortfall always means the policy will fail
• CRequest an in-force illustration and discuss higher deposits or a lower death benefit if the account would run out early
• DTell her not to worry, because the original illustration is a guarantee of the account value, so no action is required before age 65

What projection uses current values and charges?

A dividend of $1,800 is applied under the paid-up additions option. The insurer's single premium at the insured's attained age is $600 per $1,000 of paid-up insurance. How much paid-up insurance does the dividend buy?

• A$10,800
• B$1,080
• C$1,800
• D$3,000

The dividend is a single premium.

Opco receives a $650,000 death benefit on the life of its president. Its accountant asks the agent which figure from the insurer is needed to calculate the CDA credit. What should the agent obtain?

• AThe cash surrender value on the date of death
• BThe total of all premiums paid since the policy was issued
• CThe policy's ACB immediately before the death
• DThe net cost of pure insurance for the year of death only

The CDA credit is the death benefit minus one amount.

Cobalt Dental Lab Inc. borrows $300,000 from its bank to buy equipment; the interest is deductible. The bank's commitment letter requires the assignment of a $300,000 T20 on the owner, Hyun-woo. This year the premium is $2,900 and the policy's NCPI is $3,400. How much can the corporation deduct?

• A$0, since life insurance premiums are not deductible for a corporation
• B$3,400, the NCPI, since the deduction is based on the NCPI
• C$2,900, the premium, since it is lower than the NCPI
• D$500, the difference between the NCPI and the premium

Compare what was paid with the ceiling set by the tax rules.

Ravi, 30, a self-employed designer, is buying a $500,000 whole life policy. His main concern is that an illness could stop him from paying the premiums and cause the policy to lapse. Which rider addresses this concern?

• AChildren's term rider, which covers any children he may have at a flat premium
• BWaiver of premium, which keeps the policy in force during his disability
• CGuaranteed insurability, which lets him buy more coverage later without a medical exam
• DAccidental death benefit, which adds a benefit to the death claim if he dies by accident

What risk does the rider need to remove: loss of income, or loss of coverage?

Which question is most likely to uncover a client's goals and priorities during a fact-find?

• A"How much group life insurance does your employer provide?"
• B"If you died tomorrow, what would you want for your family?"
• C"Would you prefer a policy with a monthly or an annual premium?"
• D"What is the remaining balance and interest rate on your mortgage?"

Open questions reveal more than closed ones.

Jean and Lina, of Ottawa, need $90,000 a year after tax. Jean's after-tax income is $68,000 and Lina's is $42,000; a surviving spouse would keep working. Using capital retention at 4%, what income replacement capital does each spouse need?

• A$1,125,000 each, half of the family's total need
• BJean: $1,200,000; Lina: $550,000
• CJean: $550,000; Lina: $1,200,000
• DJean: $1,700,000; Lina: $1,050,000

Ask what income the survivor would still have.