Try 30 free LLQP Life Insurance questions across competency areas, with answers and explanations, then continue in Finance Prep.
This free full-length LLQP Life Insurance practice exam includes 30 original Finance Prep questions across the official LLQP competency areas.
These questions are for self-assessment. They are not official exam questions and do not imply affiliation with any exam sponsor or regulator.
Count note: this page uses the full-length practice count maintained in the Mastery exam catalog. Some regulators and exam providers publish total questions, scored questions, duration, or pilot-item rules differently; always confirm exam-day rules with your licensing body or exam provider.
Need concept review first? Read the LLQP Life Insurance cheat sheet for policy types, underwriting, beneficiaries, taxation, replacement, needs analysis, and suitability cues before starting another diagnostic.
| Item | Detail |
|---|---|
| Program | LLQP |
| Exam route | LLQP Life Insurance |
| Official exam name | LLQP Exam 1 — Life Insurance [2026 v2] |
| Full-length set on this page | 30 questions |
| Exam time | 75 minutes |
| Competency areas represented | 4 |
| Competency area | Weight | Questions used |
|---|---|---|
| Assess the Client’s Needs and Situation | 35% | 11 |
| Analyze the Available Products That Meet the Client’s Needs | 30% | 9 |
| Implement a Recommendation Adapted to the Client’s Needs and Situation | 25% | 7 |
| Provide Customer Service During the Validity Period of the Coverage | 10% | 3 |
Topic: Analyze the Available Products That Meet the Client’s Needs
Ravi, age 52, is being laid off and his employer-sponsored group life insurance will end on his last day of work. He recently started medication for high blood pressure and is worried he won’t qualify for new individual insurance. He asks about the group plan’s conversion privilege.
Which statement about conversion is most accurate?
Best answer: B
What this tests: Product Analysis
Explanation: A group life insurance conversion privilege allows an employee (or sometimes a dependent) to replace terminating group coverage with an individual life insurance policy when group eligibility ends (for example, due to layoff or resignation).
Key practical points at the LLQP level:
Because Ravi has a new medical issue (high blood pressure medication), conversion can help him secure individual coverage that he might not otherwise qualify for on standard terms if he applied as a new individual applicant.
Conversion is designed to let a departing employee replace group coverage with an individual policy on a limited, time-sensitive basis, typically without medical underwriting, which protects insurability when health has changed.
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
In individual life insurance underwriting, which item is a common evidence of insurability used to obtain medical details from the applicant’s doctor?
Best answer: A
What this tests: Recommendation Implementation
Explanation: Insurers commonly request evidence of insurability to assess the applicant’s risk before issuing coverage. For medical clarification beyond the application questions, an insurer may request an attending physician statement (APS), which is a report from the applicant’s physician that provides clinical details about medical conditions, treatment, and outcomes.
Other common evidence of insurability includes a paramedical exam (and labs), an MIB report, and where relevant, motor vehicle reports and inspection reports. These items help underwriting confirm disclosed information and assess overall risk in a consistent, documented way.
An APS is a medical report requested from the applicant’s physician to clarify diagnosis, treatment, prognosis, and history.
Topic: Analyze the Available Products That Meet the Client’s Needs
All amounts are in CAD. Priya (38) has a remaining mortgage of $320,000 with 18 years left, and other debts of $20,000. She wants $15,000 for final expenses. She has $25,000 in savings earmarked for emergencies and employer group life insurance of $100,000 she expects to keep. If you round the recommended face amount up to the next $25,000, which term length and face amount is most appropriate?
Best answer: B
What this tests: Product Analysis
Explanation: This is a term-insurance sizing question: match the term length to the time period of the temporary obligation, and set the face amount to cover quantified needs minus available resources.
Apply the rounding rule: round up to the next $25,000 → $250,000.
Choose term length: the mortgage runs for 18 more years, so a 20-year term is the closest common term that covers the full period.
A 20-year term best matches an 18-year obligation, and \(\$320,000+\$20,000+\$15,000-\$25,000-\$100,000=\$230,000\), rounded up to $250,000.
Topic: Analyze the Available Products That Meet the Client’s Needs
Sonia is meeting with Alex and Priya, who each own 50% of a small incorporated consulting firm. They want life insurance so that if one partner dies, the survivor can buy the deceased’s shares without forcing a rushed sale of company assets. They do not yet have a written buy-sell agreement. What is the most appropriate next step before selecting policy ownership/beneficiary details and submitting applications?
Best answer: D
What this tests: Product Analysis
Explanation: This question tests how to analyze a business life insurance need—specifically funding a buy-sell arrangement for business continuation—and the practical step that must happen before finalizing product structure.
For buy-sell funding, the life insurance must align with the legal agreement: what triggers the buyout, how the shares will be valued, who is obligated to buy, and who receives the funds. Without a written (or at least clearly confirmed) buy-sell structure, an advisor can easily set up the wrong arrangement (wrong owner, beneficiary, insured, or coverage amount), undermining suitability.
In entry-level practice, the insurance advisor doesn’t draft the legal agreement, but should ensure the client obtains/has the agreement in place (often with legal/accounting input) and then design the insurance to match it.
The insurance should be designed to fund the buy-sell obligation; the agreement drives the amount and the appropriate ownership/beneficiary structure (e.g., cross-purchase vs corporate/entity).
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
In which situation is it most appropriate for a life insurance agent to refer the client to a tax, legal, or accounting professional, and then coordinate the insurance recommendation within the agent’s scope of licence?
Best answer: C
What this tests: Recommendation Implementation
Explanation: Referral is appropriate when a client’s request moves from explaining life insurance concepts into giving legal drafting advice or tax/accounting advice. Examples include corporate ownership questions, shareholder agreements (buy-sell), complex estate arrangements, or situations where the choice of policyowner/beneficiary could create tax consequences.
Within scope, the agent’s role is to:
This involves corporate structuring and tax/legal implications (who should own the policy, who should be beneficiary, and how the agreement should be drafted). The agent should refer to the client’s lawyer/accountant for advice, and then implement the insurance based on the professionals’ guidance.
Topic: Assess the Client’s Needs and Situation
You are estimating how much immediate cash an estate may need if the client dies unexpectedly. Use the exhibit to identify the liability most likely to require prompt repayment and therefore increase the estate’s capital need at death.
| Item | Amount | Notes |
|---|---|---|
| Chequing account | $8,000 | Liquid |
| TFSA | $20,000 | Liquid |
| RRSP | $110,000 | Registered asset |
| Principal residence | $650,000 | Illiquid |
| Credit card balance | $6,000 | Due monthly |
| Car loan | $18,000 | 4 years remaining |
| Mortgage | $420,000 | 23-year amortization |
| Personal line of credit | $25,000 | Repayable on demand |
Best answer: C
What this tests: Needs Analysis
Explanation: When estimating capital needs at death, an advisor focuses on how much cash (liquidity) the estate may need quickly to cover obligations. This involves categorizing assets as liquid (cash, readily accessible funds) versus illiquid (property that may take time to sell), and reviewing liabilities with attention to repayment terms.
A liability described as repayable on demand can be called by the lender immediately, which can force the estate to come up with cash quickly. If the estate’s liquid assets are limited, this increases the need for readily available funds (often supported by life insurance proceeds).
“Repayable on demand” signals the lender can require repayment at any time, creating a potential immediate liquidity need for the estate.
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
During an e-application for individual term life insurance, Raj (age 38) tells the agent he smokes about half a pack per day. When the agent reaches the tobacco question, Raj says: “Put me down as a non-smoker—otherwise the premium will be too high. They won’t find out.”
How should the agent classify Raj’s statement if it is submitted that way on the application?
Best answer: B
What this tests: Recommendation Implementation
Explanation: This question tests the importance of accurate disclosure during the application/underwriting process and the distinction between a mistake, a material misrepresentation, and fraud.
Insurers underwrite based on the information in the application. If an applicant (or the agent) provides inaccurate or incomplete information, the insurer may issue coverage on incorrect terms (wrong premium or even an approval that would not have been granted). That can later lead to serious consequences, including policy voiding or a denied claim, especially when the incorrect information is material (i.e., it would influence the insurer’s decision to accept the risk or set the premium) or when there is intentional deception.
In this scenario, Raj is not confused and is not forgetting something—he is explicitly asking for a false answer to obtain lower-cost coverage. That intent to deceive is what makes it fraud.
Raj is knowingly directing the agent to enter false information to secure a lower premium. Intentional deception in the application process is fraud.
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
Jordan owns 100% of an incorporated consulting company and wants to buy life insurance on their own life. Jordan asks you to recommend whether the policy should be personally owned or corporately owned and whether premiums will be tax-deductible. You have enough medical and financial information to submit an application.
What is the most appropriate next step?
Best answer: A
What this tests: Recommendation Implementation
Explanation: This scenario tests when to refer to a tax/legal/accounting professional and how to coordinate within scope during implementation (ownership and tax questions are part of how the policy is set up).
As a life insurance agent, you can explain high-level concepts (for example, that ownership affects control, beneficiary designations, and potential tax/estate outcomes). However, you should not provide definitive tax or legal advice—especially about premium deductibility or the “best” corporate vs personal structure—because those outcomes depend on the client’s broader corporate and personal situation.
The appropriate process is to:
Tax treatment and the best ownership structure depend on Jordan’s corporate and personal situation. Referring to and coordinating with the client’s accountant/tax lawyer—within the client’s consent—keeps you within scope while supporting a suitable implementation.
Topic: Analyze the Available Products That Meet the Client’s Needs
On many term life policies, an insurer applies a modal factor when premiums are paid monthly instead of annually. What is the most accurate statement about how this can affect the client’s total annual cost?
Best answer: C
What this tests: Product Analysis
Explanation: Premium mode is the frequency the client pays premiums (e.g., annual vs monthly). On many term policies, insurers use a modal factor so that the total of monthly payments over a year is often higher than the annual premium.
This is a product-cost comparison point (term policy pricing/structure): monthly payment mode can improve cash-flow affordability, but it may increase the client’s total annual cost. As an advisor, you should be able to explain that the difference is not “interest charged by the agent,” but a built-in pricing adjustment by the insurer.
The key practical takeaway for clients is:
Modal factors are commonly used to reflect extra administrative cost and the insurer’s loss of having premiums paid throughout the year rather than upfront, so the summed monthly payments are often higher than the annual payment.
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
An insurer completes underwriting for a life insurance application and approves the client as a substandard (rated) risk rather than “standard.” What is the most likely effect of this risk classification on the offer made to the client?
Best answer: C
What this tests: Recommendation Implementation
Explanation: Underwriting is the insurer’s process for assessing an applicant’s insurability and assigning a risk classification (such as preferred, standard, or substandard). The purpose is to protect the insurer and its policyholders by ensuring the premium and policy terms are appropriate for the likelihood of a claim.
When an applicant is classified as substandard (rated), the insurer has determined the risk is higher than average. The typical outcome is an offer that still provides coverage, but at a higher premium (for example, via an extra premium) and/or with modified terms (depending on the nature of the risk).
Underwriting classifies risk to price and structure coverage appropriately. A substandard approval commonly results in an extra premium (a “rating”) and may involve modified terms, depending on the risk.
Topic: Assess the Client’s Needs and Situation
A client is considering surrendering their existing permanent policy to “start fresh” with a new one. You review the policy values shown below (all amounts in CAD). Assume there is no policy loan and the policy can be surrendered today.
| Item (current year) | Amount |
|---|---|
| Cash surrender value | $52,000 |
| Adjusted cost basis (ACB) | $40,000 |
| Surrender charge | $0 |
Based only on the exhibit, what is the most accurate interpretation for assessing the impact of surrendering (and potentially replacing) this policy now?
Best answer: C
What this tests: Needs Analysis
Explanation: When a client is deciding whether to keep, surrender, or replace a permanent life insurance policy, two key values to review are the policy’s cash surrender value and its adjusted cost basis (ACB).
At a high level, if the amount received on surrender is greater than the ACB, the excess is generally treated as taxable income to the policyowner. This can materially affect suitability: keeping the policy may avoid immediate taxation, while replacing typically requires dealing with the existing policy first (often by surrendering or otherwise disposing of it), which may trigger tax if a gain exists.
If the policy is surrendered, the policy gain is generally based on the amount received on surrender compared with the ACB. Since $52,000 is greater than $40,000, a taxable gain is likely.
Topic: Assess the Client’s Needs and Situation
Alicia applies for a 20-year term policy with a monthly premium quote of $42 assuming non-smoker rates. During underwriting, the insurer’s evidence shows she is a smoker, and the monthly premium for the same coverage becomes $78.
Based on these figures, which statement best reflects how underwriting supports risk classification and pricing?
Best answer: A
What this tests: Needs Analysis
Explanation: This question tests how underwriting supports risk classification and pricing (Competency C3: implementing recommendations and understanding underwriting outcomes).
Underwriting collects medical, lifestyle, and financial information to estimate the likelihood and potential cost of a claim. Applicants who present higher expected mortality risk (for example, smokers) are typically placed in a higher-risk class and charged a higher premium for the same coverage.
The pricing impact here is a simple comparison of the two monthly premiums and converting to an annual amount:
This illustrates why insurers ask about items like smoking and may verify them with evidence: the information is used to classify the applicant’s risk and price the policy appropriately.
The monthly difference is $36 and over 12 months that is $432. This illustrates that underwriting uses medical/lifestyle evidence to place the applicant in a risk class that determines the price.
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
Which statement best explains why a life insurance advisor must avoid promising that a client will be approved (or approved at a specific rate class) before underwriting is complete?
Best answer: D
What this tests: Recommendation Implementation
Explanation: This tests an implementation/underwriting principle (competency C3): an advisor must not guarantee issuance or a specific rate class because underwriting outcomes depend on the insurer’s guidelines and the evidence reviewed.
Life insurance quotes and illustrations are conditional. After an application is submitted, the insurer may request more information (for example, medical history details, a paramedical exam, labs, or financial justification) and may approve as applied for, approve with different terms (such as a higher premium or exclusions), or decline. Since each insurer/product can assess risk differently, promising a specific outcome is inappropriate and can mislead the client.
This reflects the advisor’s duty to set accurate expectations: outcomes depend on the insurer’s underwriting assessment and can’t be guaranteed in advance.
Topic: Provide Customer Service During the Validity Period of the Coverage
Jenna is the beneficiary of her partner’s individual whole life policy with a face amount of $250,000 (CAD). He died 14 months after the policy was issued. At the time of death, there was an outstanding policy loan of $18,000 and the last monthly premium of $500 was unpaid.
If the claim is approved after any contestability review, what amount would Jenna generally expect to receive?
Best answer: B
What this tests: In-force Service
Explanation: This question tests claim-service basics during the coverage period: what can delay a claim and what can reduce the amount paid.
Because the death occurred only 14 months after issue, the claim may be reviewed under the policy’s contestability period, which can delay payment while the insurer verifies the application information. If the claim is ultimately approved and payable, the death benefit is generally reduced by amounts the policyowner owed to the insurer at death, such as an outstanding policy loan and any unpaid premium.
Calculation (in plain words): start with the $250,000 face amount, then subtract the $18,000 loan and subtract the $500 unpaid premium, resulting in $231,500.
If the claim is payable, the insurer typically pays the face amount minus amounts owed to the insurer, such as an outstanding policy loan and any unpaid premium: $250,000 − $18,000 − $500 = $231,500.
Topic: Implement a Recommendation Adapted to the Client’s Needs and Situation
During policy delivery, the client asks how the contract treats suicide and contestability.
Exhibit — Contract excerpt Suicide: If the insured dies by suicide within 2 years of the issue date, the insurer’s liability is limited to a refund of premiums paid. Incontestability: After the policy has been in force 2 years during the insured’s lifetime, the insurer will not contest the policy except for non-payment of premium or fraud.
Based only on the excerpt, which statement is correct?
Best answer: C
What this tests: Recommendation Implementation
Explanation: This question tests how to interpret two common clauses that shape client expectations: the suicide provision and the incontestability provision.
From the excerpt, suicide within the first 2 years is not covered in the usual way. Instead of the full death benefit, the insurer’s responsibility is limited to refunding premiums paid.
The incontestability clause is a separate concept: once the policy has been in force for 2 years while the insured is alive, the insurer generally cannot void the policy for misstatements, with stated exceptions (here, non-payment of premium or fraud). It does not remove or “cancel” the suicide limitation during the initial 2-year period.
The excerpt explicitly limits liability to a refund of premiums when suicide occurs within 2 years of the issue date. At 18 months, this condition is met.
Topic: Analyze the Available Products That Meet the Client’s Needs
A client reviews an illustration for a participating whole life policy that includes a paid-up additions (PUA) rider. Based only on the exhibit, what is the best interpretation of what the PUA rider is doing?
| Item (Participating Whole Life) | Year 1 | Year 5 |
|---|---|---|
| Base policy death benefit | $300,000 | $300,000 |
| Death benefit from PUAs | $0 | $18,500 |
| Total death benefit | $300,000 | $318,500 |
| Cash surrender value (total) | $0 | $9,400 |
| Premium (base policy) | $3,200 | $3,200 |
| Premium (PUA rider) | $1,000 | $1,000 |
Best answer: D
What this tests: Product Analysis
Explanation: A paid-up additions (PUA) rider (when offered) on a participating whole life policy allows the policyowner to pay additional premium to purchase small blocks of fully paid-up permanent life insurance. Each paid-up addition has its own death benefit and also contributes to cash value.
In the exhibit, the base policy death benefit stays level at $300,000, while “death benefit from PUAs” grows to $18,500 by year 5. The total cash surrender value also rises over time. This pattern supports the interpretation that the extra rider premium is being used to buy paid-up additions, which increase both cash value and total death benefit.
The exhibit does not show term insurance, premium-offset/vanishing premiums, or loan activity—so those interpretations are unsupported.
The exhibit shows a separate rider premium and a growing “death benefit from PUAs,” along with rising total cash surrender value—consistent with paid-up additions being purchased.
Topic: Assess the Client’s Needs and Situation
Nora, age 39, applies for a $500,000 20-year term life policy. She is a non-smoker, has a normal build, and takes a single medication for mild, well-controlled asthma. She works as an accountant and takes one vacation per year to Mexico. She also flies a small aircraft on weekends as a private pilot.
Which detail is most likely to affect the insurer’s risk classification (and therefore the premium) as part of risk pooling?
Best answer: C
What this tests: Needs Analysis
Explanation: Life insurance transfers the financial risk of premature death from an individual or family to an insurer. The insurer can do this because of risk pooling: many policyowners pay premiums into a pool, and the pool is used to pay claims for the relatively smaller number who die during the coverage period.
To keep the pool fair and sustainable, insurers use underwriting (risk classification) to group applicants with similar levels of mortality risk and to price accordingly. Certain factors can materially change the probability of death during the term of coverage, including hazardous occupations and avocations.
In this scenario, private-pilot flying is the clearest hazard-related factor that can increase risk, so it is the most likely to affect the insurer’s classification and premium.
Aviation is an avocation that can materially increase accidental-death risk, so it commonly affects underwriting classification and premium to keep risk pooling fair across policyholders.
Topic: Assess the Client’s Needs and Situation
In Canada, which statement best explains why an estate may need liquidity at death to cover a potential tax exposure?
Best answer: D
What this tests: Needs Analysis
Explanation: A key part of assessing a client’s needs is identifying whether their estate could face a cash shortfall at death. In Canada, a common driver is the income tax bill on the deceased’s terminal return, often caused by a deemed disposition of certain assets at fair market value (creating capital gains). This tax can be owed even when most of the estate is tied up in illiquid assets (a cottage, rental property, or shares of a private corporation), which is why liquidity may be required so the executor can pay taxes and other estate costs without forcing a rushed sale of assets.
Canada’s main “tax at death” exposure is often the deemed disposition rules, which can create an income tax bill that must be paid even if the assets are illiquid (e.g., real estate or a private corporation).
Topic: Analyze the Available Products That Meet the Client’s Needs
Jenna, age 32, starts a full-time job with an employer-sponsored group life plan. She enrolls during the initial eligibility window for basic life insurance (1× salary) and also applies for additional optional life insurance. On the form she notes she smokes and does recreational rock climbing.
Which statement best describes the structure of group life insurance and how Jenna’s coverage is established and documented?
Best answer: A
What this tests: Product Analysis
Explanation: Group life insurance is structured differently from individual life insurance. The plan sponsor (usually the employer) is the policyholder and enters into a master contract with the insurer. Employees become insured members when they meet the plan’s eligibility requirements and enroll according to plan rules.
Instead of receiving an individual policy, each member typically receives a certificate of insurance describing their coverage, beneficiaries (where applicable), and key terms, all governed by the master contract. Underwriting in group life is often limited for base coverage and is driven by plan provisions (such as guaranteed issue limits, late entrant rules, or higher optional amounts), rather than automatically rating every member based on disclosed health or hobbies.
Group life is issued to the plan sponsor under a master contract, and members receive certificates. Coverage is typically based on eligibility and plan rules, with individual evidence only when required by the plan (often for optional or late coverage).
Topic: Assess the Client’s Needs and Situation
During an initial virtual fact‑find, Mei (age 33) says: “I don’t get life insurance. If I die early, the company would have to pay way more than I put in. That sounds like a gamble.” She seems hesitant to continue the discussion.
What is the most appropriate next step for the agent?
Best answer: D
What this tests: Needs Analysis
Explanation: Life insurance is a risk-transfer contract: the policyowner pays premiums, and in exchange the insurer promises to pay a death benefit if the insured dies while coverage is in force. The key idea that makes this possible is risk pooling. Many people contribute relatively small, predictable premiums to a common pool. Only a smaller number of insureds will die during a given period, so the pooled premiums (together with the insurer’s risk management and pricing) fund the claims.
In a real client meeting, when a client signals confusion or mistrust about “how it works,” the best next step is to correct the misunderstanding in plain language before moving to recommendations or paperwork. That supports an informed needs assessment and keeps the discussion aligned with the purpose of life insurance: protecting survivors from the financial impact of premature death.
This directly addresses Mei’s concern using the core concept of life insurance: transferring the financial risk of premature death from the family to the insurer through pooling.
Topic: Analyze the Available Products That Meet the Client’s Needs
Maya and Chris each own 50% of a Canadian incorporated consulting firm. The shareholder agreement uses a corporate share-redemption plan: if one shareholder dies, the corporation must redeem (buy back) the deceased shareholder’s shares at fair market value to keep the business operating smoothly. The firm is valued at $1,200,000 (CAD), and the corporation expects it can use $100,000 of existing cash at the time of death.
What life insurance death benefit should the corporation arrange on each shareholder to fund the redemption?
Best answer: A
What this tests: Product Analysis
Explanation: Business continuation insurance is commonly used to ensure a business can continue operating after the death of a shareholder, partner, or key person. In a shareholder continuation plan (such as a corporate share-redemption plan), life insurance provides immediate liquidity so the corporation can buy back the deceased owner’s shares, allowing:
Here, the amount of insurance should match the buyback obligation after considering any assets already available for the purpose.
Calculation in plain words: take the deceased shareholder’s share of the business value and subtract the corporate cash available.
The redemption cost is 50% of $1,200,000 = $600,000, and $100,000 of corporate cash reduces the insurance need to $500,000.
Topic: Assess the Client’s Needs and Situation
When estimating income replacement, you start by grossing up the survivor’s after-tax income need. If the goal is $40,000 per year after tax and the average tax rate is 20%, which statement correctly gives the pre-tax income to replace and describes how inflation, discount rate, and taxes affect the amount required?
Best answer: B
What this tests: Needs Analysis
Explanation: A basic income-replacement estimate starts with the survivor’s after-tax income need (what the household must actually spend). If you want to express that need as an equivalent pre-tax income, you gross it up:
Then you consider key drivers of how much capital is needed:
$40,000 ÷ (1 − 0.20) = $50,000 pre-tax. Inflation pushes future income needs up, while a higher discount rate means you need less capital today; taxes can require more coverage when they reduce net income available.
Topic: Assess the Client’s Needs and Situation
In a life insurance needs analysis, who is generally considered a dependent of the client?
Best answer: B
What this tests: Needs Analysis
Explanation: When assessing a client’s situation for life insurance, the goal is to identify who would suffer a financial loss if the client died. For needs analysis, a dependent is typically anyone who relies on the client for ongoing financial support (such as a spouse/common-law partner with shared obligations, minor children, or an adult dependent due to disability).
This concept is broader than “who lives with the client,” “who is a relative,” or “who is named as beneficiary.” Those factors may be relevant facts to gather, but they do not define dependency by themselves.
This is the practical, needs-analysis meaning of a dependent: ongoing reliance on the client’s income or financial support.
Topic: Analyze the Available Products That Meet the Client’s Needs
Sana, age 45, owns a universal life (UL) policy with a level face amount of $300,000 (all amounts in CAD). The policy currently has an account value of $20,000.
She made a $7,000 withdrawal (partial surrender) today. She also took a $8,000 policy loan 12 months ago at 6% annual interest, and the interest is unpaid and added to the loan balance.
Assuming both the withdrawal and the outstanding loan balance (including interest) reduce the amount payable at death dollar-for-dollar, what net death benefit would be paid if Sana dies today? Round to the nearest $10.
Best answer: A
What this tests: Product Analysis
Explanation: In a UL policy, transactions like withdrawals (partial surrenders) and policy loans typically reduce the policy’s value available to support the coverage and can reduce the amount payable at death.
Here, the net death benefit is reduced by:
Calculate the loan interest for 12 months:
\(\$8,000 \times 6\% = \$480\)
Outstanding loan balance at death:
\(\$8,000 + \$480 = \$8,480\)
Net death benefit:
\(\$300,000 - \$7,000 - \$8,480 = \$284,520\)
Lapse risk link (conceptual): withdrawals reduce the UL account value immediately; policy loans can also increase lapse risk because loan interest and other policy charges must be supported by the policy’s values or ongoing premiums. If the account value becomes insufficient to cover ongoing monthly charges, the policy can lapse.
This reflects the face amount reduced by the withdrawal and the outstanding loan balance including one year of interest: $300,000 − $7,000 − ($8,000 + $480) = $284,520.
Topic: Assess the Client’s Needs and Situation
A client bought a level term life policy with a conversion privilege because their current income is low but they expect higher income in a few years. Five years later, their income has increased, but their health has deteriorated. What happens if the client exercises the policy’s conversion privilege (within the allowed conversion period)?
Best answer: C
What this tests: Needs Analysis
Explanation: A conversion privilege is a common term-life feature that allows the policyowner to exchange a term policy for a permanent policy within a stated period. The key contract outcome is that the client can usually convert without new evidence of insurability for the converted amount (up to the term policy’s face amount).
This matters in needs analysis because income is often expected to change over a client’s career. When affordability is a constraint today, an advisor may use term insurance to meet immediate income-replacement needs while planning for a future upgrade to permanent coverage when income is higher. The conversion privilege protects the plan if the client’s health deteriorates before that upgrade.
A conversion privilege is designed to allow a move from term to permanent coverage without re-qualifying medically, which is especially valuable if health has worsened.
Topic: Assess the Client’s Needs and Situation
Liam (age 38) is buying a $500,000 term life policy. He lives with his partner, Sara, and has a 9-year-old daughter, Emma, from a prior relationship.
Liam wants $75,000 of the death benefit to go to a local charity, and the rest to Sara to support Emma. If Sara dies before Liam, he wants the money to go for Emma’s benefit but does not want the insurer paying proceeds directly to a minor.
Which beneficiary arrangement best meets Liam’s goals? (Round percentages to the nearest whole percent.)
Best answer: B
What this tests: Needs Analysis
Explanation: This question tests choosing primary and contingent beneficiaries while recognizing when family dynamics (a minor child) require added planning.
The quantitative step is to convert Liam’s intended charitable amount into a percentage of the policy:
Because Emma is a minor, naming her directly can create practical complications: the insurer typically cannot simply pay the proceeds to the child, and funds may need to be paid to a court-appointed guardian or held until the age of majority (process varies). To align with Liam’s goal of providing for Emma without paying directly to a minor, a common approach is to name a trustee for the child (or a trust) as the contingent beneficiary and coordinate with legal advice for the trust wording.
$75,000 out of $500,000 is 15%, leaving 85% for Sara. Using a trustee/trust for the contingent designation addresses Liam’s concern about paying directly to a minor.
Topic: Provide Customer Service During the Validity Period of the Coverage
Arjun bought an individual life policy 9 months ago. On the application he disclosed that he smokes, works as a high-rise window cleaner, and takes annual scuba trips. He has now died, and the policy lists the beneficiary as “Estate of Arjun Singh.” His sister, named as executor in the will, asks what her role is and how you can help with the claim.
What is the most appropriate response?
Best answer: A
What this tests: In-force Service
Explanation: If a life insurance policy names the estate as beneficiary (e.g., “Estate of …”), the death benefit is generally payable to the estate, and the executor (liquidator in Québec) acts as the estate’s legal representative. In practice, the executor is the person who typically completes and signs claim documents for the estate and provides the insurer with required documentation (often including a death certificate and proof of authority as executor).
An advisor can assist by:
To stay within scope, the advisor should not interpret the will, determine who should receive estate assets, or provide legal advice. The advisor should also avoid promising claim outcomes; the insurer may review the file (including application disclosures like smoking or avocations) as part of its claims assessment.
When the beneficiary is the estate, the executor typically signs and submits the claim on the estate’s behalf. The advisor can assist with the process and documentation while staying within scope by not interpreting the will or providing legal advice.
Topic: Provide Customer Service During the Validity Period of the Coverage
Nadia (age 45) wants to terminate her permanent life insurance policy to access cash. The insurer confirms that if she surrenders today, it will pay the cash surrender value of $25,000 minus a surrender charge of $1,500, and the policy’s adjusted cost basis (ACB) is $18,000. Ignoring withholding taxes, what taxable policy gain will Nadia generally report from the surrender?
Best answer: D
What this tests: In-force Service
Explanation: Surrendering a permanent life insurance policy generally terminates the coverage and may trigger a taxable policy gain. At an entry level, the gain is calculated as:
In this case, the insurer pays $25,000 − $1,500 = $23,500. The taxable policy gain is $23,500 − $18,000 = $5,500. In addition to tax consequences, the client should understand that surrender means loss of coverage and any future insurance may require new underwriting and could cost more.
Net surrender proceeds are $25,000 − $1,500 = $23,500. The taxable policy gain is $23,500 − $18,000 = $5,500.
Topic: Assess the Client’s Needs and Situation
Mina and Paul each own 50% of an incorporated consulting business. Their shareholder agreement says the surviving owner must ensure the deceased owner’s shares are purchased so the family receives fair value. They ask whether the life insurance used to fund this should be personally owned or owned by the corporation.
Which attribute is the single most important deciding factor to confirm before structuring ownership for this buy-sell funding?
Best answer: C
What this tests: Needs Analysis
Explanation: In business continuation planning, life insurance is often used to provide liquidity at death so the business can continue and the deceased owner’s family can be compensated. For buy-sell (share purchase/redemption) funding, the key needs-analysis question is not initially “term or permanent” or “convertible or not,” but who must receive the money to carry out the agreement.
The deciding attribute here is policy ownership/beneficiary alignment with the buy-sell structure. If the surviving shareholder(s) must buy the shares (a cross-purchase approach), the death benefit generally needs to be payable to the surviving shareholder(s). If the corporation must redeem the shares (an entity/corporate redemption approach), the death benefit generally needs to be payable to the corporation. Confirming who is legally obligated to buy (and how the agreement is structured) drives the correct ownership and beneficiary setup.
Ownership and beneficiary should align with the party that must fund the share purchase (cross-purchase vs corporate redemption). This directly determines whether a personal policy or corporate-owned policy best fits the agreement’s structure.
Topic: Analyze the Available Products That Meet the Client’s Needs
When recommending permanent life insurance to fund a business buy-sell arrangement, which document is primarily used to disclose projected premiums/values and the assumptions behind those projections (for example, dividends or credited interest)?
Best answer: D
What this tests: Product Analysis
Explanation: In business life insurance recommendations (such as buy-sell funding or key person insurance), the advisor must ensure the client understands what is guaranteed versus what is only projected. For permanent policies with non-guaranteed elements (for example, participating whole life dividends or universal life credited interest), the main disclosure tool is the insurer’s illustration, which shows projections and clearly distinguishes guaranteed values from non-guaranteed assumptions.
Other documents (like the policy contract, fact-find, and the buy-sell agreement) are still important, but they serve different purposes and do not replace an illustration for disclosing projected policy performance.
An illustration is designed to show how premiums, cash values, and death benefits may develop over time and to disclose the non-guaranteed assumptions used in projections.
Use the LLQP Life Insurance Practice Test page for the full Finance Prep practice bank, mixed-topic practice, timed mock exams, explanations, and web/mobile app access.
Read the LLQP Life Insurance Study Guide on SecuritiesMastery.com for concept review, then return here for Finance Prep practice.