As you are probably aware, your LLQP exams seek to measure your understanding and ability to apply insurance principles to help clients – including situations dealing with issues in life insurance, disability insurance and group insurance.

Below are some multiple choice questions in these areas. If you have problems in answering these questions correctly, please review the sections in modules 3, 4 and 12, which I have referenced in this e-newsletter.

Questions

1. Mary and Jon Sizemore are considering Jon’s life insurance requirements. Jon is 45 years old and Mary is 42. Jon earns $110,000 per year. Mary is currently not employed outside the home. They have two children, ages 16 and 17. If something happened to Jon, the desired net income for Mary at a 42% tax rate is $45,000 per year for the rest of her life. Assuming investment return is 4% to provide required income for the three survivors, what would be the approximate amount of capital required?

1. $1,000,000
2. $1,550,000
3. $1,875,000
4. $2,400,000

Answer: c. - $2,400,000

Rationale: Step 1: Calculate pre-tax income: $45,000 ÷ .58 (1 – tax rate) = $93,750 pre-tax income.

Step 2: Calculate Capital required: $93,750 ÷ 4% = $2,343,750 or $2,400,000.

Reference: Module 12 LLQP Study Guide, Life Insurance cash and income needs analysis.

2. Jackie was earning $6,000 per month as a marketing manager. Her disability policy is for 66.67% of her gross monthly income. Jackie broke both her legs in a freak ski accident a year ago and has been off work since then. She is now returning to work part-time and is able to earn only $3,500 per month. Her disability policy allows her to claim a residual benefit. What is her monthly residual benefit based on the above information?

1. $500
2. $1,667
3. $2,333
4. $2,500

Answer: b. - $1,667

Rationale: Residual formula is (income lost ÷ pre-disability income × disability benefit) or ($6,000 – $3,500) “$2,500 ÷ $6,000 × $4,000 = $1,667”

Reference: LLQP Study Guide Module 3 Residual Disability Benefit

3. Stephanie’s company introduced a long-term disability (LTD) program one-and-a-half years ago. Her coverage is equal to 60% of her $5,000 monthly income. Stephanie and her employer split the LTD premium cost of $1,400 yearly. Stephanie had paid $700 in premiums prior to suffering a severe heart attack. She has been off work for six months since her heart attack. The insurance company has paid her $3,000 per month after a three-month waiting period. How much of the $9,000 in benefit that she has received to date is tax-free to Stephanie?

1. $0
2. $700
3. $4,500
4. $9,000

Answer: b. - $700 

Rationale: Stephanie is entitled to receive an amount back equal to her premium paid ($700) tax-free, and the balance ($8,300) is taxable to her.

Reference: LLQP Study Guide Module 4 Taxation of Group Disability Plans

Exam writing tip: Please remember to read each question and all answer choices carefully. If you don’t, you might make silly mistakes. I recommend that you underline key words in the question stem and all four answer choices, to ensure you are answering the question being asked. If you do not do this, you may find yourself going off on a tangent and not answering the question which is actually being asked.

I wish you all the success in writing your exams.