Free IFSE Institute LLQP Practice Exam with Questions & Answers | Set: 5

In across-purchase agreement, business partners purchase disability or life insurance policies on each other. If one partner becomes disabled, the other partner uses the proceeds from the insurance to buy out the disabled partner’s share in the business. Marsha and Alexis have agreed to purchase disability insurance policies on each other, with each paying the premium on the policy for their partner. This structure aligns with the cross-purchase format, where each partner independently holds the policy on the other, as described in LLQP materials on business continuation planning​. The other options, such as an entity purchase agreement, involve the business purchasing the policy, which is not the case here.

Comprehensive and Detailed Explanation:

Rene’s salary is $70,000/year, and his group disability insurance provides 60% of this, or $42,000/year ($70,000 × 0.60), equating to $3,500/month ($42,000 ÷ 12). His monthly expenses are $3,500, so this just covers his needs if disabled. However, the LLQP stresses considering unexpected expenses (e.g., medical costs, inflation) beyond basic living expenses (Chapter 2:Insurance to Protect Income).

RRSP contribution: $1,000/month, savings: $45,000 (registered) + $10,000 (non-registered).

40% of salary = $70,000 × 0.40 = $28,000/year or $2,333/month.

Option A: Incorrect; $3,500/month matches expenses but leaves no buffer for unforeseen costs.

Option B: Incorrect; RRSPs are for retirement, not disability liquidity, and don’t enhanceimmediate protection.

Option C: $1,000/month additional coverage is arbitrary and insufficient for 40% of salary; it doesn’t align with needs analysis.

Option D: Correct; 40% of salary ($2,333/month) on top of $3,500 provides $5,833/month, offering a safety net for unexpected expenses, consistent with LLQP’s holistic protection approach (Chapter 6:Client Profile).

Comprehensive and Detailed Explanation:

Luc earns $60,000/year ($5,000/month), Marie earns $24,000/year ($2,000/month), totaling $7,000/month. Expenses are $3,500/month. If Luc is disabled, Marie’s $2,000 leaves a $1,500 shortfall. However, Luc needs $3,500/month to fully replace expenses, assuming Marie’s income isn’t relied upon (Chapter 2:Insurance to Protect Income).

Option A: Insufficient; $1,500 + $2,000 = $3,500 but assumes Marie’s income.

Option B: Correct; $3,500 ensures full coverage.

Option C: Excessive; over-insures.

Comprehensive and Detailed Explanation:

Key person insurance pays $5,000/month for 12 months max (total $60,000) after a 60-day wait. Replacement expense rider pays $2,500/month during replacement (6 months = $15,000). Total: $5,000 × 10 months (post-wait) = $50,000 + $15,000 = $65,000 (Chapter 5:Insurance to Protect Businesses).

Option A: Incorrect; overestimates.

Option B: Correct; $65,000.

Option C-D: Incorrect; underestimates.

Comprehensive and Detailed Explanation:

Group insurance premiums are adjusted annually based onclaims experience—the ratio of claimspaid to premiums collected (Chapter 8:Group Plan Specifics). High claims increase premiums.

Option A: Age affects initial rates, not annual adjustments unless specified.

Option B: Correct; claims experience directly drives premium changes.

Option C: Business nature sets initial risk, not yearly changes.

Option D: Commissions are fixed, not tied to claims.

Long-term care (LTC) insurance policies with home care benefits typically require the insured to cover the costs upfront and then submit receipts for reimbursement. Juniper, having regular services from nurses, massage therapists, and housekeepers, would need to pay for these services initially and then file a claim for reimbursement of qualifying expenses, as per the terms of her LTC policy. Generally, such policies cover medically necessary services like nursing care, and possibly massage therapy, but may not include housekeeping as a reimbursable expense. This approach ensures that only eligible services as defined by the policy are reimbursed​.

Comprehensive and Detailed Explanation:

Creditor disability insurance ensures Ziad’s $150,000 loan payments if he’s disabled, protecting his primary financial obligation (Chapter 3:Insurance to Protect Assets).

Option A: Secondary; lump-sum for illness.

Option B: Supplementary; not priority.

Option C: Correct; loan protection first.

Option D: Important but secondary to loan.

Samira’s individual disability insurance (DI) policy includes achildcare rider, which provides a daily benefit to cover the costs of hiring help to care for her children while she is unable to perform her usual duties due to illness or injury. This rider is particularly useful for policyholders with dependents, as it addresses the financial burden of childcare in cases where the policyholder's disability prevents them from fulfilling their caregiving responsibilities. None of the other options, such as residual disability benefits or hospital indemnity, specifically cover childcare expenses; therefore, the correct answer is the childcare rider​.

Comprehensive and Detailed Explanation:

A residual disability rider pays a proportionate benefit based on income loss. Mauro’s full income is $40,000/year ($3,333/month). Working 2/5 days (40%) earns $1,333/month ($3,333 × 0.40). Loss is $2,000/month ($3,333 - $1,333). The rider typically pays 80% of the loss up to the policy max ($2,000): $2,000 × 0.80 = $1,600 (Chapter 2:Insurance to Protect Income).

Option A: Correct; $1,600 fits residual calculation.

Option B-D: Incorrect; underestimates benefit.

Comprehensive and Detailed Explanation:

Extending the waiting period (e.g., to 120 days) aligns with his 119-day STD coverage, reducing premiums while maintaining $3,000/month to age 65 (Chapter 7:Insurance Recommendation, Contract, and Service Needs).

Option A: Correct; cost-effective.

Option B: Incorrect; weakens coverage.

Option C: Incorrect; reduces protection.

Option D: Incorrect; delays coverage.