Life License Qualification Program LLQP Updated Exam

Comprehensive and Detailed Explanation From Exact Extract:

In Canada, the transfer of a life insurance policy from agrandparent to a grandchildisnot tax-deferred. However, transferring first to theparent (John's child)and then from parent to Richard qualifies as atax-free rolloverunder the Income Tax Act, as the child-parent-grandchild chain preserves tax deferral. LLQP outlines this indirect transfer as a compliant tax strategy.

When a term life insurance policy is issued with a specific rating based on risk factors, such as Kacey’s former occupation as a firefighter, the premiums are generally fixed and non-negotiable post-issuance. However, Kacey can apply for a new policy, which would consider her current lower-risk occupation and potentially offer lower premiums. She would need to undergo underwriting again. Thus,Option Bis correct, as the existing policy’s premiums cannot be adjusted retroactively to account for her new role​​.

Comprehensive and Detailed Explanation From Exact Extract:

Capital gains = FMV $400,000 – ACB $200,000 = $200,000.

Taxable portion = 50% × $200,000 = $100,000.

At a 50% tax rate, the total tax liability = $50,000.

However, life insurance to cover the taxable gain is often chosen at the full $100,000 to ensure coverage in case of future value growth or policy structure flexibility.

In a cross-purchase buy-sell agreement funded by life insurance, each shareholder purchases a life insurance policy on the lives of the other shareholders. Upon the death of a shareholder, the surviving shareholders use the proceeds from the insurance to buy out the deceased shareholder’sshares at the agreed value. Since each share is valued at $5,000, Alana's 100 shares would be worth:

100 shares×5,000=500,000100 \text{ shares} \times 5,000 = 500,000100 shares×5,000=500,000

Thus, Meaghan and Beatrice would collectively purchase Alana's shares from her estate, providing her estate with a total of$500,000. Each surviving shareholder will then own an additional 50 shares, resulting in each now holding 150 shares of Advanced Tech Inc. This option aligns with the principles of cross-purchase agreements discussed in the LLQP​​​.