LLQP Life Taxation, Needs, Estate & Business Practice Questions
Life Taxation, Needs, Estate & Business makes up 5 of every 50 questions on a Tigertest LLQP practice test. Here are 10 of the 20 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on the harmonized LLQP's four modules, Canadian law and CCIR/CISRO guidance as of November 2026. Original questions; 50 per test, mixing the modules in proportion. Not affiliated with CISRO, any provincial regulator or the AMF.
1. Rosa surrenders a whole life policy for a cash value of 47,300 dollars. Its adjusted cost basis is 31,800 dollars. How much is her taxable policy gain?
- A.47,300 dollars
- B.15,500 dollars
- C.7,750 dollars
- D.31,800 dollars
Answer: B. The policy gain is proceeds minus ACB: 47,300 - 31,800 = 15,500. It is taxed as income, not as a capital gain, so none of it is halved.
2. A taxable policy gain on surrendering a life policy is taxed as:
- A.A tax-free receipt
- B.A dividend
- C.A capital gain
- D.Regular income
Answer: D. Under the Income Tax Act, a gain on the disposition of a life insurance policy is fully included in income in the year of disposition.
3. A life insurance death benefit paid to a named beneficiary is:
- A.Received tax-free
- B.Taxed in the owner's final return
- C.Taxed as the beneficiary's income
- D.Taxed as a capital gain
Answer: A. Death benefits from a life insurance policy are not taxable to the beneficiary, and death is not a disposition that creates a policy gain.
4. The net cost of pure insurance (NCPI) of a policy:
- A.Raises the cash value each year
- B.Is added to the death benefit
- C.Reduces the policy's ACB
- D.Is deductible from the owner's income
Answer: C. The ACB is premiums paid less the cumulative NCPI (and certain other amounts). On a permanent policy the ACB often falls to zero in later years.
5. Ali takes a policy loan larger than the policy's ACB. The part above the ACB is:
- A.An allowable capital loss
- B.Added to the policy's ACB
- C.A taxable policy gain
- D.Always fully tax-free
Answer: C. A policy loan is a disposition to the extent it exceeds the ACB. Repaying it later can produce a deduction for the amount that was taxed.
6. Lena transfers a policy on her son's life to her son. Under the Income Tax Act, the transfer:
- A.Can be made at ACB, tax-free
- B.Is taxed as a gift to Lena
- C.Ends the policy's coverage
- D.Is taxed at fair market value
Answer: A. A policy on the life of a child or grandchild can roll over to that child tax-free at the policy's ACB, so no policy gain arises for the parent.
7. A corporation receives a 900,000 dollar death benefit on a key person policy with an ACB of 40,000 dollars. How much is credited to the capital dividend account?
- A.940,000 dollars
- B.900,000 dollars
- C.450,000 dollars
- D.860,000 dollars
Answer: D. The CDA credit is the death benefit minus the policy's ACB: 900,000 - 40,000 = 860,000. The company can then pay that amount to shareholders as a tax-free capital dividend.
8. Premiums for a key person policy owned by and payable to the company are generally:
- A.Deductible over five years
- B.Not deductible
- C.Fully deductible
- D.Half deductible
Answer: B. Premiums for life insurance are personal or capital outlays and generally are not deductible, even when a business owns the policy.
9. A bank requires a life policy as collateral for a business loan. The business may be able to deduct:
- A.The policy's full cash value
- B.The lesser of premium and NCPI
- C.The whole premium every year
- D.Twice the interest on the loan
Answer: B. Where the assignment is required by the lender for a business loan, the Income Tax Act allows a deduction for the lesser of the premium paid and the NCPI for the year.
10. At death, a Canadian is deemed to have sold capital property such as a cottage at:
- A.Half its value
- B.Its assessed property tax value
- C.Its original cost
- D.Fair market value
Answer: D. The deemed disposition at death taxes accrued capital gains unless the property passes to a spouse or common-law partner, where a rollover can defer the tax.
Practice all 20 life taxation, needs, estate & business questions, and the rest of the 200-question bank, in the free LLQP training sets. Questions you miss come back until you have mastered them.
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