4 - What Type of Insurance Should I Have?

Question 0

What is the face page?

Answer 0

It is the schedule of the insurance policy and contains many details (effective date, face amount, expiry date, etc.)

Question 1

What is the “effective date?”

Answer 1

The date the insurance policy takes effect.

Question 3

What is the face amount?

Answer 3

It is the amount payable to the beneficiary should the life insured die while the insurance policy is in effect.

Question 4

Define “Settlement Option.”

Answer 4

The way that the beneficiary receives the death benefit. A lump-sum cash payment is most typical

Question 5

How does Level Term insurance work?

Answer 5

Premiums and Face Amount remain “level” over the term.

Question 6

How does Increasing Term insurance work?

Answer 6

Premiums and Face Amount “increase” over the term. The death benefit is the face amount in force at the time of death.

Question 7

How does Decreasing Term insurance work?

Answer 7

Premiums remain level. Face Amount decreases. The death benefit is the face amount in force at the time of death.

Question 8

What is Renewable Term Insurance?

Answer 8

It guarantees renewability of the term insurance regardless of health. Premiums increase, but the Face Amount remains the same.

Question 9

Define “Mortality Risk.”

Answer 9

The risk of death used in underwriting to determine premiums. A high mortality risk = high premiums.

Question 10

What is Attained Age?

Answer 10

The age of the life insured at the time of renewal.

Question 11

What is the Renewable and Convertible option (R&C)?

Answer 11

It allows the policy owner to either renew term insurance, or convert to permanent insurance. It is considered an extension of the original contract (incontestability, and suicide clause do not apply).

Question 12

How does Incontestability apply to insurance policies?

Answer 12

A life insurance policy cannot be contested after it has been in force for two years

Question 13

What is the “suicide clause?”

Answer 13

A death benefit will not be paid to the beneficiary of a policy if the life insured dies as a result of suicide within two years of the effective date of the policy.

Question 14

What is the difference between whole life and limited payment life?

Answer 14

Whole life premiums are paid for life.

Limited payment life premiums are paid up to a certain age, or to a specified date.

Question 15

What is the difference between participating and non-participating policies?

Answer 15

A participating policy receives dividends when available. A non-participating policy does not.

Question 16

Define “policy reserve.”

Answer 16

It is created by the policy owner paying more in premiums than the coverage requires in the early years of the contract.

Question 17

What are the 3 non-forfeiture options?

Answer 17

1. Automatic premium loan (APL)
2. Extended term insurance (ETI)
3. Reduced paid-up insurance (RPU)

Question 18

How long is the grace period?

Answer 18

Is 30 or 31 days after the premium due date. If the premium still has not been received, the policy lapses.

Question 19

What are the 3 ways in which dividends are used to purchase more life insurance?

Answer 19

1. Paid-Up Additions (PUAs)
2. Special term additions
3. Term Additions

Question 20

How are dividends used to reduce premiums?

Answer 20

They can be used to directly, or the cash-value of a PUA purchased with dividends can be used to reduce the amount of premiums.

Question 21

What are 4 needs answered by whole life insurance?

Answer 21

1. Estate Planning
2. Creditor Protection
3. Tax-deferred Savings
4. The Need to Build Collateral

Question 22

What is the major advantage of term-to-100 insurance?

Answer 22

It offers insurance-for-life at a lower cost than whole-life (because there are no frills… CSV, dividends, policy loans, etc.)
Best used for estate planning.

Question 23

What is unique about Universal Life Insurance?

Answer 23

It is a combination of insurance and investment that is highly flexible.

Question 24

How is unbundling a benefit to a policy owner?

Answer 24

It makes all of the costs of the policy transparent.

Question 25

What is the difference between yearly renewable term (YRT) and level cost of insurance (LCOI)?

Answer 25

YRT increase annually for life.

LCOI remain level for life.

Question 26

What is meant by “disposed” in reference to insurance policies?

Answer 26

A policy can be disposed in several ways including: surrendering of the policy, absolute assignment, or lapsation. Disposition is a taxable event.

Question 27

Define “compounding.”

Answer 27

Compounding is the term used to describe when investment growth earns growth. (The returns are said to be compounded).

Question 28

What are the 3 features of Universal Life that are similar to whole life?

Answer 28

1. Cash Surrender Value
2. Policy Loans
3. Premium offset

Question 29

What are the 2 unique features of Universal Life?

Answer 29

1. Cash Withdrawal

2. Death Benefit Choices

Question 30

What are the 8 riders that can be attached to a life insurance policy?

Answer 30

1. Guaranteed Insurability Benefit (GIB)
2. Accidental Death Benefit (ADB)
3. Accidental Death and Dismemberment (AD&D)
4. Monthly disability income benefit
5. Waiver of premium benefit (WP)
6. Accelerated death benefit
7. Parent Waiver
8. Term Insurance

Question 31

What are the 5 different policies and programs that disability insurance is provided through?

Answer 31

1. Individual insurance policies
2. Group insurance policies
3. Federal government programs
4. Provincial government programs
5. Individual life insurance policies as a rider.

Question 32

What are the 3 types of disability income policies?

Answer 32

1. Cancellable or Commercial Policies
2. Guaranteed renewable policies
3. Non-cancellable and guaranteed renewable policies

Question 33

What are the 4 definitions of disability?

Answer 33

1. Total Disability
2. Residual Disability
3. Partial Disability
4. Presumptive Disability

Question 34

What is the difference between residual disability and partial disability?

Answer 34

Residual disability provides a proportional amount of wages lost. Partial disability pays a specified % (usually 50%).

Question 35

What are the 3 periods for disability benefit payments and how are premiums affected?

Answer 35

1. Elimination Period (how long to wait before payments begin) - the longer it is, the lower the premium
2. Qualification Period (how long total disability must exist before residual benefits paid)
3. Benefit Period (the longer it is the higher the premiums)

Question 36

What are the 4 most common riders on a personal disability income policy?

Answer 36

1. Future Purchase Option (FPO)
2. Cost of Living Adjustment
3. Waiver of Premium (WP)
4. Rehabilitation Benefit

Question 37

What are the 6 other common riders on a personal disability income policy?

Answer 37

1. Return of Premium
2. Lifetime Injury
3. Lifetime Sickness and Injury
4. Zero-Day Qualifying
5. First-Day Hospital Coverage
6. Accidental Death and Dismemberment (AD&D)

Question 38

What are the 5 types of personal accident and sickness insurance?

Answer 38

1. Extended Health Care
2. Travel Assistance
3. Prescription Drug Plans
4. Dental Plans
5. Accidental Death and Dismemberment (AD&D)

Question 39

What is unique about critical illness insurance (CII)?

Answer 39

It provides specific insurance for dread diseases (cancer, heart disease, and stroke etc.)

Question 40

What are the benefits of long-term care insurance?

Answer 40

Provides insurance against old age. (Specifically cognitive impairment, and 5 activities of daily living or ADLs).

Question 41

What are the “5 Activities of Daily Living?”

Answer 41

1. Bathing
2. Eating
3. Dressing
4. Toileting
5. Transferring positions of the body

Question 42

What is the “Rescission Period?”

Answer 42

The 10-day period after the policy is delivered in which the policy owner can cancel the policy and get their money back.