A&S INSURANCE FINANCIAL PROTECTION (Chapter 1)

Question 1

DISCLAIMER

Answer 1

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Question 2

A&S Terminology

Brokerage General Agent

Answer 2

Independent firm or contractor working for an insurance company

Question 3

A&S Terminology

Policyholder

Answer 3

The person who owns the insurance policy

Question 4

A&S Terminology

Morbidity rate

Answer 4

• The rate at which an illness or disease occurs within a population.
• Used in actuarial professions to determine the premiums to charge customers.

Question 5

A&S Terminology

Indemnity

Answer 5

Insurance compensation paid for damage or loss

Question 6

A&S Terminology

Business Overhead Expense (BOE)

Answer 6

Insurance policy designed to pay specified ongoing business expenses while the business owner is disabled and unable to generate revenue for the business.

Question 7

A&S Terminology

Business risk (Unsystematic risk)

Answer 7

Factors relating to a specific business that could impact profitability, or survival, of the business.

Question 8

A&S Terminology

Extended Health Insurance

Answer 8

A form of A&S insurance, to protect the financial impact of risks by providing needed cash to replace lost income or pay medical bills.

Question 9

A&S Terminology

Longevity Risk

Answer 9

The chance that life expectancies and actual survival rates exceed expectations.

Question 10

CHAPTER 1 – Financial protection provided by A&S insurance

Define accident & sickness insurance (Canada)

Answer 10

• Benefits for loss resulting from accidental bodily injury, sickness or disability;
• Refund of expenses incurred due to medical treatment, sickness or accidental bodily injury suffered by the life insured;

Question 11

What is the primary role of A&S insurance ?

Answer 11

To protect the finances of individuals and their families during times of medical or health crisis.

Question 12

TRUE OR FALSE?

Families need to generate income and set aside savings to meet individual and business needs.

Answer 12

FALSE

• Families need to generate income and set aside savings to meet ongoing family needs.

[Ref. 1.1.1.3]

Question 13

Meeting family goals is primarily dependent upon clients’ ability to generate sufficient income and savings over time.

Unfortunately, there are a number of risks that could disrupt those plans, (name at least three)

Answer 13

• Unexpected expenses;
• Loss of income or savings;
• Lower standard of living;
• Inflation;
• Longevity;
• Debt.

Question 14

What are 3 health risks that could derail peoples financial security ?

Answer 14

• Likelihood of disability
• Loss of independence
• Costs of long-term care

Question 15

There are needs that need to be met by employees, self-employed & business owners so they purchase A&S insurance to protect those needs.

Name the needs that need to be met.

Answer 15

The needs met by A&S insurance for individuals include protection for:

• Income
• Savings
• Assets

[Ref 1.1.4]

Question 16

TRUE OR FALSE?

One of the most common forms of A&S coverage is life insurance.

Answer 16

FALSE

One of the most common forms of A&S coverage is disability income protection. (Protection for income)

Question 17

Explain the protection of income process with A&S insurance.

Answer 17

• After a suitable waiting period following the onset of disability, (during which no benefits are payable) the insured will receive a monthly income payment from the insurer.
• The benefits will be payable for a prescribed benefit period or until the disabled insured is able to return to work, whichever comes first

Question 18

How does critical illness and long term care benefit seniors and individuals?

Answer 18

By protecting their assets and providing benefits to offset retirement expense (vision, dental care etc… ), permitting seniors to maintain the value of their estate.

Question 19

All owners of private businesses have similar goals. The goals for the business/business owner translate directly into individual goals, what are they ?

Answer 19

• Business profitability (income protection);
• Business succession (capital protection);
• Sale at fair market value (protection of estate value).

Question 20

CHAPTER 1 – Financial protection provided by A&S insurance

There are two management risks for business owners, what are they?

Answer 20

• Self Funding
• Insurance

Question 21

Explain self-funding (risk management)

Answer 21

A form of risk retention, assumption of the cost of the risk by the business owner.

Question 22

What are the 3 options of an individual who wishes to self-fund the cost of a loss associated with a risk?

Answer 22

• Pay the cost out of current cash flow;
• Borrow to acquire funds to pay the cost;
• Erode savings or sell assets.

[Ref 1.2.3.1]

Question 23

Which of the following is considered a common goal for most families?

• a) Education for their children
• b) Upgrading their automobile every three years
• c) The sale of their parent’s family home
• d) Making charitable donations

Answer 23

a) Education for their children

• Family goals center around the same priorities. Their goals focus on retirement income, wealth accumulation, and family needs such as education for children or a child’s wedding.

[Ref. 1.1.1]