AFP 6- Risk Management Flashcards
What are some personal risks
AFP 6
Premature Death
- provide for dependents, funeral costs, estate fees
Ageing and Retirement
- Insufficient income in retirement
Health
- Risk of disability, high medical expenses
Group Life and Health Insurance
5 Fundamental Principles
AFP 6/ FP 2 (4)
- Each employee must be actively at work on a full-time basis
- Employee cannot determine the amount of their coverage
- Employee contribution must be paid by payroll deduction
- The employer must contribute to the premium in whole or part
- There must be sufficient spread of risk
Absolute Assignment
AFP 6/ FP (4)
The ownership of a policy can be transferred to another individual through an “absolute assignment”
- new owner becomes new beneficiary
- if it is anyone other than family it is subject to tax
- if beneficiary is irrevocable, you need an existing beneficiary consent
What is revocable beneficiary and irrevocable beneficiary
AFP 6/ FP 2 (4)
Revocable: the policyholder can change the beneficiary at any time
–> unless otherwise stated a beneficiary is always revocable
Irrevocable: the policyholder cannot change the beneficiary without the consent
–> for life insurance to be creditor proof the beneficiary must be irrevocable
With Group Insurance who is the Plan Sponsor?
With Group Insurance who is the Certificate Holder?
AFP 6
The Policyholder is the group itself, therefore the plan sponsor is the group
policyholder= plan sponsor (group)
The employee would be covered as a “member” and is called the “certificate holder”
member= certificate holder (employee)
What is residual benefit rider?
What is “future income protection” rider?
FP 2(4)
Residual disability rider allows for a percentage of your disability benefit to be paid if you were fully disabled for a stated period of time
Future Income Protection Rider
- add certain amounts of disability without evidence of insurability
- insured would have to submit financial underwriting
- -> income justifies added coverage
- Each time you do this your premium will increase
Subrogation Clause
FP 2 (4)
- injured party is required to co-operate with insurer to pursue 3rd party
- -> testify in court
- any payments from 3rd party first reimburses the insurer, any extra goes to the insured
Automobile Insurance
AFP 6/ FP 2 (4)
- Third-Party Liability
- pays for bodily injured and property damage to 3rd parties - Statutory Accident Benefit
- income replacement, medical payments, LTC, death and total disability - Own Damage: pays for loss/ damage to the insured car
a. Collision and Upset: loss or damage to the car from a collision with another object on the road or upset
b. Comprehensiveness: protects against any other peril other than collision or upset
c. Specified perils: covers specific perils - All perils
- broadens and covers protection from all 3
Capital Needs Analysis or Complete Needs Analysis
AFP 6
- How much will be required at death?
- How much will be available at death
- Is there a shortfall
Capital Needs Analysis: how much life insurance is needed to take care of the surviving dependents
Term Insurance
AFP 6
- term insurance has a specific end date and it only suitable for temporary needs
- has no cash value, which means you will not get your money back if you cancel
- cheaper than permanent type of insurance
Qualification Period
AFP 6/ FP 2(4)
Allows for a percentage of your disability benefits to be paid out if you are fully disabled for a stated period of time
How to Calculate Tax on Life Insurance
AFP 6/ FP 2 (4)
- Calculate what the policy costs (ACB)
- before Dec 1, 1982
- ACB= Premiums- Dividends
- after Dec 1, 1982 (more tax)
- ACB= Premiums- Dividends- Net Cost of Pure Insurance (NCPI)
- Calculate the Policy Gain
- policy gain= cash surrender value (CSV)- ACB
Indemnity Contract Valued Contract Aleatory Contract Unilateral Contract Insurable Interest
AFP 6/ FP 2 (4)
Indemnity Contract: the amount of policy will pay out is not stated because it depends on the loss
–> other than life insurance
Insurable Interest: you cant buy life insurance just because you think someone is gonna die (not a gamble)
Valued Contract: The amount of death benefit is known
–> life insurance
Aleatory Contract: the amount of consideration is not equal
–> life insurance
Unilateral Contract: only the insured can cancel, insurer is bound to contract as per the terms and conditions
C-A-R-E
- Cash Surrender Value
- Automatic Premium Loan
- Reduced Paid-up Insurance
- Extended Term Insurance
AFP 6/ FP 2(4)
- Cash Surrender Value
- allows you to cancel the policy and receive your fair share - Automatic Premium Loan
- if you miss a premium the insurer will lend it to you using the cash value as collateral
- in death you have to pay back with interest - Reduced Paid-up Insurance
- premiums are eliminated
- coverage is reduced
- new coverage is permanent - Extended Term Insurance
- premiums are eliminated
- coverage remains the same
- coverage is now term
What are the ADL
AFP 6
- getting out of bed
- control bladder
- toileting (on and off toilet)
- bathing
- eating ( consume food that has been prepared
- assistance with dressing
