Ch.2: Insurnace Policy Provisions Flashcards
Parties to INDIVIDUAL life insurance contract (2)
- Insurer
- Policy Holder
insurer
life insurance co that takes on the risk and issues policy
policy holder
indicidual or legal person (i.e COrporation), who has legal ownership of the policy
- PH can also be the life insured: ins. on own life (like me)
- can also have insuraance on someone else life (ike a child, spouse, parent)
Successor policy holder
- if PH is not L.I, PH may die before insured person. Ownership of policy trfd to new owner
- person named to be new owner= successor owner
- if none named, new owner will be estate (and therefore beneficiaries)
Life Insured (L.I)
person whose life is insured
when they die, benefit paid
also called: person insured, insured person
P.H must have insuable interest
Beneficiary
-person to receive death benefit
- has rights under ins pol but not party to it
-if several bens: clinet or rep must get legal advice to ensure their rights
-ins pay DB to most recent ben on file, or to estate
accordibg to most recent will, or court order
Protected Beneficiaries
these are preferred beneficiaries: spouse, child, grand child, parent of LI
- if protected ben– can protect policy from execution/seizure to pay debts
> > must be done in good faith!!! not just to avoid seizure<
Irrevocable beneficiary
- Cannot change or revoke beneficiary
- cannot make changes or borrow from policy w/o their consent
- NOVA SCOTIA: Must also atrach to declarations (2) to insurance . 1 signed by insured and 1 signed by agent
- irrevocable is also exempt from seizure even if not preffered ben.
Restriction in legilative definition of beneficiary
Page 42
?????
Loss of protection
Desibation of ben. From protected class ignored if only made to try avoid creditors
I.e only named protexted en wheb found out going bankrupt or somethibg
CONTINGENT BENEFICIARY
- also called second beneficiary
- named in case 1st ben. Dies b4 life ins.
- if no 1st or 2nd ben and life ins. Dird, DB paid to PH or estate if PH dies after bens.
Group ins policies
- insures a defined pool of individuals (+ spuses and dependants)
- pool incls employees or members of a union or association w clear defined and controlled membership
Group ins pol. : Plan sponsor
- also called group insured or group PH
- arrange group plans
- may be employer, union, prof. Assoc., or other entity repping group
- group PH decides what insuranfe benefits group will get
Group ins. Pol: Insurer
- ins co
- contracts w plan sponsor (group PH) not w each indiv. Member
Group ins pol: members + scop of coverage to other insured ppl
- person/member whose life insured= group life insured
- group plans typically cover members + their family
- employer sponsored plans: basic covergae for employee mandatory
- can apply for optional increased coverage
- making changes: usually limited to 1x/ year or when major life change ( i.e new baby, new marriage, etc…)
2.2: formation of policy
- common law: contract not forned till there is an agreement (meetinflg of the minds) + exchange of value ( i.e promise to make ins pol. Binding) or promusing to pay DB if premiums paid
Formation of pol. : Rules about forming individual ins contract
- Offer and acceptance
- offer: completion of an ins app (???)
- acceptance: when ins co issues contract and delivers contract
- under comm. law: tender of delivery by insurer is its offer to show will insure risk ,,not binding contract - bc only official whenninsured accepts policy on delivery ?????
??????
Not sure i understand this oart
Formation of pol. : TEMP INSURANCE
- may get temp ins if can answer no to 3-4 temp ins qs to confirm good health
- seperate ins agreement w limited ins coverage, usually 90 days
- expires once policy approved/ declined
- seperate terms and conditions
- if insured dies before underwriting complete or pol. Issued—> ins. Pays DB
- amount of temp ins cov. Usually lesser of face ampunt being applied for or max set by insurer
Formation of pol: Changes in insurability
- risk disclosed in initial app and underwritten by ins co has changed
- if any change,policy wont take effect , eve if delivered and paid for
Formation of Pol: approval of app by insurer
- if ins makes ins offer,notifies app and delivers policy
- policy tendered may incl changes from when applied (i.e diff underwriting classificstion, exclusions, diff premium amt, etc… )
Formstion of policy: Delivery of policy
- if no physical delivery req + already paid, policy sent direct to app
- pol. not in force until delivery req. met and 1st premium paid, in effective as of effective date
Term and termination of policy
- policy can be anulled or cancelled by owner or by insurer
- may also expire
Term and termination of policy: Recission: 10 day free look
Uner CLHIA:
- gives customer 10 days to review policy and can change their mind and cancel for full refund (policy anulled) , w/0 penalty
- for seg funds: 2 business days recission right
- CLHIA: Cdn life + health ins. Ass.
Term and termination of policy: Surrender
PH can surrender policy anytime– complete termination of rights for PH and Ben
Indiv life policy = unilateral contracts
Term and termination of policy: Expiry or termination
- policy may terminate according to its terms
- guaranteed renewable and convertibe term policies= age limits , cannot renew after certain age , policy eventualy expires
Termination by insurer
Due to:
- fraud
- non payment of sickness or accident ins prem
- non payment of life ins prem
Termination by insurer: Fraud, misrep, concealment
Ins fraud=
- Deliberate misstatement
- Deliberately omit material info
- Obtain ins that PH or LI doesnt wualify for
- must incl INTENT to mislead ins.
- no incontestability period
Termination by insurer: Fraud, misrep, concealment
Possible outcomes:
- During app.: adjust covergae to what premium would have covered or choose not to insure at all
- if age misstate + pol in force: insurer can amend contract + adjust coverage- unless age above age limit for policy - In 2 yrs incontestability period : misrep or conceal. other than age: insurer can cancel pol.
- after 2 yrs– canot cancel pol. (If was just honest mistake) - After 2 years: can only cancel if fraud or concealment
Termination by insurer: insurance fraud
attempt to get insurance not qualifiedfor or to get better terms
Intentional deception
Insurer can cancel anytime for fraud, incl DB
Termination by insurer: for non pay of sickness or accident ins
- policy stays in force till termination notice sent
- insurer will mail pre paid written notice of termination , termination takes effect + coverage ends 10 days after written notice
Termination by insurer: for non pmt of life ins prem.
- term and perm pol. W/o cash value will terminate, 30 days grace period
- exceptions: if policy has cash surrender value
- cancellation not final- insurer must reinstate pol. If;
1 . Client applied to reinstate w/in 2 years
2. Insurer determines ins. Still meets insurability
Assigment of policy: Absolute assignment
- absolute assigment: trf ownership of policy
- chg in ownership= disposition for tax (taxable gain)
Assigment of policy: absolute assignee
- Has all rights of orriginal PH, incl to choose new Ben. Or w/d $$$
- some prov: assigning policy = trafficking (agaunst law)
Assigment of policy: Collateral assignment
- Perm policies w cash surender value- can be used as collateral for loan, ownership to lender, but only for colateral
- PH can’t do anything to affect value for policy
- if loan PAID OFF: lender releases ownership poicy back to PH
- if insured DIES: DB used to pay of loan, if any $$ left, goes to ben.
Product specific policy provisions
Provisions define and document what the policy covers and the cost
Product specific policy provisions: indiv. Life ins
- name, or description of insured + life insured
- amoun or method to determine amount of ins payable + conditions of when payable
- amount or method to determin amount of prem. + grace period
- whether participating or non participating
- conditions for policy reinstatement if lapses
- any options (surrender for cash, obtain loan or advanced pmt, paid up / extended ins)
Product specific policy provisions: statutory conditions
Pg. 58
- requires that all policy terms and conditions must be set out in full when policy issued
- incls: application, policy, any doc attached to ins pol when issued, any amendments
Product specific policy provisions: reduction
- death ben. that reduces in amount as life insured ages
- does not affect liability to pay DB, only amt
Product specific policy provisions: exclusion
- change in coverage
- death cause by exclusion not covered
contractual exclusions
- specified in policy
- if imposed by law, established by court decision
- may relate to actions that are violation of public order or ben/ins ran risk insured against —–> i.e beneficiary kills life insured
pre existing condition exclusions
- exclusions for death cased by pre exixting condition
- common under disability ins
suicide clause
- within 2st 2 yrs: wont pay if suicide
- after 2 yrs: db payable for suicide
living benefits
- policy holder can receive advance pmt of portion of DB if life insured diagnosed with terminal illness + short time left to live
- w/d cash on tax free basis
cash surrender value
- if policy cancelled by PH, amt receive in cash = CSV
- reduced by o/s policy loans, unpaid premiums, ins pol. surrender charges
collateral assignment vs ins policy loans
collateral assignment: loan security for 3rd party, no likmit on size of loan, size of loan usually % of CSV
INS POLICY LOAN: has limits created by taxation of life policy txs, too much borrowed= taxable policy gain to PH
Riders
- additional coverages added through riders
- they change existing benefits or proode additional coverages
Group life and Health ins (GLHI)
- single ins policy (master policy), covers specified group of ppl (plan members/ participants) + eligible dependents
- Plan sponsor/ group PH/ Group ins. : contracts w insurer, determines which benefitgs will be part of policy
- group must be clearly defined
GLHI: PREMIUMS + COST SHARING
EMPLOYER PH: - pays premiums - rof corp/assoc PH: - premiums paid by members
GLHI: types of group ins
L.A.ST/LT.CI.H+D
- life ins
- Accidental death+dismem.
- S/T + L/T disability ( inc replacement)
- critical illness
- Health and dental
GLHI: Administrative services only (ASO)
- LARGE CORP FUNDS OWN BEN EFITS FOR EMPLOYEES INSTEAD OF PREMIUMS TO INSURER
- May hire insurer to process, adjudicate, administer claims and pmts
- not covered by prov or terr. ins statutes
GLHI: certificates pg 63
- employer gives certificate to members
-
leaving the group
- when group insured leaes group (under age 65)can convert to individual policy w/o underwriting— w/in 31 days of group coverage ending
laws applicable to members – residence
law of province where GLI resides when becomes insured is law that applies to insureres rights+ obligations and rights of ben.
Individual + Group accident and sickness insurance (IGAS)
protects against: ADDCL - Accidental death + dismem (AD&D) - disability specifics -drug ins - CI -LTC
IGAS: AD&D
- Covers risk of insured person suffering defined physical loss/death to accident
- has exclusions— pg.66
IGAS: DISABILITY SPECIFICS
- Covers both full an partial disability + te,p and perm reductions in income
- ability to purchase addition al income protection
IGAS: Drug insurance
- covers expensive meds.
-
IGAS: Critical Illness (CI)
- Insures against risk of person suffering life thretening illness
- if diagnosed w covered illness + survives a period– insurer pays ump sum amt
- features include: Return of premoum, cancellation of policy benefit (?)
- ## if in force for long time or no claim made– can designate beneficiary
IGAS: Long term care (LTC)
- Benefit when insured cannot safely/independently persorm daily living activities
- may be a weekly/mon ly benefit similar to income benefit, but not income benefit bc doesnt replace income
- some reimburse expenses for: feeding self, getting dressed, grooming/hygiene, in/out of bed, using toilet
IGAS: TERMINATION
pg.69
- PH can terminate anytime w written notice + surrender policy
- if cancelled by insurer: 10 days written notice req
Annuities
policies issued by insurers or other financial institutions where they agree to pay fixed amt to payee for specified time
Annuities
PG.70/71
policies issued by insurers or other financial institutions where they agree to pay fixed amt to payee for specified time
if issue by life ins co- treated as life inss under prov/terr ins acts
deferre or immediate
can be purch as pat of registered plan ( nRRSP, TFSA, RRIF, ETC…)
life annuity
durtion of pmts determined by persons life
term certain/ fixed term annuity
pmts for a defined period of timw
PARTIES (ANNUITIES)
- INSURER (DEBTOR)/ ANNUITY PROVIDER
- POLICY HOLDER/ANNUITY HOLDER
- NAMED RECIPIENT/ ANNUITANT GRANTEE (RECEIVES PMTS)
- BENEFICIARY
ANNUITY POLICYHOLDER
- often referred to annuitant/investor
- ahs right to determine who pmts will be paid to
- can designate beneficiary for remaoning pmts if any
annuitant (life insured)
- the measuring ife on which annuity based, doesnt always receive pmts
- must be a natural person w/ a lifetime
- if more than 1 life- after detah of 1st life, may be a 2nd or successor
annuity: payee
- sometimes called aanuity grantee
- person thagt receives pmts
- could be PH or not
- for registered contracts: PH, ann., payee all same person
- for non registered contracts: POSSIBLE to have diff pp as PH, ann., payee
Immediate annuity
1ST PMT STARTS ON NEXT DEFINED PERIODIC ANNUITY FREQ. (MONTHLY, QUARTERLY, SEMI ANN., ANNUALLY
Defferred (accumulation) ann
- investm,et and accumulation income over time, payments start later—>maturity date
- also called deffered annuity
- during accumulation: subject to annual accrual taxation
- registered annuities— not taxed
