Chapter 9: Life Insurance Flashcards
What is life insurance?
A policy where the insurance company pays a lump sum to a beneficiary upon the insured’s death (or in some cases, during their lifetime), in exchange for premiums.
What is the main purpose of life insurance?
- Pay off debts or mortgage
- Provide income for dependents
- Fund education or retirement
- Leave charitable donations
- Cover final expenses and taxes
How are life insurance premiums calculated?
Based on mortality tables, life expectancy, health risk factors, and administrative fees.
What are the three methods to estimate life insurance needs?
1) Income Replacement Method (e.g., 70% of salary × 7 years)
2) Nonworking Spouse Method ($13,500/year until youngest child turns 18)
3) Family Need Method (considers assets, employer insurance, CPP, etc.)
What is term life insurance?
- Coverage for a set period
- Ends if premiums stop
Renewability option: renew without medical exam
Conversion option: switch to permanent policy
Decreasing term: payout decreases, premium stays same
Term to 100: coverage until age 100
What is permanent life insurance?
- Lifetime coverage
- Builds cash value
- Higher early premiums, but stable over time
Includes: whole life, universal life, variable life, endowment
What’s the difference between whole, universal, and variable life insurance?
Whole Life: Fixed premiums & death benefit, has cash value
Universal Life: Flexible premiums, interest-based cash value
Variable Life: Investment-linked, value changes with fund performance
What are group and credit life insurance?
Group Life: Usually employer-provided, term insurance
Credit Life: Pays off a debt if the insured dies
What are key provisions in life insurance policies?
- Beneficiary designation
- Grace period (28–31 days)
- Reinstatement (if not cashed out)
- Non-forfeiture clause
- Incontestability clause
- Suicide clause
- Misstatement of age provision
- Automatic premium loan
What is a policy rider?
Optional addition to modify coverage, such as:
- Waiver of premium
- Accidental death (double indemnity)
- Guaranteed insurability
- Terminal illness
- Joint/last-to-die
What are the main life insurance settlement options?
1) Lump-sum payment (most common)
2) Installments over time
3) Life income for beneficiary
4) Proceeds left with company (interest-only)
What does health insurance cover?
Gaps in provincial coverage: private rooms, prescriptions, dental, vision, nursing care, and care abroad.
What are the two main types of health insurance plans?
1) Group plans (often employer-sponsored)
2) Individual plans (tailored to personal needs)
What is disability income insurance?
Provides income when you can’t work due to illness or accident. It’s protection for your earning ability.
What are the types of disability definitions?
Own Occupation: Can’t do your own job
Regular Occupation: Can’t do usual job
Any Occupation: Can’t do any job suited to you
Total/Partial Disability: Full or reduced ability to work
What are sources of disability income?
- Employer plans
- Government (EI, CPP/QPP, Workers’ Comp)
- Private insurance
What is critical illness insurance?
Tax-free lump sum paid if diagnosed with a major illness (e.g., cancer, stroke). Can cover care, debts, or time off work.
What types of supplemental health insurance exist?
- Dental
- Vision
- Long-term care
- Travel insurance
- Accidental death/dismemberment
