Exam Prep Flashcards
Sean is a smoker and travels frequently to developed countries to host scuba diving tours. In the past year, he received two traffic violations for running a red light and speeding. He drinks a glass of wine per week at social events. Sean is looking to buy life insurance. After learning about his lifestyle, which aspect will make his insurance a rated policy?
- Smoking status
- Travel history
- Avocations
- Driving record
- Drinking history
a) 1, 2, 3 and 4
b) 2, 3 and 4
c) 1, 3 and 5
d) 2 and 4
Correct answer: b)
Explanations:
b) is the right answer. Repeated trips, especially to politically unstable countries, are subject to a rated policy. Certain avocations, such as scuba diving, may also affect insurance rates. A driving record containing a number of violations or major violations often has a bearing on premium rating.
a) is the wrong answer. A smoking status does not call for a rated policy, but rather a standard smoker rate that is higher than a standard non-smoker rate.
c) is the wrong answer. The client drinks very little alcohol and this would not justify having a rated policy
d) is the wrong answer. It does not include the avocation element, which may be subject to a higher premium rate.
References:
Relevant sections of exam preparation manual: Life insurance, 15, edition,2015, pages 174 to 181, sections 9.4 and 9.5.3 Evaluated competency sub-component in Curriculum: 1.1 Determine the client’s situation
You are completing a universal life application for your client Nixon. He has chosen
guaranteed investment accounts as his investment option. He is going to minimally fund
the policy. He asks you if there is any difference if he pays monthly or annually.
Which of the following is the correct answer?
a) Universal life has no modal factor and the long term cash value is the same,
whether paid monthly or annually.
b) Universal life has modal factor and long-term cash value will be higher if paid
annually.
c) Universal life has modal factor and long-term cash value will be higher if paid
monthly.
d) Universal life has no modal factor and long-term cash value will be higher if paid
annually
Correct answer: a)
Explanations:
a) is the correct answer. The annual premium is the same as the annualized premium for
a universal life policy because no modal factor is applied. Cash surrender values are
based on investment fund returns and not on the premium payment conditions.
b) and c) are the wrong answers. No modal factor applies to a universal life policy and
the cash surrender value is not based on the premium payment conditions.
d) is the wrong answer. The cash surrender value is not based on the premium payment
conditions.
References :
Relevant sections of exam preparation manual: Life insurance, 1st edition, 2015, page 58, section 4.2.1.2
Evaluated competency sub-component in Curriculum: 2.1 Analyze the types of contracts
that meet the client’s needs.
Cindy, who is age 22, just returned to the work force last week after giving birth to twins.
She has limited disposable income. She is healthy now but her family history indicates
the incidence of stroke. She would like some insurance coverage for her children’s
education in the event of her death.
What kind of plan would you recommend to Cindy?
a) A universal life with YRT to keep costs low so that the policy can accumulate
cash value in the early stages.
b) A participating whole life with PUA rider, so both death benefit and cash value
can increase in the long run.
c) A universal life with YRT and minimum funding option with child coverage rider
so everybody can be protected.
d) A term 10 policy, with GIB rider, so coverage can be increased in the future.
Correct answer: d)
Explanations:
d) is the right answer. At the moment the client has limited income, but the situation may
change and she may want to increase coverage in the future regardless of her state of
health.
a) is the wrong answer given the client’s limited ability to pay. The client currently needs
insurance coverage in the event of death rather than a policy that can accumulate
cash value.
b) is the wrong answer given the client’s limited ability to pay. Whole life coverage is too
expensive and the client does not want to accumulate cash value. She only wants
protection in the event of death.
c) is the wrong answer. The client wants to guarantee the security of her children in the
event of her death, not in the event of her children’s death.
References :
Relevant sections of exam preparation manual: Life insurance, 1st edition, 2015, page 86, section 5.1.4
Evaluated competency sub-component in Curriculum: 3.2 Propose a recommendation
adapted on the client’s needs and situation.
Marcel lives in Québec and purchased a $100,000 whole life insurance policy five years
ago from ABF Insurance Company, through its agent Paul Lacoursière, an old friend.
Paul contacted Marcel recently and proposed that he replace his existing policy with a
whole life policy for the same amount, but from the company that Paul currently
represents. Marcel agreed to sign the new application form.
What document is Paul required to have Marcel sign along with the new application
form?
a) A personal letter
b) The document from the CLHIA
c) The LIRD
d) The Notice of Replacement of Insurance of Persons Contract
Correct answer: d)
Explanations:
d) is the right answer, because Marcel lives in Québec. To protect clients against
churning and twisting, provincial legislation requires the client to receive and sign a
life insurance replacement declaration (LIRD).
a) and b) are the wrong answers. A personal letter or a document from The Canadian
Life and Health Insurance Association (CLHIA) do not meet legislative requirements.
c) is the wrong answer. The LIRD only applies outside Québec. The only document
accepted in Québec is the Notice of Replacement of Insurance of Persons Contract
(answer d).
References:
Relevant sections of exam preparation manual: Life insurance, 1st edition, 2015, page 261, section 12.4.2
Evaluated competency sub-component in Curriculum: 4.1 Validate the appropriateness
of contract amendment, renewal and termination applications in regards to the
client’s situation.
Question 1
Grace’s personal net worth shows the following assets:
* RRIF: $420,000, all invested in GICs
* Home: $560,000
* Cottage: $320,000
* Savings account: $70,000
She also has the following liability:
* Mortgage on the cottage: $40,000
Based on the information provided, which of the following conclusions corresponds to
the Grace’s situation?
a) She has more than enough assets to last through her retirement.
b) She has low risk tolerance.
c) She has no need for life insurance.
d) She is at least age 71.
Correct answer: b)
Explanations:
b) is the right answer. Grace has low risk tolerance since all her money is invested in
GICs and a savings account. Moreover, she only has a small loan on her properties,
demonstrating that Grace does not like to take risks and prefers to pay off her debts
rather than invest her money.
a) and c) are the wrong answers. We can’t confirm that she has enough assets to last
throughout her retirement or that she doesn’t need life insurance, because we don’t have
any information concerning her current age, income, goals, Summary of Financial
Position, retirement age, liquidity situation, life insurance and family situation, etc. An
agent must obtain all this information to properly determine the client’s situation, goals
and investor profile.
d) is the wrong answer. The client can only transfer funds from her RRSPs to RRIFs up
to and not from the age of 71.
References :
Relevant sections of exam preparation manual: Segregated funds and annuities, 1st
edition, 2015, page 143, section 4.8
Evaluated competency sub-component in Curriculum: 1.1 Determine the client’s
situation, investment objectives, and investor profile.
Mike, who is single, recently decided to start investing after experiencing significant
market losses a few years ago.
Which of the following features of a segregated fund investment will be most important
for him?
a) Resets
b) Maturity guarantee
c) Death benefit guarantee
d) Bypass of probate
Explanations:
b) is the right answer. The maturity guarantee ensures that the segregated fund contract
owner will receive at least 75% of the amount initially invested on a given date (generally
speaking after a10-year period). The maturity guarantee is one of the advantages of
segregated funds. It will help allay Mike’s concerns since he has already experienced
significant losses in the past.
a), c) and d) are the wrong answers. They are not in line with Mike’s needs to avoid
further significant losses: resets (answer a) increase the value of guarantees based on
the market value of the segregated fund on a given date. However, they also extend the
maturity date.
The death benefit guarantee (answer c) ensures that the beneficiary will receive at least
75% of the initial investment upon the annuitant’s death.
Probate (answer d) establishes the validity of the will and helps approve the appointment
of a liquidator. Probate fees are payable, except in Québec.
References :
Relevant sections of exam preparation manual: Segregated funds and annuities, 1st
edition, 2015, page 49, section 2.1.1.1
Evaluated competency sub-component in Curriculum: 2.1. Analyze the types of
investments that can constitute a segregated fund and that meet the client’s needs
Glenn is 68 and recently retired. He wishes to ensure that he will have income for the
rest of his life, but he is also aware that he could, potentially, live another 30 or more
years, and that inflation could erode his purchasing power during that time.
Which of the following investments would be most appropriate for him?
a) An insured annuity
b) A life annuity
c) 40% of his funds in an annuity with 60% of his funds in a balanced fund
d) 40% of his funds in an annuity with 60% of his funds in an equity fund
Correct answer: c)
Explanations:
c) is the correct answer. Investing 40% of his funds in an annuity meets the need for
income throughout his lifetime, while investing 60% in a balanced fund provides the
growth potential of equity and the security of a fixed income. This investment choice
reflects Glenn’s needs.
a) and b) are the wrong answers. The insured annuity and life annuity do not allow the
annuitant to maintain his purchasing power. Insured annuity is a combination of life
annuity and life insurance. Upon the annuitant’s death, the life insurance principal is paid
out to the beneficiary or to the estate. Life annuity meets the need for income throughout
his lifetime and life insurance ensures the liquidity required to settle the estate or
maintain the beneficiary’s normal standard of living.
d) is the wrong answer. While investing 40% of his funds in an annuity meets Glenn’s
need, investing 60% in an equity fund is too risky for a retiree like him who wants to
ensure an income that meets his needs for the rest of his life.
References :
Relevant sections of exam preparation manual: Segregated funds and annuities, 1st
edition, 2015, page 17, section 1.3.2
Evaluated competency sub-component in Curriculum: 3.1 Propose a recommendation
adapted on the client’s needs and situation.
Brigitte is the beneficiary of a segregated fund that is maturing in two weeks. The
investment was originally made by her father, but he has told her that she can consider
the money as hers because he has become incapacitated and has signed a power of
attorney to this effect. She is happy about the 100% maturity guarantee on this
investment as the market value is currently less than the amount invested. Her father
made a partial withdrawal two years ago, but he believes the maturity guarantee still
applies.
Who can claim the proceeds and the guarantee that will be applied to this segregated
fund when Brigitte redeems it in two weeks?
a) The contract owner will claim the invested amount less the partial withdrawal.
b) The person with power of attorney will claim the market value.
c) The person with power of attorney will claim the invested amount less the partial
withdrawal.
d) The beneficiary will claim the market value.
Correct answer: c)
Explanations:
c) is the right answer. The person with the power of attorney is the one who makes the
claim. Since the market value is lower than the guaranteed value, the guaranteed value
less the withdrawal will be paid out.
a), b) and d) are the wrong answers. The person with the power of attorney must claim.
Brigitte’s father, the contract owner, is incapacitated and cannot claim himself. Since the
market value is lower than the guaranteed value, the guaranteed value less the
withdrawal will be paid out. The beneficiary receives the benefit under the contract after
the annuitant’s death.
References :
Relevant sections of exam preparation manual: Segregated funds and annuities, 1st
edition, 2015, page 185, section 6.4.2.4
Evaluated competency sub-component in Curriculum: 4.2 Inform the claimant of the
claims process.
On May 1st, Anne meets with her insurance agent, Greg, and decides to apply for a term life
policy. She completes the application and declines the temporary insurance agreement,
requesting instead “cash on delivery,” as she already has some coverage in force under another
contract.
On May 16th, Greg is advised by his head office that Anne’s application has been approved. On
May 20th, Greg delivers the policy to Anne and she confirms her banking information with him so
that she can begin her monthly premium payments as of May 25th.
When is Anne’s new policy deemed to be in force?
a) Anne’s policy is in force as of May 1st, the date of her application.
b) Anne’s policy is in force as of May 16th, the date she was approved for coverage.
c) Anne’s policy is in force as of May 20th, the date it is delivered to her and she accepts it.
d) Anne’s policy is in force as of May 25th, the date the first month’s premium is received.
Correct answer: d)
Explanations
Option a) The application form is only the first part of the process. It must be reviewed by an
underwriter after which the insurer may make an offer to insure.
Option b) Following the approval for coverage, the policy must be delivered and the agent must
determine if there has been a change in insurability between the date of the
application and policy delivery date. Consequently, the policy could not be in force
the day Anne was approved for coverage.
Option c) Although the policy was delivered to Anne and accepted on May 20th, she did not
pay the first month’s premium on that date and therefore the policy could not take
effect on that date.
Option d) This is the correct answer. The policy can only take effect when it is delivered,
accepted and the first month’s premium is received, in this case May 25th.
References
Relevant section of exam preparation manual: Ethics and professional practice, 1st Edition,
2015, page 43, section 2.2.1.5
Evaluated competency sub-component in Curriculum: 1.3. Contextualize the rules relating to
the contract’s formation, taking effect, reinstatement and termination
Jennifer is Daryl’s third wife. One day, he suffers a massive heart attack at work and dies.
Jennifer remembers the insurance policies the couple took out when they were married three
years ago. Daryl has a $1M whole life policy and Jennifer is named as a revocable beneficiary
in the contract.
A short time after she begins the claim process with the aid of her lawyer, she receives notice
that there are other claimants. Daryl had fallen behind in his child support payments to his first
wife, to a total of $50,000. Furthermore, Jennifer finds out that Daryl had changed the
beneficiaries to herself and his two children (equally) from his first marriage about a year ago,
without her knowledge. Finally, a creditor has provided proof that Daryl pledged his policy
against a debt he owed them, in the amount of $50,000.
How much of the $1M death benefit will Jennifer be entitled to?
a) $300,000, because the debtor assignee and the child support payments need to be paid
first, then the remaining benefit is distributed between the beneficiaries.
b) $333,333, because beneficiaries can only be individuals related to the insured, with an
insurable interest.
c) $900,000, because the debtor assignee and child support payments need to be
honoured; children, however, cannot be beneficiaries.
d) $1,000,000, because the policy was taken out while he was married to Jennifer
Calculations (including distractors):
Option a) $300,000, because the debtor assignee ($50,000) and the child support payments
($50,000) need to be paid first, then the remaining benefit ($900,000) is distributed
equally between the beneficiaries: Jennifer and each of Daryl’s two children.
Option b) $333,333 (an equal division between Jennifer and each of the two children),
because beneficiaries can only be individuals related to the insured, with an
insurable interest.
Option c) $900,000, because the debtor assignee ($50,000) and child support payments
($50,000) need to be honoured; children, however, cannot be beneficiaries.
Option d) $1,000,000, because the policy was taken out while he was married to Jennifer.
A court order may allow an individual to claim the insurance benefit, for example where money
is owed for spousal or child support. A claimant may also be a debtor assignee of the policy. In
this case the $50,000 debtor assignee and $50,000 child support payments must be paid first,
which leaves a remaining benefit of $900,000. Insurers will pay benefits based on the mostrecent beneficiary designation they have on file. In this case Jennifer and Daryl’s two children
will each receive $300,000.
References
Relevant sections of exam preparation manual: Ethics and professional practice, 1st Edition,
2015, page 73, sections 3.1.1 and 3.1.2
Evaluated competency sub-component in Curriculum: 1.5. Integrate into practice the rules
relating to beneficiary designation and exemption from seizure of benefit
Newly licensed life insurance agent Glen meets with Denis who wishes to secure life insurance.
During the application process, Denis presents a credit card that expires next month, stating
that it is the only identification he has on hand, along with a bank cheque for the first month’s
premium.
To meet regulatory standards, what should Glen do?
a) Glen should not submit the application form because the credit card expires next month.
b) Glen should submit the application form using the bank account cheque information to
verify and record Denis’ identity.
c) Glen should not submit the application form because neither a credit card nor a bank
cheque are acceptable forms of identification.
d) Glen should submit the application form using the credit card to verify and record Denis’s
identity as the card is from a reputable financial institution.
Correct answer: c)
Explanations
A life insurance agent is required to determine the identity of a client purchasing life insurance.
Acceptable documents are federal, provincial and territorial government-issued identification
such as a birth certificate, driver’s licence, passport, permanent resident card, Certificate of
Indian Status and record of landing. Therefore, neither a credit card nor a bank account cheque
would be acceptable identification for the agent’s purposes.
References
Relevant section of exam preparation manual: Ethics and professional practice, 1st Edition,
2015, pages 95-96, section 4.1.4.2
Evaluated competency sub-component in Curriculum: 2.2. Integrate into practice the obligations
and responsibilities of life insurance agents
Marc-André, 37 years old, participates in his employer group insurance plan.
The plan provides a long-term disability insurance payable after employment insurance
benefits expire and corresponding to 50% of the non-taxable monthly salary.
With an annual salary of $60,000 and sole financial support of his 3 children, MarcAndré’s estimated current financial expenses are $3,500/month. If he were to become ill,
his personal savings would enable him to meet his financial requirements for 4 months.
What additional disability insurance coverage should Marc-André take out?
a) Marc-André does not need additional disability coverage.
b) Marc-André should purchase disability insurance of $500 per month with a 4-
month waiting period.
c) Marc-André should purchase disability insurance of $1,000 per month with a 4-
month waiting period.
d) Marc-André should purchase disability insurance of $1,500 per month with a 4-
month waiting period
Correct answer: c)
Explanations
Calculations: After using his four months of Employment Insurance and his personal
savings, Marc-André will receive his employer’s plan disability benefit that
is equal to $5,000 X .50 = 2,500; therefore, Marc-André will need $3,500 -
$2,500 = $1,000/month.
Distractor a) $3,500 - 70% ($5,000) = $3,500 - $3,500 = $0
Distractor b) $3,500 - 60% ($5,000) = $3,500 - $3,000 = $500
Distractor d) $3,500 - 40% ($5,000) = $3,500 - $2,000 = $1,500
Option a) False. Four months after the beginning of his disability, Marc-André would
only get $2,500/month, or 50% of his monthly salary of $5,000. With monthly
financial needs of $3,500, Marc-André would be short by $1,000/month.
Option b) False. Since Marc-André would only get $2,500/month four months after the
start of his disability and his financial needs are $3,500/month, individual
disability insurance of $500/month would increase his income to
$3,000/month and he would be short by $500/month.
Option c) Correct answer. With personal coverage of $1,000/month and group
coverage of $2,500/month, or 50% of his monthly salary of $5,000/month,
Marc-André would perfectly meet his financial needs of $3,500/month.
Option d) False. With personal coverage of $1,500/month and group coverage of
$2,500/month, Marc-André would receive more than his monthly financial
needs.
References
Relevant section of exam preparation manual: Accident and sickness insurance, 1st
Edition, 2015, page 144, section 6.2.2.6
Evaluated competency sub-component in Curriculum: 1.2 Assess the appropriateness of
the client’s existing coverage in regard to his or her situation
Darius works for himself as an independent contractor, cutting lawns and maintaining
gardens. To protect his income against loss due to illness or injury, Darius took out an
individual disability income replacement policy. The policy has a $2,500 monthly benefit,
a 90-day waiting period, a 24-month benefit period and a recurring disability clause with
a 6-month recurrence period. A year after taking out the policy, Darius was injured when
his riding tractor overturned. He was off work for eight months with ruptured tendons in
his left leg and then returned to work. Four months later he re-injured the same leg due
to returning to work too soon and was off work for another eight months.
How much income replacement benefit would Darius have received for his disabilities?
a) $12,500.
b) $25,000.
c) $32,500.
d) $40,000
Correct answer: c)
Explanations
Calculations:
Darius would receive no benefits for the first three months of his first 8-month period
of disability, because the first three months were excluded from benefits by the 90-
day waiting period, leaving him with five months of benefits. Since the second period
of disability arose from the original cause and within six months of his returning to
work, no second waiting period would have applied and Darius would have received
benefits for the full additional eight months of disability. In total he would have been
paid for 13 months of disability ([8 – 3 = 5] + 8 = 13) at a rate of $2,500 a month, for
total benefits of (13 x $2,500) = $32,500.
Option a) allows for five months of benefits for the first 8-month period of disability and
nothing for the recurrent disability.
Option b) assumes that the second period of disability would also be subject to a 90-day
waiting period and there would therefore be only 10 months of benefits.
Option d) does not allow for any waiting periods and assumes the full 16 months’ worth
of benefits.
References
Relevant sections of exam preparation manual: Accident and sickness insurance, 1st
Edition, 2015, page 23, section 2.2.2.2 and page 27, section 2.2.2.7
Evaluated competency sub-component in Curriculum: 2.1 Analyze the types of contracts
that meet the client’s needs
Donald and Hilary are equal co-shareholders in a private corporation that runs their
dental practice. They have a buy/sell agreement that, among other provisions,
establishes the terms for a buyout should one of them become ill or injured and unable
to work in the practice for a prolonged period (six months or longer), providing for an
immediate buyout at the fair market value of the disabled shareholder’s interest. They
wish to fund this element of the agreement with corporate-owned disability insurance.
Which of the following provisions of disability insurance policies would match up with the
terms of the buy/sell agreement?
a) A 180-day waiting period on each of the lives insured.
b) Annual benefit payments of 1/10th of the purchase price for 10 years.
c) An any occupation definition of disability on each of the lives insured.
d) A payor waiver of premium rider on each of the disability policies.
Correct answer: a)
Explanations
The 180-waiting period matches up with the 6-month triggering period of disability in the
agreement. A longer waiting period would leave the agreement temporarily unfunded at
the end of six months, when the buyout would be triggered. A shorter waiting period
would trigger a payout unnecessarily early and be too costly.
Option b) is not suitable because the agreement calls for a lump-sum buyout after six
months of disability, not periodic payments.
Option c) is not suitable because the buyout is triggered if one of the co-shareholders is
disabled and unable to work in the dental practice. An own occupation
definition of disability is called for. An any occupation definition could result in
a situation where the disabled co-shareholder is able to work in some other
capacity, but not in the practice, triggering the buy/sell agreement but not
benefits under the funding policy.
Option d) is not appropriate because the policy is owned and paid for by the corporation
itself, not the individual shareholders.
References
Relevant section of exam preparation manual: Accident and sickness insurance, 1st
Edition, 2015, page 119, section 5.4.2
Evaluated competency sub-component in Curriculum: 3.2 Propose a recommendation
adapted to the client’s
Félix is general manager of a legal firm, which offers a group insurance plan to its
employees. In addition to life insurance, the group plan offers short- and long-term
disability benefits as well as health and dental benefits.
You meet with Félix to renew the group insurance plan. During this meeting, Félix notes
that results regarding the plan’s claims experience show a high number of claims for
short-term disability insurance coverage. Félix recognizes that the stress to perform
within very tight deadlines explains a large part of the employee claims history. Félix
asks if you can propose a modification to the plan to improve results.
What would you propose to him?
a) Reduce the short-term disability insurance waiting period.
b) Add an Employee Assistance Plan.
c) Add an insurance guarantee against critical illness.
d) Reduce the long-term disability insurance benefit amount.
Correct answer: b)
Explanations
Option a) False. By decreasing the short-term disability insurance waiting period, the
insurer would pay disability benefits more quickly for a higher total amount,
which would further reduce results.
Option b) Correct answer. Adding an Employee Assistance Plan, including
psychological counselling, would allow employees to develop coping
strategies to deal with stress at work and thereby decrease short-term
disability claims.
Option c) False. Adding critical illness insurance coverage is not a solution for
employees required to work in a stressful environment.
Option d) False. Decreasing the long-term disability insurance benefit amount does not
affect the plan’s claims for short-term disability insurance coverage.
References
Relevant section of exam preparation manual: Accident and sickness insurance, 1st
Edition, 2015, pages 198-199, section 8.2.1
Evaluated competency sub-component in Curriculum: 4.1 Validate the appropriateness
of contract amendment, renewal and termination applications in regards
to the client’s situation
