Insurance and Risk Management

Question 1

What are the non-forfeiture benefits of WL?

Answer 1

1) Cash surrender value (CSV): the value in the accumulating fund less surrender charges
2) Automatic premium loan (APL): if a premium payment is in arrears after the 30-day grace period, the outstanding amount is charged against the CSV.

Question 2

What happens to a T-100 policy at age 100?

Answer 2

One of the below will apply:
1) The contract is paid-up, thus premiums are not required
2) The contract endows, paying the benefit to the policyowner

Question 3

What are the basic 4 conditions CI policies cover?

Answer 3

1) Heart attack
2) Cancer
3) Coronary bypass surgery
4) Stroke

Question 4

What are the 2 payment forms of LTC?

Answer 4

1) Reimbursement Plan
2) Income Plan

Question 5

What are the 6 ADLs?

Answer 5

1) Eating
2) Bathing
3) Dressing
4) Toileting
5) Continence (peeing)
6) Transferring positions of the body (i.e. getting in and out of a bed or chair)

Question 6

What are guaranteed minimum/lifetime withdrawal benefits (GMWB/GLWB)?

Answer 6

Variations on the annuity - offers certainty with respect to the annual withdrawal of a stipulated % of linked assets.
During a downturn, guarantees protect against income reduction, and in upturns, the investor will be able to lock-in guarantees at higher asset values to hedge against inflation.

While the contract is in force, the investor has access to the account values.

Question 7

What is the difference between prescribed annuities vs. regular annuities?

Answer 7

Prescribed annuities even out the interest of the annuity throughout its life, whereas a normal annuity front-loads the interest.

Question 8

What are common forms of buy-sell agreements, and its financing?

Answer 8

1) Cross-purchase agreement - members are beneficiaries of policies insuring other partners’ lives
2) Share redemption plan - business is beneficiary to policies insuring the partners’ lives. Business buys interest then redeems shares in the company, reducing the number of outstanding shares and increasing the ownership interest of the surviving partners

Most b-s agreements specify how the purchase will be financed:
1) Sinking fund - fixed, regular contributions accumulate a cash reserve that purchases the interest of a deceased shareholder
2) Buy/sell insurance - most common method

Question 9

What does business overhead expenses NOT cover?

Answer 9

• Business owner salary
• Salary of replacement of insured (business owner)
• Salaries of individual that do the same type of work as the insured individual
• Family members who were not working in the business prior to the disability

Question 10

What is an advanced life deferred annuity (ALDA)?

Answer 10

An ALDA is an annuity that can be deferred until the year the annuitant reaches age 85.
The value of the ALDA cannot exceed 25% of the qualifying plan (RRSP, RRIF, DPSP, PRPP, DCPP), and the lifetime ALDA limit is $150,000 from all qualifying plans.

Question 11

What are the risk levels for underwriting?

Answer 11

1) Standard
2) Preferred
3) Substandard (rated)
4) Uninsurable

Question 12

How much will Assuris cover in the event of bankruptcy for an insurance company selling Seg Funds (IVICs)?

Answer 12

Assuris will cover the lesser of
1) The death and maturity guarantee and
2) The greater of
i) $60,000
ii) 85% of the death and maturity guarantee

Question 13

What happens to an IVIC at death?

Answer 13

Your beneficiary receives both the investment and the death benefit, and you incur a CG/CL from the difference between your ACB (capital + income distributions + contributions) less the (Guarantee x NET capital) portion.

The beneficiary’s receives the investment amount from the IVIC as deemed proceeds, and the death benefit amount will be the excess of any guarantee amounts over the FMV of the investments.

So, the death benefit of an IVIC is
(Guarantee x NET capital) - FMV of fund at death

Question 14

What is the youngest age eligible to purchase a life insurance policy?

Answer 14

16 years old.

Minor children <18 cannot receive insurance proceeds directly - it must be placed in a trust on their behalf

Question 15

What is an affirmative and promissory warranty?

Answer 15

An affirmative warranty warrants that a fact is presently true but makes no statement about the future
A promissory warranty is a fact that is presently true, and will continue to be in the future

A warranty is a statement made by the applicant to the insurer that is true

Question 16

What is insurance as a principal of indemnity?

Answer 16

Insurance as a principal of indemnity means that it will compensate actual losses suffered, and not profit otherwise.
Most property and liability insurance contracts are indemnity contracts. Life insurance and valued contracts are not.

Question 17

What is a valued contract?

Answer 17

A valued contract insures property for an agreed amount at time of issue.

Question 18

What do provincial health care plans cover?

Answer 18

• Diagnosis and treatment of medical conditions
• X-rays, lab, diagnostic procedures
• Surgical services
• Maternity services
• Anesthesia services
• Vaccinations, inoculations and annual routine physical exams
• Services of a referred specialist

Question 19

How do you calculate the ACB for an insurance policy?

Answer 19

ACB = Premiums paid + Loan interest paid - Dividends - Net Cost of Pure Insurance (NCPI)

Question 20

What is included in the NCPI for a UL policy?

Answer 20

NCPI = Mortality Cost (pure risk + rating) + Investments - Expenses

Question 21

What is the tax implication of transferring ownership of a life insurance policy from a parent to a child?

Answer 21

A parent can roll over the policy to the child if child is the life insured at ACB.