Insurance and Risk Managment

Question 1

5 steps of personal risk management

Answer 1

Identify risk
Evaluate risk
Control risk
Finance and management of risk
Monitor and revise the risk management plan

Question 2

Subrogation

Answer 2

Allows insurance company to act in insured’ name

Question 3

Automobile insurance

Answer 3

Minimum amount $200k

Question 4

Homeowner’s insurance

Answer 4

Building, insured to at least 80% of its value

Usually does not cover home based business, requires separate insuranxe

Question 5

Professional liability insurance

Answer 5

Errors and omissions insurance to protect agains claims

Question 6

10 day right of recission

Answer 6

Ability to cancel policy after signing within 10 days

Question 7

Insurance grace period

Answer 7

If payment missed or delayed, policyholder has 30 days grace to make payment without forfeiting any contractual rights

Question 8

Suicide clause

Answer 8

If it happens within 2 yrs, no payment must be made

Question 9

Permanent / whole life insurance

Answer 9

In force for entire life

Portion of premium goes to policy reserve

Reserve known as cash value

ACB adjusted every year as premiums are paid. Any increase to ACB will be reduced by any dividends paid out

Suitable for high income who already maxed out their tax deferred accounts

Question 10

Term to 100

Answer 10

Similar to regular permanent policy, but there is no cash value and this premium is lower

Question 11

Universal life

Answer 11

Amounts leftover after cost of insurance, admin and riders is deposited into investment account

Death benefit and cash surrender value cary depending on performance of investment fund or index

Accumulating fund can be either exempt or non-exempt

Non-exempt, accumulating fund produce taxable inxome

Segregated fund can be purchased under non-exempt

Side fund, accumulating fund external to policy and income/capital gain must be reported annually.

Question 12

Long term care insurance

Answer 12

Insured individual must be between 40-80 years of age

Question 13

Assignment for collaterl

Answer 13

Conditional assignment appointing a lender as primary beneficiary of death benefit to use as collateral for loan. If borrower is unable to pay, lender can cash in the life insurance policy and recover what is owed.

Question 14

Life settlement

Answer 14

Sale of life insurance policy to a third party. Owner of policy sells it for cash payment that is less than full amount of death benefit

Viatical settlement: individual with terminal illness sells his insurance policy

Life settlement: does not have terminal illness sells policy for other reasons, including changed needs of dependents, wanting to reduce premiums and cash for meeting expenses

Question 15

Insurance for corporation benefits

Answer 15

Fewer pretax dollars required to pay premium if corporate tax rate is lower than personal tax rate

Death benefit less any adjusted cost base can flow through the corporation’s notional capital dividend account. The proceeds of capital dividend can be paid out tax free by remaining shareholders or the shareholder’s esatte

Question 16

Disadvantage of insurance for corporation

Answer 16

No protection from corporate creditor

Corporation is only beneficiary of policy

Cash surrender value could affect qualified small business corporation status for purposes of enhanced capital gains tax exemption.

Question 17

Morbidity

Answer 17

Risk of becoming disabled in your lifetime

Question 18

3 Types of insurance companies

Answer 18

Stock companies, owned by stockholders

Mutual companies, owned by policyholders

Fraternal benefits societies, organized and carried on soley for mutual benefit of their members

Question 19

Deferred annuities maximum deferred age

Answer 19

No later than the end of year that annuitant turns 71

Question 20

Installment refund annuity

Answer 20

Guarantees that of annuitant dies before having received as much as money as was deposited, payments continue to beneficiary until the refund is complete

Question 21

Life annuity, cash refund

Answer 21

Same as installment refund annuity, except if annuitant dies, beneficiary receive lump sum cash refund

Question 22

Participating annuity

Answer 22

Provides for increased payments to annuitant if investment yields are higher than expected or expenses are lower than expected

Question 23

Variable annuity

Answer 23

Amount of monthly payment to annuitant varies according to value of investment in seg fund into which premiums are placed