Insurance Concepts

Question 1

Advocis coverage

Answer 1

100% up to 200k and 85% above that

Question 2

Regulation

Answer 2

regulated and legislated at provincial level

Question 3

Mutual companies

Answer 3

owned by policy holders

Question 4

Offer, acceptance, consideration

Answer 4

offer = application
acceptance = policy document and receipt
consideration = represented by initial premium

Question 5

parties to contract

Answer 5

insurer
insured - can insure key employee. can insure equipment but must transfer policy to corp if asset is transferred to corp
life insured - annuitant

Question 6

false representation types

Answer 6

mistake - (clerical or simple error) insurance company will work to resolve, adjust premiums and wont typically deny a claim
misrepresentation - (incorrect response or failed to disclose relevant info) can deny claim within 2 years of policy issuance, may be a mistake or deliberate omission.
fraud - deliberately withheld information to gain advantage. contract is voidable (can’t void later if originally ignored)

Question 7

Policy lapse timeframe

Answer 7

60 days without premium payment. can be reinstated within 2 years (pay missed premiums and update underwriting evidence)

Question 8

CSV

Answer 8

usually doesn’t build until 8-10 years due to costs of placing a policy. can borrow against csv or withdraw if extra deposits made in the past. interest is charged on policy loan but can be capitalized (deducted from death benefit if insured dies during loan period)

Question 9

Non forfeiture ( 3 optinons)

Answer 9

insurer will use csv to pay policy premiums
1)automatic premium loan - step one. create a policy loan and use it to pay premium
2)reduced paid up insurance - reduce the face amount and use csv earnings to fund policy
extended term insurance - switch policy to term, maintaining original face value

Question 10

non cancellable, guaranteed renewable (most common life insurance)

Answer 10

premiums and coverage not subject to any potential changes

Question 11

guaranteed renewable

Answer 11

can renew as long as certain changes aren’t made (such as significant insurability changes or career change for disability contract) may increase premiums or reduce coverage. typically less costly than non cancellable.

Question 12

Optionally renewable

Answer 12

similar to guaranteed renewable. slightly more restrictive and less costly

Question 13

commercial or cancellable

Answer 13

least expensive and most restrictive. sets a number of conditions under which they won’t renew (property insurance, casualty, and group insurance contracts or normally this way)

Question 14

Auto insurance

Answer 14

liability - 3rd party protection to whom suffers loss due to other driver
collision risk - smaller than liability, can cover fires, broad set of losses or be comprehensive
personal injury risk - hospitalization benefits, income replacement, lump sums

endorsements - extend coverage to things the normal contract wouldnt

Question 15

Home insurance

Answer 15

detached structures covered for 10% of dwelling building portion. personal property covered for 60% of dwelling amount. living expenses = 20% of dwelling amount. personal legal liability of up to a million around the world.
voluntary medical payments of 5k and 500 for damage to another person’s property. (without creating legal liability)

Question 16

optional additions (endorsement)

Answer 16

specific contents, sewer backup, flood, wind damage, earthquake.

Question 17

Liability insurance

Answer 17

important for business owners (errors and omissions, medical malpractice). need to determine and amount and the activities covered

Question 18

Lapse benefit to insurer

Answer 18

reduce reserves but keep some or all of premiums paid

Question 19

Mortality table and policy term

Answer 19

10 year contract will use average mortality cost based on next 10 years of insureds life

Question 20

Death benefit vs face value

Answer 20

lower if outstanding policy loan. higher as with many caash value insurance policies. premiums start low but costs can even out over time or become cheaper if you live long enough (permanent insurance)

Question 21

term insurance

Answer 21

mostly 10 or 20 year renewable. convertible insurance can be switched to permanent (no underwriting but higher premiums before and after conversion)

Question 22

Whole life 3 components

Answer 22

insurers expenses
investment - used to generate policy reserve to fund death benefit (based on guaranteed set of investments. wil grow over time and reduce need for protection components (when policy reserve is low early on, protection component is quite large. policy will eventually be paid up (when policy reserve can fund the death benefit) policy growth is guaranteed and non taxable. death benefit doesnt increase regardless of csv, unless additional contributions are made (investment component creates additional costs

Question 23

Policy dividends

Answer 23

1)take cash, leave on deposit with insurer or invest in seg fund
2)reduce premiums
3)buy more insurance (term additions (1 year non renewable), special term additions (cash and 1 year term policy), paid up additions (more perm insurance)

Question 24

Universal Life Death Benefit Options

Answer 24

-Level plus acct value (most expensive) (death benefit fluctuates. (face value plus investment account balance)
-level plus cumulative gross premiums. face value plus sum of al premiums paid (second highest coi). not all offer this option.
-indexed. based on inflation

Question 25

Term to 100

Answer 25

pay average amount between now and age 100 (paid up). no non forfeiture clauses. only insurance. no policy loans, no csv. usually used when late estate plan is required. term life can be switched to permanent policy.

Question 26

life insurance Riders

Answer 26

GIB (purchased for kids sometimes. will allow them to purchase larger insurance in future without underwriting, but higher premiums).
ADAD - loss within 365 of accident
Advance of death benefit - in case of critical illness
premium coverage in case of disability.
Common exclusions - impaired driving, acts of ware, suicide, self inflicted injuries, poisonous gas, under influence of drugs, flying on private aircraft, loss for medical treatment, poisonous substance ingestion, illegal activities,

Question 27

EFA amounts

Answer 27

15k for funeral, 20k for cementery services.

12k saved for funeral and 19k for cementery = 31k total. funeral expenses of 25k =
38k total savings - 19k -12k = 7k taxable.

Question 28

EI/CPP/ Workers Comp

Answer 28

EI can be paid up to 15 weeks (55% of benefits up to limit) taxable (2 week waiting period)
CPP-long term disabilities, taxable.
Workers comp. - tax free replacement of 85-90% of after tax income, up to about 6k per month, short waiting period.

Question 29

Weekly indemnity/LTD

Answer 29

WI 1-15 day waiting period - benefit paid for 15-104 weeks. tax free, pay usually about 66.7% of salary) after tax income. as high as about 4k per week. can be taxable if employer pays for it, then covers 75% of salary.
LTD - replace 67-75% in most cases. may ask for 60% on the test. non evidence maximums are lower than regular benefits. NEMs refer to the maximum amount paid for someone who hasnt undergone medical underwriting. Usually paid under own occupation for 2 years, then switches to any occupation.

Question 30

Pre-existing conditions

Answer 30

usually only covered under group contract for 1-2 years

Question 31

Group coverage

Answer 31

50% for very high earners, 60% for 60k-120k, 70% earning 40k-60k.

Question 32

OWN/ANY/REGULAR

Answer 32

Own - covered if you can;t work your job. usually turns to regular/any occupation after 2 years.
any - covered if you can’t work any job
regular - covered if you can’t work in job that fits within skills, education, experience. will receive top up if it pays less than previous job, up to the face amount of contract.

Question 33

Residual benefits/partial benefits/presumptive

Answer 33

residual - self employed earning between 20-80% of pre-disability income
partial - wage earner earning between 20-80% of income
these are optional definitions of disability and not all contracts include them.
Disability benefits paid 30 days in arrears
presumptive benefits - you return to work despite loss of sight, limbs, hearing, speech ,etc. will still pay full benefit

Question 34

Living benefits insurance rider

Answer 34

waiver of premium (common), return of premium (between 50-100%), COLA, coverage enhancements (no medical underwriting, may be financial underwriting), medical consults

Question 35

Group insurance

Answer 35

no underwriting usually, unless they originally decline membership, add optional coverage or go above non evidence maximums. exclusions or limitations for ltd benefits. many have conversion privilege, can take coverage after leaving without medical underwriting.