INSURANCE (PG. 625-682) Flashcards
CRITICAL ILLNESS INSURANCE
Provides a lump-sum benefit to an individual who is diagnosed with a specified serious life-altering illness or medical event, provided the individual survives for a specified short period after daignoses
CANCELLABILITY
Whether the insurance company can cancel the CI contract
TERM CI INSURANCE
Provideds coverage for a limiteds time or period, or term
GUARANTEED RENEWABLE
Insurance company must offer a new term to a specified date/age. Carrier cannot cancel the policy provoded the premiums are paid as required
CONDITIONALLY RENEWABLE
Innurance carrier may require new medical or other information to offer a new term.
TERM-TO-65, 70, 75, OR 100 INSURANCE
Type of permanent insurance product that does not renew
BIG 3 ILLNESSES
Life-threatening cancer, stroke, and heart attack
BENEFIT AMOUNT
A contractually defined amount established between quotation, underwriting and final contract acceptance
30-DAY WAITING PERIOD
Applied after the date of the diagnosis before receiving any money
EARLY-INTERVENTION CLAUSE
Insured may receive between 10%-25% of the benefit immediately
LONG-TERM CARE RIDER (LTC)
Allows entire benefit to be treated as the pool source of LTC payments, and a weekly or monthly benefit is calculated depending on the whether the insured is at home or in a facility
100% RETURN OF PREMIUM RIDER
On termination (expiry) of the contract, all premiums paid are returned to the owner
RETURN OF PREMIUM ON DEATH RIDER
Offers a full return of premiums paid as an insurance benefit directly to the insured’s beneficiaries if the insured pre-deceases his/her contract expiry.
SECOND EVENT RIDERS
Provide a second benefit equal to or less than the benefit from the first claim, depending on the definitions in the particular insurance comapny’s contract
WAIVER OF PREMIUM RIDER
Allows the client to skip premium payments if he/she is no longer working due to disability
POST-CLAIM UNDERWRITING
Insurer determines whether the coverage applies to the insured only once a claim is made
NON-CANCELLABLE INSURANCE CONTRACTS
Require a completion of a thorough medical history and financial and lifestyle questionnaire to establish insurability
STANDARD EXCLUSIONS
Acts of war, attempted suicide.other self-harm, abuse of drugs or alcohol, and criminal offences
EMPLOYER SPONSORED/ASSOCIATION SPONSORED GROUP BENEFIT PLANS
Conditionally renewable, non-cancellable one-yer term contracts owned by the group but offered to the individual
LONG-TERM CARE INSURANCE (LTC)
Insurance benefit that pays for the care or services that may be necessary, ruding the burden on an individual’s savings and increasing the affordability of care
ACTIVITIES OF DAILY LIVING (ADL)
The insured’s inability to perform activities
ELIMINATION PERIOD
The policy will only pay out benefits under certain specific conditions
HOME CRE
Care received while the insured is still living at home
FACILITY CARE
Time spent living at a facility
PROFESSIONAL CARE
Provided by professionals (nurses etc.)
SKILLED ACRE
Paid care provided by trained individuals (facility staff)
NON-SKILLED CARE
Provided by someone who is not trained (family members)
INCOME MODEL
Individual purchases a specific benefit amount, or income, that is paid regardless of the actual level of expenses
INDEMNITY MODEL
Individual purchases a policy that provides a daily benefit
REIMBURSEMENT MODEL
Individual purchases a policy that provides reimbursement for covered expenses up to the daily/monthly maximum
COST OF LIVING RIDER/FUTURE PURCHASE OPTIONS
Protect the benefit against the risks of inflation and increasing needs
DURABLE MEDICAL EQUIPMENT RIDER
Individual receives benefit defined in the terms if he/she needs equipment
WAIVER OF PREMIUM
Waives the cost of insurance while the insured is totally disabled
RETURN OF PREMIUM ON DEATH RIDER
Ensures the value paid into the contract creates a small benefit for the estate of the insured if he/she dies before the expiry or payout
ESTATE EQUALIZATION
When different assets are left to different beneficiaries but the net result is not equal
INSURANCE TRUST
A testamentary trust that results from the payment of a death benefit
LIVING BENEFIT (ACCELERATED BENEFIT)
Under a life insurance policy, the carrier allows the insured who is diagnosed with a terminal illness to receive a partial pre-payment of the death benefit
FULL SURRENDER (DISPOSE/SURRENDER CONTARCT IN FULL)
The insurance carrier pays the policy owner the balance of the total cash value less any surrender charges
PARTIAL SURRENDER (KEEP SOME OF THE CONTRACT/BENEFIT)
The amount surrendered is proportionate to the amount of the benefit surrendered
% OF ISURNACE SURRENDERED
Surrender amount/Cash Surrender value
PORPORTION TO THE BENEFIT AMOUNT SURRENDERD
% of insurance surrendered X Death Benefit
NET DEATH BENEFIT
Total original benefit - Porpoertion of benefit surrendered
NEW ACB
(1 - % of insurance surrendered) X ACB
POLICY LOAN
Borrowing from the cash value of an insurance policy
COLLATERAL
Borrowing against the cash value of an insurance policy
BUY-SELL DISABILITY INSURANCE
Purchased to fund the buy-out of a disabled partner or shareholder in a business operation
CORPORATELY OWNED CRITICAL ILLNESS INSURANCE
Designed to fund the short-term needs of a diagnosed shareholder or to assist in funding a buy-sell agreement.
SPLIT DOLLAR POLICY
The corporation pays most of the contract premium at a lower tax rate, while the return of premium rider is paid personally
KEY-PERSON INSURANCE
Insures against key-person loss, in the form of life, disability, or critical illness insurance. Provides immediate working capital while the business reorganizaes to address the loss of the key person
DISABILITY KEY-PERSON INSURANCE
Pays a benefit based on the inusred’s salary and a percentage of replacement costs after a period (6 months)
LIFE KEY-PERSON INSURANCE
Pays out a lump um benefit to the company to use as working capital, reserve funds or replacement costs
BUSINESS OVERHEAD INSRUANCE
Provides interim insruancfe protection when the disability of a key person affects the income of a business
EXEMPT POLICY
Designed primairly to provide life insurance protection (cash value accumulated may not exceed the government-determined benchmark). This type of policy is exempt from taxation
HYPOTHETICAL BENCHMARK POLICY
An eight-pay endowment at age 90
NON-EXEMPT POLICY
Any income, such as dividends, policy loans or gains aover the ACB are taxable annually
MAXIMUM TAX ACTUARIAL RESERVE (MTAR)
The maximum amount of income an exempt policy may earn or accumulate
ACCUMULATING ACCOUNT/ACCUMULATING FUND
The value of the whole life participating account or value of the universal life account that builds up outside the policy
CASH SURRENDER VALUE (CSV)
The value of the total policy if the insured were to surrender, or give up, the contract
DIVIDENDS ON DEPOSIT
A seperate savings account held by the insurance carrier
FAIR MARKET VALUE (FMV) OF A LIFE INSURANCE POLICY
Value of the contract if it were to be sold on the market (the amount someone is willing to pay to acquire the contract). It is often the total of the cash surrender value and the value of the accumulating fund
ADJUST COST BASE (ACB) OF A LIFE INSURANCE POLICY
The sum of all premiums paid, less the sum of the net cost of pure insurance. Represents the policyholder’s ACB of the cash value within the contract
NET COST OF PURE INSURANCE (NCPI)
The amount that is the net cost of the mortality expenses (risk) based on the table prescribed in the ITA
CAPITAL DIVIDEND ACCOUNT (CDA)
A notional account that results from the payment of a life insurance benefit to a corporation
DISPOSITION
The disposal of the contract
TAXATION ON INSURANCE DISPOSITON =
Proceeds (money earned from the contract) - ACB
ABSOLUTE ASSIGNMENT
The complete transfer of the ownership (all rights, benefits and liabilities) of the policy completely to another party without any terms and condition.
NON-ARM’S LENGTH
Willing to hug
PARTIAL SURRENDER TAXATION =
- Assigned ACB = (Proceeds from partial surrender / total cash surrender value) X ACB
- Proceeds from partial surrender - Assigned ACB
POLICY LOAN TAXATION +
- Remaining ACB = ACB - loan proceeds
2. Income gain on second loan = Second loan proceeds - remaining ACB
INSURANCE TRANSFER ROLLOVERS
Original owner transfers the policy at the current ACB , and the new owner acquires the policy at the same ACB. Rollovers are permitted between spouses and between parent and his/her child if the policy is on the life of a child of the parent
