Legal Concepts

Question 1

Who complete the application form for life insurance? What is the process?

Answer 1

The application for insurance is completed by the life, insurance agent, and the client

The life insurance agent must collect the clients information and recorded accurately on the application form

The insurance company, through a process, called underwriting, evaluates, the risk that the client represents.

The risk assessment results in the assignment of a premium for a policy

The application is based on a good faith of the applicant for life insurance. Also, the insurer representative’s objectivity in asking The client questions is important.

Question 2

What is a TIA?

Answer 2

Temporary insurance agreement

The process for applying for insurance can take several weeks. If a client has no insurance in place and has an identified need for life insurance, a temporary insurance agreement can be put into place by the life insurance agent to qualify for temporary insurance, the applicant must answer a short health questionnaire and pay the first month premium on his life insurance application .

Question 3

How do you qualify for a TIA?

Answer 3

If the client does not have life insurance, and has a current need for one, and while, waiting for the insurance application, a TIA can be put in place.

For this, the client must answer a short health questionnaire, and pay the first premium.

Question 4

What is a contract renewal?

Answer 4

The renewal is evidenced by a certificate of renewal, or the issuing of a new policy, after the expiry of the initial contract

Question 5

What happens when a contract ends?

Answer 5

The contract ends either by termination or cancellation, but it can also be renewed

Question 6

Is a termination of contract and cancellation the same thing?

Answer 6

No

The termination of a contract means that the contract does not exist anymore, as if it had never existed

The main reason of termination are false representations, fraud, concealment, a.k.a., not telling all the truth, and insurable interest

Termination is done by the insurer.

On the other hand, cancellation means that the contract is cancelled based on present circumstances, without questioning the policy, since it was in effect, cancellation of the contract can be caused by: nonpayment of premiums, an attempt to end the insure life, cancellation without cause by policyholder

There is no blame for this sort of contract ending

Question 7

What is a grace period?

Answer 7

This is the time limit that the insurance company grants to the policyholder to pay his premium. There is no grace period for the first premium payment. For subsequent premiums, the grace period is 30 days.

If the policyholder were to die during the Grace period, the beneficiary would be entitled to the face amount, less the overdue premium

Question 8

Define lapsed contract and reinstatement

Answer 8

A lapsed contract is simply a contract that is no longer in effect. A Policyholder can reinstate a lapsed contract by satisfying the following conditions:

1) make a request: the reinstatement request must be made within two years of the lapse date

2) provide evidence of insurability: the insured must provide evidence that he represents the same insured risk as the original contract

3) pay overdue premiums: the policyholder must pay the overdue premiums and the interest accrued

4) repay premium loans: the policyholder must repay any premium loans plus interest he received from the insurer before the contract lapsed.

Question 9

What are two common life insurance clauses?

Answer 9

• Suicide clause
• Incontestability clause
• Grace period
• Lapse contract and reinstatement clause
• Beneficiary designation
• Revocable or irrevocable beneficiary of a life insurance contract
• Payment of death benefits
• Policy assignment
• Components of an insurance contract
  > insurable interest
  > benefit
  > premium
  > risk

Question 10

What is the incontestability clause?

Answer 10

An insurer cannot contest a policy after it has been enforced for two years, unless there is evidence of fraudulent misrepresentation.

It is considered a fraudulent misrepresentation when the applicant knowingly withhold material information from the introvert at the time of application, and the information withheld, could impact the decision to approve the application.

If fraudulent misrepresentation is proven, the contract can be cancelled

Question 11

What does the suicide clause say?

Answer 11

If the suicide occurs less than two years, after the effective date of the life insurance, the face amount will not be paid, and the premiums paid from the beginning of the contract will be refunded to the beneficiary.

If the suicide occurs more than two years, after the effective date of the policy, the face amount will be paid.

The two-year period applies to increases in the face amount as well. So if there is an increase in coverage two years after the original contract date, there is another two year waiting period to pay out that increase.

Example
If suicide occurs eight months after a $50,000 increase to the original contract of $100,000, a contract that has been in effect for four years, the insurer will pay a death benefit of $100,000 to beneficiaries, not $150,000.

Question 12

Can you put more than one beneficiary in the life insurance contract?

Answer 12

Yes

Question 13

If you want to revoke an irrevocable beneficiary, what would need to happen?

Answer 13

You need written consent of the beneficiary

Question 14

Does the beneficiary have to be someone alive when you designate them?

Answer 14

No, for example, a child who has been conceived, but is not yet born, or a future spouse.

Question 15

Do beneficiaries have to pay taxes on insurance benefits?

Answer 15

Insurance benefits are always received tax-free by the beneficiaries.

However, beneficiaries must be the age of majority in order to receive the death benefit. If the beneficiary is a minor, the death benefit is paid to his parents or his legal guardian, or trustee if a person is over the age of majority, but in capable of caring for himself, the death benefit is paid to the individual’s guardian or trustee.

Question 16

Can a policy be reassigned to another person?

Answer 16

Under the policy assignment clause, the owner of a life insurance policy can transfer ownership to another person with an interest in the insured person’s life or health.

For example, a parent purchases life insurance on the life of his son and transfers the ownership of the contract at the child’s age of majority.

Question 17

What are the four components of an insurance contract?

Answer 17

Insurable interest
Benefit
Premium
Risk

Question 18

What does it mean to have insurable interest?

Answer 18

The policyholder must have an incurable interest in the life or health of the insured person

Examples of insurable interest:
- A policyholder with a financial or moral interest
- A person who supports the policyholder
- an employee of the policyholder
- A descendant of the policyholders spouse
- The policyholders spouse
- The policyholder

Question 19

Can an employee of the policyholder have insurable interest

Answer 19

Yes, they could have insurable interest in the life or health of the insured person

Question 20

Can a descendant of the policyholders spouse have insurable interest?

Answer 20

Yes, they could have insurable interest in the life or health of the insured person

Question 21

Could you ensure someone who is not part of the insurable interest list?

Answer 21

If there is no insurable interest, the insured must provide written consent for the contract to be valid

Question 22

Would there be a way to ensure the life of a famous person?

Answer 22

That person must consent to be insured and provide written consent for the contract to be valid. Only then, is insurable interest determined

Question 23

When is the benefit paid?

Answer 23

The benefit is paid by the insurer when the covered risk occurs

Question 24

What is the premium?

Answer 24

The policyholder pays the premium to the insurer in return for benefit that the insurer will pay when a covered risk occurs

Question 25

What is risk?

Answer 25

The occurrence of a risk causes financial loss from which the policyholder wishes to be protected

The risk must be uncertain. It is a possible and future event that does not depend on the wheel of the parties. A risk cannot be impossible, nor can it have already occurred.

Question 26

What is the Canada health act?

Answer 26

The Canada health act is the federal act that governs health insurance. It facilitates access to health services by providing that some of them be offered free of charge.

The act is based on five principles that the provinces must comply with to receive cash transfers from the federal government.

These principles are:
- Public administration
- Portability
- Comprehensiveness
- Accessibility
- Universality

Question 27

What are the five principles that provinces must comply with based on the Canada health act?

Answer 27

Public administration, portability, comprehensiveness, accessibility, and universality

Question 28

What are the four plans that make up the income security programs?

Answer 28

OAS, old age security pension
GIS guaranteed income supplement
Spouses allowance
Survivor allowance

Question 29

What is OAS?

Answer 29

Old age security pension

Question 30

How do you qualify for OAS?

Answer 30

Canadian citizens who have lived in Canada for at least 10 years after the age of 18 and who are age 65 and older are eligible to receive the old age security pension OAS

Question 31

What is the GIS?

Answer 31

Guaranteed income supplement

Question 32

Who qualifies for GIS?

Answer 32

The guaranteed income supplement is for individuals who have a low annual income, and who received the old age security pension

Question 33

What is the spouses allowance?

Answer 33

The spouse’s allowance is offered to couples with a low total income, and in which one partner receives the old age security pension, and the other is aged between 60 and 64

Question 34

What is the survivor allowance?

Answer 34

The survivor allowance is for individuals age between 60 and 64 whose spouse is deceased, who are not the spouse of another person, and who have low income.

(Kind of like spouse’s allowance, but the spouse is deceased instead of earning OAS )

Question 35

What is the CPP?

Answer 35

Canadian pension plan

Question 36

Do Quebec employees have to contribute to the CPP?

Answer 36

The Canada pension plan CPP applies in all provinces, except Quebec, which decided to set up its own pension plan QPP

Question 37

Who is required to contribute to the CPP?

Answer 37

Workers aged 18 and older are required to contribute

Unless it’s known in advance that a worker will not make more than $3500 annually, CPP contributions are taken directly from the paycheque. if annual salary is less than 3500, workers are eligible for a refund.

Question 38

What types of benefit are offered by the Canadian pension plan?

Answer 38

Retirement benefits, disability benefits, and survivor benefits

Question 39

What retirement benefits are offered by the CPP?

Answer 39

Individuals, age 65 and older, or between 60 and 64 who no longer work and whose income is lower than the maximum provided for , are eligible to receive benefits

Question 40

What are the disability benefits offered by the CPP?

Answer 40

Dependent children of eligible, disabled individuals may also receive disability benefits.

To be eligible, individuals must be less than 65 years of age, be considered disabled under the Canada pension plan act, and have contributed for a sufficient number of years

Question 41

What is the survivor allowance offered by the CPP?

Answer 41

The survivor allowance is paid to the surviving spouse and orphan. Survivors receive benefits if the deceased person paid contributions for 10 years or for 1/3 of the contribution years. A minimum of three years of contributions is required.

Question 42

What is the employment insurance act?

Answer 42

EI

Employment insurance provides temporary financial assistance to unemployed individuals who seek employment. It also helps people who care for seriously ill family members, parents, with a newborn or recently, adopted child, pregnant, women, and sick workers.

Question 43

What is PIPEDA?

Answer 43

Personal information, protection, and electronic documents act

Applies to the collection and use of personal information in the course of business activities in the provinces, including companies under provincial jurisdiction.

Question 44

Proceeds of crime (money laundering) act ??

Answer 44

This act helps Canada in its international fight against crime. It is also intended to fight organized crime through the implementation of policies and measures for detecting and detouring, money, laundering, and the financing of terrorist activities.

Question 45

What is FINTRAC?

Answer 45

Financial transactions and reports analysis centre of Canada

This organization collects, analyzes and communicates financial information on money laundering, and terrorist activity financing.

A number of persons and organizations must report suspicious financial transactions to fintrac. these include financial advisors, insurance of persons, firms and independent partnerships, credit unions, banks, and life insurance companies

Question 46

Which transactions must be reported to FINTRAC?

Answer 46

International electronic fund transfers of at least $10,000
large cash transactions of at least $10,000
Transactions that may be related to money, laundering, and terrorist activity, financing, and raise suspicion

Reports must be made no more than 30 days after suspicions are raised as to the validity of a transaction with regards to the proceeds of crime (money laundering) act

Question 47

What is money laundering?

Answer 47

Money laundering involves three steps

First, the proceeds of criminal activities are introduced into the financial system.

Second, these proceeds are transformed into other types of assets.

Finally, the proceeds are re-introduced into the economy to conceal their origin.

Example

Simon opens bank accounts after selling illegal drugs and deposits $9000 into these accounts. Then Simon uses the $9000 to purchase two paintings. Finally, Simon sells off the two paintings for $10,000, and uses the money to purchase investment funds.

Question 48

What are the three types of government plans for retirement?

Answer 48

RRSP, LIRA, LIF

Question 49

AnRRSP is a contract between who and who?

Answer 49

AnRRSP is a contract between a financial institution and an individual under which the individual can contribute a maximum annual amount to the plan

Question 50

In an RRSP, who contributes and how much?

Answer 50

This is a plan for an individual, who will be able to contribute a maximum annual amount

Question 51

Are contributions to an RRSP tax deductible?

Answer 51

Yes, the contributions are tax deductible for the individual and accumulate tax deferred

However, amount withdrawn from the registered retirement savings plan are fully taxable at the individuals personal tax rate

Question 52

What does it mean for contributions to be tax deductible?

Answer 52

An amount deducted from taxable income

Question 53

What does it mean for RRSP to accumulate tax deferred?

Answer 53

It means that any growth in the rrsp account is not considered taxable income (until it’s withdrawn).

Amounts withdrawn from the RRSP are fully taxable at the individuals personal tax rate

Question 54

What is MTR

Answer 54

Marginal tax rate
That is basically your tax bracket rate

Question 55

How does one calculate your contribution room in the RRSP for the year?

Answer 55

Start with the unused registered retirement savings plan contribution room

Add 18% of the earned income from the previous year up to an established limit

Add the pension adjustment reversal

Subtract the pension adjustment for the registered pension plan or deferred profit-sharing plan for the previous year

Subtract the past service pension adjustment for the year

Question 56

When can contributions to RRSP for any given year be made?

Answer 56

Contributions to a RRSP for a given year can be made during the calendar year or within 60 days following the end of the calendar year

Question 57

Where Is a group just the time Saving Plan (group rrsp)

Answer 57

Employers can create optional group RRSPs for their employees. Employees contribute to the group RRSP and the employers can do so as well if they wish. the tax rules for individual RRSP’s also applied to group plans.

The tax rules are: contributions are tax deductible, accumulation is tax, deferred, and withdraws are taxable according to your tax bracket at the time of withdrawal.

Question 58

Do tax rules on group RRSP’s defer from individual RRSPs?

Answer 58

If an employer contributes to the group RRSP, hmmmmm dunno

Question 59

What is the pension adjustment?

Answer 59

The amount invested in a registered pension plan or deferred profit-sharing plan, is called a pension adjustment, or PA.

The pension adjustment reduces the amount that qualify for an RRSP a.k.a. contribution room

Question 60

What is past service pension adjustment?

Answer 60

Like the pension adjustment, the past service pension adjustment reduces the amounts that qualify for an RRSP. The past service pension adjustment is created when defined benefit pension plan member purchases years for past service.

Question 61

What is pension adjustment reversal?

Answer 61

The pension adjustment reversal is the excess of accumulated pension adjustments over the value of a pension fund transfer for individuals who sever employment ties with their employer

This value is added ??

Question 62

What is an RRIF?

Answer 62

RRIF is a registered retirement income funds account. It is a tax-free means of transferring the amounts accumulated in an RRSP, with an obligation to make a minimum annual withdrawal.

Question 63

What happens to your RRSP once you hit retirement?

Answer 63

The funds are transferred from the RRSP into an RRIF (registered retirement, income funds) Tax free.

There is an obligation to make a minimum annual withdrawal, that is, of course, taxed, according to your tax bracket

Question 64

What are the two main types of registered pension plans RPP?

Answer 64

A. Defined contribution plans
B. Defined benefit plans

Question 65

What is a defined contribution plan?

Answer 65

It’s a type of registered pension plan

With defined contribution plans, the contributions (by the employer and employee) are defined in advance, but the amount of the annuity on retirement is not (unlike the defined benefit plan). There is a maximum contribution that can be made by the employer and employee.

This limit is the lesser of the following: 18% of annual income
Or
18% of the money purchase limit for the year

Question 66

Who contributes in a defined contribution plan?

Answer 66

The contributions by the employer and employee are defined in advance

However, the amount of the annuity on retirement is not defined in advance

Question 67

What is the maximum contribution that can be made by the employer and employee for a defined contribution plan?

Answer 67

The (max) limit is the lesser of the following: 18% of annual income or 18% of the money purchase limit for the year

Question 68

What is a defined benefit plan?

Answer 68

First of all, it is a type of registered pension plan

In this plan, the employee contributions are defined in advance, along with the amount of the annuity to be received by the employee on retirement

The employer contributions are not defined in advance, although a minimum contribution is often set

There is a maximum contribution that can be made by the employer and employee. This limit is the lesser of the following: 18% of annual income or 18% of the money purchase limit for the year.

Question 69

What is the maximum contribution for registered pension plans?

Answer 69

The maximum contribution that can be made by the employer and employee is defined by the lesser of the following:

18% of annual income for 18% of the money purchase limit for the year

Question 70

What is the difference between define contribution plans and define benefit plans?

Answer 70

Define contribution plans have contributions defined in advance, but the amount of the annuity on retirement is not defined in advance

Define benefit plans, have the employees contribution defined in advance, as well as the amount of the annuity to be received by the employee on retirement. The employer contributions are not defined in advance. However, there is a minimum contribution set.

Question 71

What is DPSP?

Answer 71

Deferred profit sharing plans

Only the employer contributes to the employee retirement plan

These contributions can be deducted from the employers income and are non-taxable for the employee

these contributions generate tax-free income (deferred profit) , and are taxable when the employee withdraws them as with RRSPs

Question 72

How awesome are DPSP‘s?

Answer 72

Pretty because the employer contributions are non-taxable for the employee. The profits on those contributions are tax deferred.

Any withdrawal is of course, taxable as per any RRSP account

Question 73

What is an LIRA?

Answer 73

It is a locked in retirement account

It is created by the supplemental pension plans act and is used to transfer amounts accumulated in a punch fund called a retirement plan.

The amount transferred to LIRA, may come from:
- Registered pension plan
- Deferred profit sharing plan
- Another locked in retirement account
- an annuity
- A life income fund (LIF)

Question 74

What is an LIF?

Answer 74

Life income funds
The life, income fund, which was also created by the supplemental pension plans act, is used to transfer amounts that have accumulated in:
- A pension plan
- Locked in retirement account
- A deferred profit sharing plan
- Another life income fund
- A registered retirement savings plan

Question 75

What are the two types of account created by the supplemental pension plans act?

Answer 75

LIRA
LIF

Question 76

What do LIRA and LIF have in common or have differences in?

Answer 76

LIRA is locked in while LIF is not
Both LIRA and LIF are created by the supplemental pension plans act
Both are used to transfer amounts accumulated from other accounts (there is a list for each)

The LIRA, is used to transfer amounts accumulated in a pension fund, where as LIF also includes transfers from an LIRA.

Basically, LIRA is locked until retirement, and LIF is not locked, and it is from which you can pay your life as a retired individual.

Question 77

What are the death consequences of registered plans?

Answer 77

The general rule is that a taxpayer who dies is deemed to have disposed of all property just before death at its fair market value

Question 78

What is the general rule about a taxpayers death regarding retirement plans and what are the three exceptions?

Answer 78

The general rule is that a taxpayer who dies is deemed to have disposed of all property just before death at its fair market value.

Three exceptions:
1. Amount paid to the legal or common law, spouse of the annuitant/deceased person.
2. Amount paid to a child, who is financially dependent on the annuity at the time of death, and who is totally disabled.
3. Amount paid to minor children dependent on the annuity at the time of death.

Question 79

What are the tax consequences of death on registered plans?

Answer 79

If amounts are bequeath to a surviving spouse, the spouse can transfer them tax-free to an RRSP, registered income, fund or eligible annuity.

If amounts are bequeath to a dependent child, who is totally disabled, physically, or mentally, the child, can transfer amounts, tax-free to his or her own RRSP

The amounts are creased to a dependent child under the 18 years of age and who is not totally disabled. The after tax amounts can be used to purchase a fixed term annuity that does not exceed 18 years less the age of the child.

Question 80

Are the death consequences on the RRIF the same or different than an RRSP?

Answer 80

They are the same

Meaning, the general rule is that the Dare who dies is deemed to have disposed of all property just before death at its fair market value (taxable)

With the exception of amounts bequeath to a surviving spouse, minor child, or child, that is totally disabled

Question 81

How do locked in retirement funds and life income funds differ in terms of death consequences,?

Answer 81

They are governed by the same tax rules as RRSP’s

Question 82

What is the consequence of death for a person registered to a pension plan?

Answer 82

A pension plan usually has a beneficiary. If that beneficiary is the legal or common loss spouse, the total amount can be transferred tax-free to an RRSP, RRI,F, or another registered pension plan.