Lesson 2

Question 1

1.1 Contrast AD&D coverage provided on a 24 h basis with coverage provided on a non-occupational basis

Answer 1

AD&D coverage on a 24 h basis means that it covers accidents that occur both on and off the job.

non-occupational coverage does not provide coverage related to accidents at work and is prevalent for workers with hazardous occupations where employees qualify for WC benefits

Question 2

1.2 Explain why AD&D group contract specifies a time limit for payment of benefits

Answer 2

The time limit is usually 365 days following the incident.

This allows the insurer to determine whether a death or injury was a result of the accident.

The longer the time period between the accident and the death or injury the more difficult it is to asses the actual cause.

Question 3

1.3 Describe how accidental death is described in most AD&D policies

Answer 3

Some define accidental death as death that results from an accident

Most define accidental death as death resulting from accidental means rather than simply being the result of an accident.

A common definition is death that results, directly and independently of all other causes, either from bodily injury sustained by external, violent, and accidental means or from accidental drowning.

Accidental means that the action is, itself, a chance occurrence in the sense of being unintended and unexpected. If the action was intentional, such as in a drug overdose then it is not accidental.

Question 4

1.4 Identify 4 circumstances in which most group AD&D plans will specify that benefits aren’t payable

Answer 4

1) self inflicted injuries
2) Declared or undeclared war or any act of war
3) Full time active duty in the armed forces of any country or international authority
4) Flying as a pilot or crew member of any aircraft

Question 5

1.5 Explain why dismemberment is a misnomer in the context of group AD&D insurance

Answer 5

It’s no longer restricted to the loss (severance) of a body part.

Coverage includes the loss of use of certain body parts or certain faculties (speech, hearing)

Some also provide payment of twice the principal sum for types of paralysis such as quadriplegia, paraplegia and hemiplegia

Question 6

1.6 Identify 7 ancillary benefits that can be included in AD&D insurance

Answer 6

1) Repatriation of remains in the event of death outside a minimum distance from the individual’s city or town of residence
2) Rehabilitation
3) Transportation of a family member in the event of a plan member’s hospitalization resulting from an accident
4) Seat belt provision
5) Day care services
6) Home alteration and vehicle modification
7) Reattachment

Question 7

1.7 Describe how voluntary AD&D insurance coverage is similar to basic AD&D coverage (3 points)

Answer 7

Commonly offered on a 24h basis and plan members pay the entire premium,

Benefits are offered in units of $10,000 or $25,000 up to maximum.

Voluntary AD&D also offers coverage for dependents at the plan member’s expense

Question 8

2.1 contrast beneficiary designation rights in Quebec with other jurisdictions

Answer 8

In all jurisdictions but Quebec, the plan member may change the beneficiary at any time, except in rare situations.

In Quebec, the designation of a spouse as beneficiary for all benefits is automatically considered irrevocable unless explicitly stated otherwise

Question 9

2.2 Describe the facility of payment provision

Answer 9

The facility of payment provision allows for the payout of a dollar amount stipulated in the group contract to an individual responsible for paying funeral costs and other related expenses.

Applies where the beneficiary is a minor or mentally or physically incapable.

The insurer can implement a temporary payment until the guardian of the employer can make a claim

Question 10

2.3 Explain how a living benefits payment is triggered

Answer 10

Allows for partial payment of life insurance while the member is living given short life expectancy (12-24) months.

Question 11

2.4 Describe how continued coverage for disabled members can be provided in group life insurance plans

Answer 11

Usually by including a waiver of premium for members that are disabled. The waiver continues even if the group contract terminates.

Definition of disabled is usually total disability before age 65. It can be tied in with the plan definition of disability which usually has the waiver of premium tied into disability approval

Question 12

2.5 Outline applications of the waiver of premium provision in optional group life insurance plans

Answer 12

Sponsors usually request waiver of premium provisions in optional group life plans.

This is advantageous for members, lowers admin issues but add additional costs.

Some plan sponsors don’t add the waiver provision but continue to pay the member’s premiums. The contract may be canceled with no continuation to the disabled member.

The plan sponsor must still offer some type of coverage depending on the terms of the group contract. Usually with the new insurer on a premium paying basis.

Question 13

2.6 Explain how extension of coverage is usually provided in group life insurance then an active plan member’s service is temporarily interrupted for reasons other than disability

Answer 13

Usually this is addressed in group contracts for usual causes ( temporary layoffs, strikes, leaves of absence)

Coverage usually extends for 1-3 months after the EE has left active employment.

Coverage may cease if an individual engages in certain activities like joining the armed forces.

A waiver of premium provision may be provided but the plan sponsor may also extend the benefit without the waiver of premium provision if the member becomes disabled while not actively at work

Question 14

2.7 outline conditions under which the insurer or plan sponsor can terminate coverage provided in group life insurance plans (3)

Answer 14

1) Premiums aren’t paid within 31 day grace period
2) On any premium due date if certain conditions are met such as the ER doesn’t retain the stated minimum participation rate
3) Contract termination with appropriate notice (usually 31 days)

Question 15

2.8 Outline situations in which an insured individual’s group life insurance is automatically terminated and when dependent coverage is terminated (5+1)

Answer 15

1) the group contract is cancelled by the plan sponsor that is the contract holder
2) The individual is permanently terminated from active employment
3) The EE is no longer in a covered employment class
4) The premiums for the entire plan aren’t paid within the 31 day grace period
5) The premium for the member’s coverage isn’t paid

The dependent’s coverage automatically terminates in any of the above cases and when they no longer qualify as a dependent.

Question 16

2.9 Describe what right is generally conferred to the individual by the conversion option

Answer 16

Within 31 days of coverage ceasing they may convert the face value of the benefits to an individual life insurance policy without evidence of insurability.

Question 17

2.9.b Compare convertibility limits between QC and all other provinces

Answer 17

Insurers in QC are required to offer conversion up to $400K in all other provinces it’s $200K

Question 18

2.10 Outline the conditions under which an insurer can contest the validity of a group contract

Answer 18

1) at any time if premiums aren’t paid.
2) In the case of a significant misrepresentation by the plan sponsor in its application for a limited period (usually 2 years)
3) when an insured individual’s signed application contains a material misrepresentation in relation to their insurability the insurer can deny claims within a specific period

Question 19

2.11 Explain how insurers address a misstatement of age after premium rates have been set (3 points)

Answer 19

If age is understated the contract holder is responsible for making up the difference in premium payments.

If age is overstated the plan sponsor has a right to a refund.

If the adjusted premium rate means an adjustment must be made to the member’s contribution amount the member and sponsor must determine how to address deficient or excessive contributions

Question 20

3.1 Describe the income tax provisions that generally apply to plan sponsors providing group life insurance coverage (4 points)

Answer 20

1) Plan sponsor contributions to life insurance coverage are deductible as an expense
2) Deductible premiums include Life insurance, dependent life insurance up to $10K
3) annual sponsor contributions must e included as taxable benefits for the insured individual
4) any contributions paid by the individual for group life insurance aren’t tax deductable

Question 21

3.2 Explain how premium tax is applied to group life insurance plans (4 points)

Answer 21

1) all jurisdictions asses a premium tax on insured premiums
2) a premium tax on self insured claims and expenses is assessed in ON, QC, NL
3) premium tax is assessed, collected and remitted by the insurer or, if self insured, by the administrator
4) The tax percentage varies by jurisdiction. Provincial and federal sales tax applies to it as it is included in premiums

Question 22

4.1.a Describe the general approach for funding life insurance for small groups

Answer 22

Up to 150 lives

Usually a nonrefund accounting basis that is fully pooled.

Volume is too low for experience rating. These groups are best served having their risk pooled with other similar groups

Question 23

4.1.b Describe the general approach for funding life insurance for midsized groups

Answer 23

150-500 lives

Usually a fully pooled nonrefund accounting basis

Question 24

4.1.a Describe the general approach for funding life insurance for large groups

Answer 24

May be insured on a refund accounting basis.

Plan sponsors typically choose nonrefund basis with or without pooling in order to limit large losses

In practice there are few to non self insured arrangements for life insurance because of high risk and because self insured benefits of more than $10K are taxable to the beneficiary

Although they may self insure amounts less than that for retirees

Question 25

4.2.a List three common methods used by plan sponsors to fund retiree life insurance

Answer 25

1) Current cost method
2) Single premium paid up method
3) Installment method

Question 26

4.2.b Describe the current cost method of funding retiree life insurance

Answer 26

Pay as you go method. The plan sponsor pays annual premiums until the member’s death.

This is a costly option and results in active members subsidizing retirees. It is only viable in a very large group so as to not deter active member participation.

Question 27

4.2.c Describe the Single premium paid method of funding retiree life insurance

Answer 27

Transfers the liability for making the life insurance benefit payment to a third party.

This is done through a one time lump sum payment (which may be in excess of the accounting liability) to the third party.

The third party then takes on the administration and payment of the benefit.

Question 28

4.2.d Describe the installment method of funding retiree life insurance

Answer 28

Essentially this is the single premium method with financing. Usually a 5-10 year term.

The sponsor is responsible for all payments even if the member dies before the term is up

Question 29

5.1 List four ways that benefits typically paid in a critical illness plan can be used by the insured individual

Answer 29

1) ongoing medical expenses or experimental treatments
2) Medical expenses not covered by provincial, territorial or private insurance plans
3) Expenses associated with lifestyle or mobility changes associated with the illness
4) A vacation or for other activities that would not be affordable otherwise

Question 30

5.2 Explain the tax treatment of critical illness insurance

Answer 30

CI is classified as a group sickness or accident insurance plan under the ITA

Plan sponsor contributions are taxable to the plan member and benefits are received tax free.

Plan sponsor paid premiums to a hybrid plan that combines life and CI insurance are taxable to plan members

Question 31

6.1 Describe the purpose of the legislative provisions related to death benefits outlined in IT-508R Death benefits

Answer 31

1) to ensure that amounts received as death benefits are included in the recipients income
2) to allow an exclusion of up to $10,000 of the gross amount of death benefits attributable to a deceased taxpayer’s service in an office or employment

Question 32

6.2 Define “death benefit” as outlined in IT-508R Death benefits

Answer 32

In general terms it is the gross amount received by a taxpayer in a taxation year less $10,000

Question 33

6.3 Identify types of payments that are not considered death benefits under the IT-508R (5)

Answer 33

1) Payments received out of a superannuation, pension fund, and in general payments from a salary deferral arrangement or a retirement compensation arrangement upon or after the death of an officer or employee
2) A payment in respect of accumulated vacation leave when an employee dies prior to retirement
3) A death benefit paid under the CPP or QPP
4) A payment representing deferred employment income that would have been taxable in the employee’s hands had the employee not died
5) A payment representing overtime pay that would have been taxable in the employee’s hands had the employee received the amount before death