Life & Disability Flashcards
3 major items that premiums are based on
Age
Gender
Health status
Most Canadians need mandatory insurance. 4
- Provincial health plans for hospital and physician service to residents of Canada
- car owners need vehicle insurance
- corporations need liability
- professional liability for professionals
2 consequences of being underinsured
Issuers not cover full replacement
Insurers may consider policy void if they think it’s intentional
Percent of income that can be covered with disability insurance
60%
2 benefits to insurance policy holders in regards to taxation
Beneficiary receives death benefit tax free
Investment growth inside is tax free,while held inside
4 risk factors leading to morbidity
Health
Lifestyle
Gender
Socio-economic
Cra requirements of a private health services plan - 5 elements
- undertakings by one person
- to indemnify another person
- for an agreed consideration
- from a loss or liability in respect of an event
- the happenings of which are uncertain
** a valid PHSP must involve reasonable risk
PHSP can take one of 2 forms
Insured plan, employer pays premiums under contract of insurance to insurance co
Self insured, PHSP is not backed by contract of insurance but a contract where employer reimburses
When can self employed deduct their premiums for PHSP
If business income exceeds 50% of their total income, or if income from other sources less than $10k
How can employers limit liability under PHSP. 2
Cap amount
Require employee to contribute to plan or have deductible
Who has ownership and control over individual disability
Purchased owned and controlled by insured
Who has ownership and control over group disability insurance
Employer purchases
Is individual disability portable
Does not terminate after insured leaves
Is group disability insurance portable
May end when insured leaves
If employer agrees, it may be portable
What kind of coverage for individual disability insurance
Usually insured can tailor it
What kind of coverage for group disability insurance
Usually restricted to 3 levels
- sick leave
- short term
- long term
Premiums for individual disability insurance
More expensive to policy holders
May include ability to waive premium during disability
Premiums for group disability insurance
Employer pay full
Lower cost because more people
Benefit for individual disability insurance
May provide for loss of income, not inability to work
Benefit contractually guaranteed
Limited time it pays
Benefit for group disability insurance
Long term benefit usually reduced by other benefits received
Optional riders for individual disability insurance
Return of premiums if low or no claim
Cost of living or residual benefit
Optional riders for group disability insurance
Purchase extra coverage
Evidence of insurability for individual disability insurance
Increase coverage without more underwriting
Evidence of insurability for group disability insurance
Offers basic regardless of health
Tax on individual disability insurance
Premiums not deductible, paid with after tax dollars
Benefit is tax free
Tax on group disability insurance
If insured pay benefit is tax free , if employer taxable
What is a non-cancellable policy
Insurer cannot cancel or increase price during contract
What is a guaranteed renewable policy
Cannot increase individual premiums
What is a conditional renewable policy
At end of premium payment period, insurer can refuse to renew policy for outlined reasons
What is a commercially renewable policy
Based on claims, on anniversary, issuer can cancel or increase price
What is a cancellable policy
Allows insurance co or policy holder to cancel anytime as set out in policy
How are incurable earned income calculated for disability insurance
Earned income after expenses but before taxes
Ways to determine earned income for self employed 4
- Monet they take from business
- net profit, if directly attributed to applicants
- dividend if there’s a pattern
- if company, look at financial statements
What is not included as earned income for self employed
- Depreciation, cca
- discretionary dividend
- dividend payed previous year
- retained earnings
Important needs life insurance can provide. 4
pay insured clients taxes
Pay debts/ final expenses
Provide for dependent
Fund a goal
Explain term to 100 plans
Premiums go to 100, then considered paid. Client remains covered for life
When is a whole life insurance policy said to mature
When cash value equals death benefit, usually 100
Provincial laws require insurance companies to include 3 details in the contract
Identity of policy holders
Life insured
Premiums
Incontestable clause
Allows insurer to void contract-in first 2 years if untruthful
2 options if misrepresentation of age while still alive
- increase or decrease coverage
- adjust premiums retroactively
If misstatements of age is found at death
Death benefit adjustment
If intentional fraud in insurance application
Can void policy at anytime
Types of preappoval for insurance
- conditional approval
- conditional insurability receipt
- temporary insurance
What is interim Conditional approval
Insurer agreed to cover death during underwriting processes policy delivery
Conditional insurability receipt
No underwriting decision yet but will cover death if it happens during decisions
Temporary insurance
Insurer agrees to provide life insurance from date app completed even if they end up deciding unacceptable risk for insurance
Cancellable
Not usually on life insurance contracts, but allow insurer of insured to cancel
Non cancellable and guaranteed renewable
Guarantees that insurance company will not cancel, increase premiums or make changes until insured is certain age - common for disability
Convertible
Clients can convert term to permanent
- usually certain time (55 or 65)
- insurability evidence not required
- converted policy is an extension and death benefit remains the same
Renewability
Renew term policy without evidence of insurability
- premiums increase due to age not health
Death benefit payment to terminally ill
- advanced death pay
- full death benefit if dying within 12 to 24 months
Waiver of premiums
If become disabled, premiums waive until recovery or 65
Level term rider
Added to permanent life, provide extra coverage at lower cost
Family coverage
Added to term, for coverage of dependant
Child term rider
Extra coverage for children until 21 to 25, then kids can convert to individual without evidence of insurability
Spousal term rider
Adds term coverage for spouse and children who are minors. Children automatically added after 15 days
Accidental death rider
Extra money if die of accident
Guaranteed insurability rider
Can apply for additional coverage after policy issue without evidence of insurability
I.e. every 5 years, with a max - premiums based on age when rider is exercised
Cost of living rider
Policy holder can purchase one year term equal to change in CPI without evidence of insurability
If beneficiary discrepancies between will and insurance app
Most recent wins
Benefit of naming beneficiary in insurance 4
No probate
No estate delays
Avoid intestacy rules
Privacy
Benefit of naming beneficiary of family class
Credit or protection, souse, child, grandchild or parent
if holder and insured differ then the beneficiary / insured relationship is determined.
If insurance policy has “all children”listed as beneficiary
All children equally including those born after contract signed and out of wedlock
Quebec rule with designating spouse as beneficiary of insurance policy
Irrevocable unless stated otherwise
Can will designate irrevocable beneficiary
No
If policyholders don’t want to pay irrevocable beneficiary
Stop paying premiums and let policy lapse
Key advantage of irrevocable beneficiary
Creditor protection
Disadvantage of irrevocable beneficiary is that you need there approval to to the following. 5
Change beneficiary Surrender policy Use as collateral Take out policy loan Take cash out
Survivorship rules if beneficiary and insured die before policy holder
Paid to contingent beneficiary, if none, then policy holder
Survivorship rule if policy holder and beneficiary die at same time
Proceeds paid as if beneficiary died before policy holder - money paid to policy holder
Survivorship If policy holder is different from insured, and policy holder dies before beneficiary and insured
Ownership transferred to successor owner, otherwise ownership passes to personal representative of policy holder and ownership is transferred according to will
If no will, province determines new owner
2 types of permanent life insurance
Term to 100 life insurance policy
Universal
Reasons for getting universal life policy. 8
Permanent insurance Extra cash to invest Shield returns from tax Access extra cash Ability to change premiums Decide how to invest extra premium Comfortable with selecting investment Maxed annual RRSP contribution
What kind of policies pay dividends
Participating shares companies surplus
3 factors affecting size of dividends from participating policy
Investment earnings
Mortality experience
General expense level
Ways that participating policy holders can receive dividends 5
Cash Left in to gain interest Used to reduce premiums Purchase additional term insurance in form of rider Purchase paid up addition
What determines how dividends from participating policy are paid
In contract or holders choice
What is premium offset mean
Dividends issued are equal to required premiums
Are dividends from whole life participating policy subject to income taxes
- not if paid out, considered return on cost
- if lest in, interest earned on dividends are taxed
Types of creditor insurance. 6
Life insurance Disability insurance Critical illness insurance Accidental death and dismemberment Job loss Hospitalization
How does disability insurance for a creditor work
Covers minimum payment and once better borrower owes remaining
What are considered critical illnesses
Cancer Heart attack Stroke Multiple sclerosis Parkinson’s
Is creditor insurance mandatory to borrow
No
What is the ownership and control of creditor insurance
Group policy issued to creditor
Cancellability of creditor insurance
Can be canceled by borrower at any time
- depend on province, 20 - 30 day review with full refund of premiums
Minimum and maximum amounts of coverage for creditor insurance
Limits on amount or time which proceeds are paid
I.e. amount limit to debt
Is creditor protection portable
No because group plan tied to debt, terminates when debt is paid
Is insurability required for creditor insurance
Basic health questions
Age range for creditor insurance
18/19 - 65/70
