Risk Management and non-life insurance

Question 1

Risk avoidance

Answer 1

is the strategy most appropriate for activities with high probability and high severity risks

Question 2

Risk reduction

Answer 2

is appropriate for all high probability risks, regardless of their severity. Examples of risk reduction include taking safety measures and segregating of risks.

Question 3

Risk sharing or risk transferring

Answer 3

is appropriate strategy for low probability/high risks, such as premature death or disability.

Question 4

Risk retention

Answer 4

Which occurs when your client is willing or unable to apply the other three risk management strategies. However, they do not reduce the probability of premature death.

Funded retention: client set aside funds for the risk
Unfunded retention: has not set aside funds for the risk

Involuntary risk retention is risk retention when the person does not recognize that the risk exists or when the risk cannot be avoided.

Question 5

Provincial health care coverage

Answer 5

All provincial health care plans cover the medically required services of general practitioners and specialists according to an approved schedule of fees. Basic medical services that are covered include:

• diagnosis and treatment of medical conditions
• surgical services
• maternity services
• anesthesia services
• Xray, lab and or diagnostic procedures
• vaccinations, inoculations and annual routine physical exams
• services of a specialist upon referral

Some services provided by medical professionals are not considered by provincial health care plans to be medically necessary, so they are not covered. Some of the services that are not covered include:

• telephone advice
• cosmetic surgery for aesthetic purposes
• medical exams for employment, life insurance, passports, and other purposes
• hospital charges for private or semi-private rooms.

Question 6

Provincial health care coverage for new arrivals

Answer 6

New arrivals to Canada who are legally eligible to live here are covered by their provinces health care plan within 90 days of their arrival, provided that they register with the provincial health care authority. Residents who travel to other provinces or out of the country are still covered by the health care plan of their province of residence provided that they intend to return.

Question 7

Provincial health care coverage - moving from province to province

Answer 7

All provinces require their residents to register with the provincial health care authority in order to be eligible for coverage. For those people who are relocating from one province to another, their former province of residence will cover them for a period of time after they move to a new province. Although the waiting period for new coverage varies from province to province, the max waiting period is 3 months.

Question 8

Is there a regulatory body that sets out standard definitions of the qualifying symptoms for Critical Illness to be set in a Critical illness policy?

Answer 8

No

The criteria are unique to each insurer.

Question 9

Travel health care

Answer 9

• if the covered individual dies while they are away, the insurance company will cover the cost of sending the remains back home
• If suffered a medical emergency, the insurance company would cover the cost to fly family member to join her
• If suffered a medical emergency and had to return home early, travel health plan would cover the extra cost incurred by a traveling companion who must accompany her.

Question 10

private health services plan

Answer 10

The owners/managers of incorporated businesses can deduct premiums paid for private health services plan coverage from their business income provided that equivalent coverage is extended to all permanent full-time, arm’s length employees

Sole proprietors are partners can deduct premiums paid for private health services plan from their business, provided that equivalent coverage is extended to all permanent full time employees.

Question 11

Private Health Service Plan - what criteria has to be met in order to be able to deduct the full amount of a family’s premiums from business

Answer 11

At least 50% of the employees covered by the plan must be dealing at arm’s length with the owner.

If less than 50% are dealing at arm’s length, then deductions are limited:
$2500 for owner
$2500 for spouse
$1500 for child who works with the company
$750 for other child

Question 12

Who can you claim a medical expense for

Answer 12

• yourself
• spouse
• you or spouse’s children under 19 and who are dependent

You can claim the portion of eligible medical expense you or your spouse paid for the following persons who depended on you:

• child or was 19 or over or grandchild
• you or your spouse’s parent, grandparent, brother, sister, aunt, uncle, niece, nephew who was a resident of Canada at any time in the year.

Question 13

Tax credit for qualifying medical expenses

Answer 13

is a non refundable federal tax credit to provide income tax relief for medical expenses.
The conversion rate is the lowest income tax rate (15%)

The federal medical income tax credit is calculated as:

(the lesser of ((3% x taxpayer’s net income) and the net income ceiling)))) x conversion rate)

Question 14

Who should claim the medical expense?

Answer 14

If both spouse’s income is over the threshold limit, $73600, then it does not matter who claims the expenses.

If both spouses are under the threshold, then the spouse with the lower income should claim the medical expenses, if they have enough taxable income to use the credit.

Question 15

Long Term Care - Shared coverage

Answer 15

Shared coverage is a single policy that provides long term care insurance based upon a benefit balance for a couple who share the benefit balance..

Shared coverage provides greater flexibility because either partner can use the care benefits. While there may or may not be any difference in cost, it is hard to imagine a situation where shared coverage would not be the better alternative for a couple.

Many policies will pay out only if you require facility care assistance. A comprehensive plan is a plan that provides coverage for whether you are receiving care in your home or in an approved long term care facility.

Question 16

Riders available for long term care policies

Answer 16

1) Premium guarantee
Insurers are not prepared to contract for fixed premiums for long term care.
Some insurers contract to keep any increase in premium less than 50%

2) Waiver of premium rider
Provides for the insurer to waive the premium that is need to keep your policy in effect while you are eligible for long term care benefits.
If you become ineligible for long term care benefits, you would have to start paying premiums again.

3) Inflation protection
rider that the benefit payments and any remaining benefit balance are indexed. An insurer may offer you a range of inflation protection rates from which to choose from. The higher the rate: the higher the premium.

4) Return of premiums on death
provides a benefit to your named beneficiary or estate of the amount of the returnable premiums.

Question 17

The amount of returnable premiums by an insurance company is calculated as

Answer 17

(lesser of (E and F) X G) - H

E = all premiums paid, including policy fees and riders
F = the benefit balance as of date of death
G = return percentage
H = the amount of long term care benefits paid

Question 18

Risk Matrix

Answer 18

Can be used to describe both the probability and severity of a particular risk. The probability of risk can be rated as either low, medium, or high. The severity of risk can be rated as minor, material, or critical.

The purchase of disability income insurance does not reduce the probability or disability, however, it will reduce the severity of the financial consequence if the insured becomes disabled.

Question 19

6 steps in risk management plan

Answer 19

1) identify risk management goals
2) gather date to determine risk exposure
3) analyze and evaluate the information to identify risk exposures facing the client
4) Construct a risk management plan
5) implement the recommendation
6) monitor the recommendation for any needed changes

Question 20

CPP Disability benefits

Answer 20

To be eligible, must be so severely disabled that he is unable to pursue any gainful occupation and is unlikely to be unable to do so for a long period of time. A contributor,is regarded as disabled if an examination reveals a medically determinable impairment in which physical or mental disability is so severe and prolonged that he is unable to pursue regularly any substantial gainful employment.

Benefit is paid monthly, beginning the fourth month following the month in which the contributor became disabled. The cpp disability benefit is taxable income.

The benefit consists of two portions: an earning related portion of 75% of the CPP the contributor would have received at 65 plus a flat rate portion that is paid to all eligible disabled contributors.

If the contributor qualifies for a disability benefit and has children under the age of 18, or between 18 and 25 and attending school full time, then the contributor may receive and additional benefit for each such child.

Question 21

Disability - standard exclusions

Answer 21

Include:

• sickness arising from pregnancy
• injuries that cause a disability more than 90 days after the injury was sustained
• psychoneurotic disorders
• injuries resulting from risky activities
• losses caused by acts of war

Question 22

Standard presumptive clause

Answer 22

of a disability income insurance contract is a clause that an insured person is considered to be totally disabled if through sickness or accident, she suffers a complete and irrevocable loss of speech, hearing, sight, or the loss of two limbs.

If any of these events occur, the insured will receive full payment until either the end of the benefit period or for life, regardless of whether the insured might be able to earn an income with her own or any other occupation.

Some companies require only the loss of use of hands or feet, while others require loss of use by severance. When coverage is provided for loss of use, some insurers require that the loss of use be permanent, while other provide benefits as long as the loss of use continues.

Question 23

Monthly benefit for residual disability is calculated as

Answer 23

(loss of monthly before tax income) / (prior monthly before tax income)) x monthly benefit for total disability

Question 24

Future income option rider

Answer 24

that gives the insured the right to increase the disability coverage of his policy, regardless of changes in health. The insurer may or may not require that the insured’s income has increased enough to justify the additional coverage under the principal of indemnification. A disability policy with a future income option will usually allow the insured to exercise the option to purchase this additional coverage once per year on the policy’s anniversary date.

Question 25

Partial disability rider

Answer 25

is a disability due to injuries or sickness, such that the insured is unable to perform either:

• the important duties of his occupation by at least one half of the time usually required
• one or more important duties of his occupation

Question 26

Disability tax credit and claiming attendant care

Answer 26

A taxpayer who is mentally or physically impaired can deduct expenses for a full time attendant or care in a nursing home.

The disability tax credit can be claimed for a taxpayer who is mentally or physically impaired, provided that he makes no deduction for expenses for a full time attendant or care in a nursing home.

If a taxpayer can claim the disability tax credit, but the sum of his tax credits exceeds his federal tax on taxable income, the excess disability tax credit may be transferred to his spouse, common law, or supporting relatives.

Question 27

Recurrent disability clause

Answer 27

Covers reoccurrence of a disability, if the disability is related and happens within 6 months of the first claim. Elimination period the second time is not required.

Question 28

Rehabilitation coverage in DI contracts

Answer 28

Most standard disability income insurance contracts will pay at least part of those rehabilitation costs that are not covered by government plans.

The rehabilitation programs can be government sponsored or professionally planned programs.

An insured individual who is eligible to participate in a rehab program can continue to receive their monthly benefits for total disability. In order to be eligible, the insured must be totally disabled, and he must obtain the insurer’s approval in advance.

Question 29

Second payor provision

Answer 29

If a disability income insurance plan has a second payor provision, it means that the benefit under that plan will be reduced by benefits payable under other policies that cover the same risks.

This is most relevant to government, employer-sponsored, and association group plans. Individual disability insurance contracts generally do not have second payer provision.

EI disability benefits are second payor to CPP/QPP and Worker’s Comp, but not to individual disability policies.

Question 30

Cash flow benefit provision

Answer 30

will provide the insured with a monthly income for a period of time after he returns to work. The cash flow benefit will be a portion of his monthly income benefit and it does not require proof of continuing disability.

Question 31

Another name for “guaranteed renewable” provision

Answer 31

Guaranteed continuable

Question 32

Conditionally renewable provision

Answer 32

means the insurer cannot decline to renew the policy at the renewal date because of a decline in the insured’s health. However, the insurer can opt to increase the premiums at the time of renewal. The only way the insurer can decline to renew the policy is if it declines to renew all the polices of the same classification.

Question 33

Commercially renewable provision

Answer 33

means that the insurer can raise the premiums, attach restrictive riders, or cancel the policy at the renewal date, regardless of the reason. This is sometimes referred to as an optionally renewable provision.

Question 34

Non traditional disability insurance

Answer 34

provides protection to classes of occupation that would otherwise be uninsurable, or that would be insurable only at an inflated cost. It provides very limited coverage with specific inclusions of causes of disability, limited benefit periods, and limited coverage. Some occupations are not eligible for even non traditional disability insurance because of the high risk of injuries and accidents.

Non traditional disability insurance provides payment of benefits after the first day of injury, thereby providing immediate income replacement following an accident. In some cases, the benefit period can be extended to 65 to 70 years of age. In addition, non traditional disability policies are usually field issue or guaranteed issue, which means that the disability policies are in effect upon completion of the application. These policies are designed to cover a wide range of occupations, including those with a high risk of injury.

Question 35

Property and Casualty Insurance compensation Corpration

Answer 35

industry-operated fund that pays policy claims if a member insurance company goes bankrupt. Unless they are covered by another authorized plan or government plan, all property and casualty insurance are required to be members of PACICC. If a bankruptcy does occur, PACICC will pay out the recoveries to the affected policy owners and then the participating insurance companies will be reassessed for their share of the costs involved.

The most you could recover from PACICC is $250,000 with respect to all unpaid claims for losses arising from a single occurrence.

Question 36

Two terms used for property insurance coverage

Answer 36

1) Named perils coverage means that all perils and forms of loss that are covered by the policy are specifically listed in the policy, and any peril or form of loss that is not listed is therefore not covered
2) All risks coverage, all perils and forms of losses are covered, unless they are specifically listed as not being covered

There two terms then used in combination to define three levels of personal property insurance coverage as follows::

• homeowners standard policy covers the building and its contents only for perils that are specifically named, such as fire, lighting, water damage, theft, etc. This policy provides named perils coverage on both the building and its contents.
• homeowner’s broad form policy covers the building itself against all risks except for those specifically excluded, while the contents are insured only against named perils. This policy provides all risks coverage on the building, but named peril coverage on its contents.

-homeowner’s comprehensive form policy
covers both the building and its contents against all the risks, except for those specifically excluded. This policy provides all risks coverage on both the building and its contents.

Question 37

Common exclusions that apply to liability coverage available in a typical homeowner’s policy

Answer 37

1. insured cannot be protected from intentional injury
2. liability arising from business activities
3. all motor vehicle designed for travel on public roads and subject to motor vehicle registration are excluded from homeowner’s policy.

Question 38

Residence employee

Answer 38

is a person who is employed by the homeowner to perform duties in connection with the use or maintenance of the insured premises, such as gardeners, cleaners, cooks, nannies. May provide reimbursement of medical expenses and it may also cover lost wages

Employer’s liability endorsement of a homeowner’s insurance policy does not cover individuals who work on the insured premises in connection with a home business.

Question 39

Comprensive auto coverage

Answer 39

only covers the cost of repairs to the policy owner’s insured car when that car is damaged in circumstances other than collision.
Comprehensive coverage does not cover liabilities for personal injuries that arise from the use of that automobile.