ROC Ethics and Professional Practice

Question 1

Legal capacity

Answer 1

Relates to a person’s ability to provide valid consent

Question 2

Natural persons (individuals)

Answer 2

Usually defined as a human being

Question 3

Partnerships

Answer 3

Arrangement between two or more parties carrying on business together with a view of making a profit

Question 4

Legal person (corporation)

Answer 4

A separate entity from those that manage or own it. Corporations effectively have most of the property rights of individuals, and so can enter into contracts, and buy, sell, and own all kinds of property.

Question 5

Minors

Answer 5

Persons (individuals) who are under the “age of majority.” For contracting a policy (but not as a beneficiary receiving death benefits), a person 16 yers of age or older has the capacity to contract for insurance on its own behalf.

Question 6

Guardian

Answer 6

In their will, parents can appoint a guardian for their minor children and authorize the executor or estate trustee to make payments to such guardian.

Question 7

Power of Attorney (PoA)

Answer 7

A legal document made by one person, called a “principal,” who appoints another person, call an “attorney” or “agent,” to deal with the business and property of another person and to make financial and legal decisions on their behalf.

Question 8

Enduring PoA

Answer 8

PoA that will continue even if the principal becomes mentally incapable or making decisions.

Question 9

Guardianship

Answer 9

Unlike enduring PoA, guardianships only come into effect after a person has been declared incapable.

Question 10

Marriage

Answer 10

A formal legal status that is acquired and terminated pursuant to federal law. Has significant effects on property ownership and civil rights that are subject to provincial and territorial law. Creates legal rights and obligations. Presumed division.

Question 11

Common law status

Answer 11

Determined by cohabitation in a conjugal or marriage-like relationship for a specific period of time. No presumed division.

Question 12

Family property

Answer 12

Property that was acquired during the marriage, or is used or enjoyed by the family or married spouses, or that generates income that supports the family. Presumed subject to equal division when the married spousal relationship breaks down, but subject to a judge’s discretion.

Question 13

Property acquired prior to the marriage or relationship or that came from an inheritance during the marriage

Answer 13

Usually gets protection from division (as opposed to family property).

Question 14

Estate

Answer 14

Collection of property and property rights that the deceased owned. An estate can be bankrupt, in which case the persons named in the will can simply refuse the inheritance.

Question 15

Estate trustee

Answer 15

Person who controls the estate. Has the legal obligation to pay the debts (including taxes) of the deceased from estate assets, and to manage and distribute the remaining assets in accordance with the terms of the will.

Question 16

Joint tenancy

Answer 16

Ownership of property held in joint tenancy with one or more persons usually passes outside the will.

Question 17

Registered plans with a named beneficiary

Answer 17

Including RRSP, RRIF, TFSA, pass directly to the named beneficiary.

Question 18

Life insurance with a named beneficiary vs. life insurance payable to the estate

Answer 18

Passes outside the will to the named beneficiary vs. Payable to the estate of the policyholder (determined under the terms of the will).

Question 19

Surviving spouses under pension law

Answer 19

Obtain rights that have priority over designated beneficiaries, legateers and heirs, which are also received outside the will or the estate.

Question 20

Dependent’s relief legislation

Answer 20

Financially dependent persons, such as a surviving spouse or children, can sue the estate for support if the deceased person owed them duty of support and failed to make “adequate” provision.

Question 21

Testate vs. intestate

Answer 21

Testate: Died with a will vs. Intestate: Died without a will

Question 22

Effect of separation of married partners on a will

Answer 22

Has no effect. If clients wish to disinherit a former legal spouse (marriage) after separation, they need to change their will and their beneficiary designations, and sign a separation agreement.

Question 23

Effect of revoked beneficiary designations on a will

Answer 23

If a policyholder’s beneficiary designations contained in a will are revoked, and there is no valid beneficiary designation, the insurance or registered plan proceeds will become payable to the policyholder’s estate.

Question 24

Inter-vivos trusts vs. testamentary trusts

Answer 24

Inter-vivos trusts: Between living people vs. Testamentary trusts: Trusts established upon and as a consequence of someone’s death

Question 25

Guardians/PoA vs. trustees

Answer 25

While guardians and PoAs have certain powers over a person's property, they do not take title to the property vs. Trustees have legal title to the property given to them "in trust"

Question 26

Trustee's obligations

Answer 26

Under a positive legal obligation to act as and when the need arises. A form or surrogate ownership, where the trustee has title to, and control over, the trust property with the obligation to distribute them to the beneficiaries (of the trust).

Question 27

Insurance in trusts

Answer 27

Insurance proceeds can be used to create a trust fund or to enhance the size of an existing one. Trustees can own any type of property that individuals can, so they can also hold an insurance policy, pay the premiums (from trust monies) as long as necessary, and the neither transfer ownership of the policy to the beneficiary or collect and handle the proceeds of the insurance in accordance with the terms of the trust.

Question 28

Effect of bankruptcy on insurance

Answer 28

Life insurance, or financial products that qualify as life insurance (ie life annuities and segregated funds) may qualify for special protection against creditors in the event of an insolvency or bankruptcy of the policyholder. Insurance proceeds payable to beneficiaries do not form part of the insured's estate. While a designation is in effect, the insurance money and the rights and interests of the insured therein and in the contract are exempt from execution or seizure. For beneficiaries to be protected, there must be a specific provincial legislation which clearly states that a specific insurance product is exempt from seizure and under what conditions. Pension funds are generally exempt from seizure. In every province other than QC, it is possible for the owner of certain registered products to designate a beneficiary (in that case, the beneficiary will receive the death benefit outside of the estate and avoid probate fees).

Question 29

Irrevocable beneficiary designation

Answer 29

Not common.

Question 30

Asset protection

Answer 30

This is one reason that agents usually advise clients to name direct beneficiaries rather than their estate.

Question 31

Protected family class

Answer 31

Spouse, children, parents, grandparents

Question 32

Contract

Answer 32

Created by on or more parties with the shared intention of entering into a binding agreement.

Question 33

Civil fault

Answer 33

An action or omission which causes someone loss or harm for which the wrongdoer is liable.

Question 34

Limitation period

Answer 34

Once someone discovers that civil wrongdoing has been done to them, the limitation period clock starts ticking.

Question 35

Federally sponsored or facilitated programs

Answer 35

Canada Pension Plan (CPP) Old Age Security (OAS) and Guaranteed Income Supplement (GIS) Employment Insurance (EI) Purpose of CPP, OAS and GIS : To provide a secure, modest base upon which to build additional retirement income. Purpose of EI : To provide temporary financial assistance to unemployment Canadians who have list their job through no fault of their own, while they look for work or to upgrade their skills.

Question 36

Provincially or territorially sponsored or facilitated programs

Answer 36

No-fault automobile insurance Workers' compensation Universal health can and drug plan

Question 37

Privacy Act

Answer 37

Federal legislation governing how the federal government and its agencies handle personal information

Question 38

Personal Information Protection and Electronic Documents Act (PIPEDA)

Answer 38

Sets out ground rules for how businesses and other organizations may collect, use or disclose personal information in the course of commercial activities. Ensures that only information that is needed and relevant to conduct a business transaction should be collected. Once the need for the information is over, the information should be disposed of in a careful fashion.

Question 39

Human rights legislation viz. insurance

Answer 39

Insurers are permitted to discriminate in providing insurance coverage as long as they can justify it on reasonable and bina fide grounds.

Question 40

Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

Answer 40

Aims at detecting individuals and corporations involved in criminal activity and preventing them rom getting their illegally obtained money into the banking system. Insurance agents are part of the process since insurance products can be used as wealth creation, storage, and transfer tools. Suspected money laundering or terrorist financing must be reported to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Question 41

National Do Not Call List (DNCL)

Answer 41

Clients may register their phone numbers and request that telemarketers do not call them. Agents making their own telemarketing calls must register and subscribe to the national DNCL.

Question 42

Canadian Anti-Span Legislation (CASL)

Answer 42

Prohibits the sending of commercial electronic messages (CEMs) if the sender does not fist have the recipient's consent. The CEM must have prescribed consent and a mechanism to unsubscribe.

Question 43

Successor policyholder / contingent policyholder / successor-owner / subrogated owner

Answer 43

The person identified to become the owner when the policyholder dies.

Question 44

Life insured

Answer 44

The person whose life is insured and on whose death the benefit is paid. For life insurance to be valid at issue, the policyholder must have an insurable interest in the life of the life insured.

Question 45

Beneficiary

Answer 45

Person to whom or for whose benefit insurance money is payable. Beneficiaries have rights under the insurance policy but are not party to it. The rules which apply to beneficiary designations are invariable and as such the type of benefit is irrelevant in determining the validity or effect of a beneficiary designation. Meeting the statutory definition or beneficiary could be very important in determining the protection the policy would enjoy from creditors during life insured's lifetime, and the protection the proceeds might enjoy upon their death. In common law jurisdictions, it is the relationship between the life insured and the beneficiary (not between the policyholder and the beneficiary) which is crucial to creating creditor protection.

Question 46

Protected / family class beneficiaries

Answer 46

Spouse (including common law spouse) Child Grandchild Parent

Question 47

Irrevocable beneficiary designations

Answer 47

If the policyholder names a beneficiary as an irrevocable beneficiary, then they can only change that designation is the irrevocable beneficiary consents to the change. They must also get the consent of the beneficiary to withdraw policy cash, pledge or assign the policy, take policy loans, or surrender the policy. The designation of an irrevocable beneficiary renders the policy exempt from execution of judgment and seizure.

Question 48

Loss of protection (protected beneficiaries)

Answer 48

Designations that are made in an attempt to defeat creditors may be subject to challenge, despite the insurance provisions.

Question 49

Contingent beneficiary

Answer 49

Also called secondary beneficiary, to address the possibility that the primary beneficiary might die before the life insured. If there is no valid primary or contingent beneficiary designation in effect on the death of the life insured, the insurance proceeds will be paid to the current policyholder or to its estate if the policyholder dies after the primary and contingent beneficiary.

Question 50

Group insurance policies

Answer 50

Insurance companies also offer group insurance policies, insuring the lives or health of a defined pool of individuals under one policy. The pool usually consists of employees or members of a group such as a union or association with a clearly definable and controlled membership.

Question 51

Plan sponsor

Answer 51

Group plans are arranged by a plan sponsor. The sponsor may be the employer, a union, a professional association or some other entity representing the group. It is the sponsor who enters into the master contract/policy with the insurer. In accordance with normal contract law, it is therefore the group policyholder who determines through the policy provisions what the insurance benefits will be for members of the group.

Question 52

Group life insured

Answer 52

Under group policies, the person or members whose life is insured.

Question 53

Why is membership in an employee group plan mandatory?

Answer 53

1. So that the insurer can count on a relatively constant number of lives, upon which the premiums may be calculated 2. To prevent anti-selection of the risks.

Question 54

Rules about forming an individual insurance contract

Answer 54

2+6 steps: 1) Offer (insurance company's tender of the policy) 2) Acceptance (when the applicant decides to take/receive the policy) Additional rules: 3) Application for insurance and representation of risk 4) Temporary insurance 5) Changes in insurability 6) Approval of application by insurer 7) Payment of initial premium 8) Delivery of policy

Question 55

Temporary insurance

Answer 55

An application may be able to obtain temporary coverage during the underwriting process (typically for 90 days). It will expire once the policy applied for is approved or declined and is subject to terms and conditions outlined in a separate temporary coverage agreement.

Question 56

Changes in insurability

Answer 56

If there has been a change in insurability between application and policy delivery, the policy does not take effect, even if it was delivered and the first premium taken. Both the policyholder and the proposed insured person have a duty to disclose to the insurer any change in insurability that is within their knowledge, from the time of making of the application until the policy is delivered.

Question 57

Approval of application by insurer

Answer 57

If the insurer decide to make an offer of insurance, they will notify the applicant of their underwriting decision and prepare a policy to be delivered if the applicant indicates they wish to go ahead.

Question 58

Delivery of policy

Answer 58

If the applicant indicates that they will accept the insurance policy offered, the policy will be printed out and sent to the agent of "delivery" to the applicant. *The policy is not in force until all delivery requirement have been obtained and the first premium paid.*

Question 59

Effective date

Answer 59

Policy "in force" date

Question 60

Termination of policy by the policyholder

Answer 60

A policy may be annulled or cancelled either voluntarily by the owner or for limited specific reasons by the insurer. Ex. 1. Rescission (10-day-free look) 2. Surrender 3. Expiry or termination

Question 61

Rescission (10-day-free look)

Answer 61

A policyholder can rescind an insurance contract within 10 days of signing it, without penalty and with a reimbursement of the premiums paid.

Question 62

Surrender

Answer 62

Individuals life policies are referred to as "unilateral" contracts, in that the individual policyholder can cancel/surrender the policy at any time. If the policy has a cash surrender value (CSV), those will be paid out subsequently to the policy termination, once they are calculated.

Question 63

Termination of the policy by the insurer

Answer 63

Why? 1. Fraud, misrepresentation or concealment 2. Non-payment of premiums

Question 64

Fraud

Answer 64

Unlike misrepresentation and concealment, fraud includes an intente to mislead the insurer. When fraud is involved, the incontestability period does not apply.

Question 65

Misrepresentation or concealment

Answer 65

If an applicant or the life insured made a misrepresentation or concealed some material fact in the course of the application, several outcomes are possible depending on when it arises: 1. During the application process; 2. Within the first 2 years (incontestability period); 3. After 2 years.

Question 66

During the application process (Misrepresentation or concealment)

Answer 66

If the applicant misrepresents some factual information, the insurer would be entitled to adjust the proposed coverage to that which the premium would have acquired if the truth had been known.

Question 67

Incontestability period / Within the first 2 years (Misrepresentation or concealment)

Answer 67

If a misrepresentation or concealment that is in good faith is discovered during the first 2 years of the policy, the insurer would have the option of cancelling the policy. It would have to determine whether the discrepancy was significant enough to take action.

Question 68

After 2 years (Misrepresentation or concealment)

Answer 68

Once the policy has been in force for 2 years, the insurer can only cancel it based on a fraudulent misrepresentation or concealment.

Question 69

Termination for non-payment of sickness or accident insurance premiums

Answer 69

For insurance to remain in effect, the policyholder must pay premiums when they are due according to the insurance contract. The notice of termination will take effect and the coverage will end after 10 days' written notice measured from the day after it is mailed.

Question 70

Termination for non-payment of life insurance premiums

Answer 70

IF the life insurance policy premiums are not paid in a timely fashion, any term life policy or permanent life policy with no cash values will also terminate, subject to a 30 days grace period. The cancellation is not final, however, since the insurer is obliged to reinstate the individual life insurance under the following conditions: 1. The client applies for the reinstatement within two years of the date of the cancellation; and 2. The insurer determines that the insured still meets the insurability conditions of the cancelled contract.

Question 71

Absolute assignment

Answer 71

Transfer of ownership of the policy from the original policyholder (assignee) to a new owner (absolute assignee).

Question 72

Collateral assignment

Answer 72

The policyholder assigns ownership of the policy to the lender, but only as collateral for a loan. This restricts the policyholder from doing anything with their policy that could affect the value of the security. When the loan is paid, the collateral assignee releases their right to the policy and fill ownership reverts to the original policyholder.

Question 73

Individual life insurance (Policy provisions)

Answer 73

Documents constituting the agreement between the parties: 1. Application 2. Policy 3. Any document attached to the insurance policy when issued 4. Any amendment/rider to the policy agreed to in writing after the policy is issued.

Question 74

Cash surrender value

Answer 74

Amount that the policyholder will receive in cash if/when they cancel the policy. It will be reduced by things such as outstanding policy loans, unpaid premiums or insurance policy surrender charges.

Question 75

Collateral loans vs. insurance policy loans

Answer 75

Collateral loans: When a third party lender takes a collateral assignment of a policy as security, there is no limit on the size of the loan apart from those established by the lender's loan underwriting criteria. vs. Insurance policy loan: Has limits created by the taxation of the life policy transactions. If too much money is borrowed on an insurance policy, it can trigger policy gains taxable as income to the policyholder.

Question 76

Riders

Answer 76

Policy amendments. May change existing benefits or provide additional coverage.

Question 77

Administrative services only (ASO)

Answer 77

Some large groups prefer to fund the benefits for their employees themselves, rather than paying premiums to an insurer to transfer the risk and costs (self-insurance). However, the plan sponsor may choose to hire an insurer to process, adjudicate and administer claims and payments on their behalf (ASO).

Question 78

Group premiums

Answer 78

Group policy premiums are not guaranteed and, subject to negotiations with the group policyholder, the insurer may increase the price annually at the time of the contract renewal.

Question 79

Future income option

Answer 79

Optional increase available in Individual disability insurance - gives the policyholder the ability to purchase additional income protection, without going through medical underwriting again.

Question 80

Critical Illness (CI)

Answer 80

Insures against the risk of a person suffering a life threatening illness. Usually covers 25 critical illnesses.