ROC Ethics and Professional Practice Flashcards
Legal capacity
Relates to a person’s ability to provide valid consent
Natural persons (individuals)
Usually defined as a human being
Partnerships
Arrangement between two or more parties carrying on business together with a view of making a profit
Legal person (corporation)
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.
Minors
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.
Guardian
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.
Power of Attorney (PoA)
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.
Enduring PoA
PoA that will continue even if the principal becomes mentally incapable or making decisions.
Guardianship
Unlike enduring PoA, guardianships only come into effect after a person has been declared incapable.
Marriage
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.
Common law status
Determined by cohabitation in a conjugal or marriage-like relationship for a specific period of time. No presumed division.
Family property
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.
Property acquired prior to the marriage or relationship or that came from an inheritance during the marriage
Usually gets protection from division (as opposed to family property).
Estate
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.
Estate trustee
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.
Joint tenancy
Ownership of property held in joint tenancy with one or more persons usually passes outside the will.
Registered plans with a named beneficiary
Including RRSP, RRIF, TFSA, pass directly to the named beneficiary.
Life insurance with a named beneficiary vs. life insurance payable to the estate
Passes outside the will to the named beneficiary vs. Payable to the estate of the policyholder (determined under the terms of the will).
Surviving spouses under pension law
Obtain rights that have priority over designated beneficiaries, legateers and heirs, which are also received outside the will or the estate.
Dependent’s relief legislation
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.
Testate vs. intestate
Testate: Died with a will vs. Intestate: Died without a will
Effect of separation of married partners on a will
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.
Effect of revoked beneficiary designations on a will
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.
Inter-vivos trusts vs. testamentary trusts
Inter-vivos trusts: Between living people vs. Testamentary trusts: Trusts established upon and as a consequence of someone’s death
Guardians/PoA vs. trustees
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”
Trustee’s obligations
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).
Insurance in trusts
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.
Effect of bankruptcy on insurance
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).
Irrevocable beneficiary designation
Not common.
Asset protection
This is one reason that agents usually advise clients to name direct beneficiaries rather than their estate.
Protected family class
Spouse, children, parents, grandparents
Contract
Created by on or more parties with the shared intention of entering into a binding agreement.
Civil fault
An action or omission which causes someone loss or harm for which the wrongdoer is liable.
Limitation period
Once someone discovers that civil wrongdoing has been done to them, the limitation period clock starts ticking.
Federally sponsored or facilitated programs
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.
Provincially or territorially sponsored or facilitated programs
No-fault automobile insurance
Workers’ compensation
Universal health can and drug plan
Privacy Act
Federal legislation governing how the federal government and its agencies handle personal information
Personal Information Protection and Electronic Documents Act (PIPEDA)
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.
Human rights legislation viz. insurance
Insurers are permitted to discriminate in providing insurance coverage as long as they can justify it on reasonable and bina fide grounds.
Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)
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).
National Do Not Call List (DNCL)
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.
Canadian Anti-Span Legislation (CASL)
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.
Successor policyholder / contingent policyholder/ successor-owner / subrogated owner
The person identified to become the owner when the policyholder dies.
Life insured
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.
Beneficiary
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.
Protected / family class beneficiaries
Spouse (including common law spouse)
Child
Grandchild
Parent
Irrevocable beneficiary designations
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.
Loss of protection (protected beneficiaries)
Designations that are made in an attempt to defeat creditors may be subject to challenge, despite the insurance provisions.
Contingent beneficiary
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.
Group insurance policies
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.
Plan sponsor
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.
Group life insured
Under group policies, the person or members whose life is insured.
Why is membership in an employee group plan mandatory?
- So that the insurer can count on a relatively constant number of lives, upon which the premiums may be calculated
- To prevent anti-selection of the risks.
Rules about forming an individual insurance contract
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
Temporary insurance
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.
Changes in insurability
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.
Approval of application by insurer
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.
Delivery of policy
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.
Effective date
Policy “in force” date
Termination of policy by the policyholder
A policy may be annulled or cancelled either voluntarily by the owner or for limited specific reasons by the insurer.
Ex.
- Rescission (10-day-free look)
- Surrender
- Expiry or termination
Rescission (10-day-free look)
A policyholder can rescind an insurance contract within 10 days of signing it, without penalty and with a reimbursement of the premiums paid.
Surrender
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.
Termination of the policy by the insurer
Why?
- Fraud, misrepresentation or concealment
- Non-payment of premiums
Fraud
Unlike misrepresentation and concealment, fraud includes an intente to mislead the insurer. When fraud is involved, the incontestability period does not apply.
Misrepresentation or concealment
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:
- During the application process;
- Within the first 2 years (incontestability period);
- After 2 years.
During the application process (Misrepresentation or concealment)
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.
Incontestability period / Within the first 2 years (Misrepresentation or concealment)
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.
After 2 years (Misrepresentation or concealment)
Once the policy has been in force for 2 years, the insurer can only cancel it based on a fraudulent misrepresentation or concealment.
Termination for non-payment of sickness or accident insurance premiums
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.
Termination for non-payment of life insurance premiums
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:
- The client applies for the reinstatement within two years of the date of the cancellation; and
- The insurer determines that the insured still meets the insurability conditions of the cancelled contract.
Absolute assignment
Transfer of ownership of the policy from the original policyholder (assignee) to a new owner (absolute assignee).
Collateral assignment
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.
Individual life insurance (Policy provisions)
Documents constituting the agreement between the parties:
- Application
- Policy
- Any document attached to the insurance policy when issued
- Any amendment/rider to the policy agreed to in writing after the policy is issued.
Cash surrender value
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.
Collateral loans vs. insurance policy loans
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.
Riders
Policy amendments. May change existing benefits or provide additional coverage.
Administrative services only (ASO)
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).
Group premiums
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.
Future income option
Optional increase available in Individual disability insurance - gives the policyholder the ability to purchase additional income protection, without going through medical underwriting again.
Critical Illness (CI)
Insures against the risk of a person suffering a life threatening illness.
Usually covers 25 critical illnesses.
