Study four Flashcards
List the steps in risk management.
1) identification of the exposures of loss
- risks associated with the financial loss due to premature death or disability
- effects it has on members of the family or business client is associated with
2) examine alternative techniques to risk
i) risk control
ii) risk financing
3) select best techniques
- relates to cost and effectiveness
- includes quantification which has three fundamental purposes:
i) identifies risks too minor to consider for active management
ii) prioritize remaining risks
iii) calculate size of solution required to manage the risk
4) implement the chosen techniques
- choose best and most convenient techniques and implement them
5) monitor and review program
- review periodically and be aware for changes (such as kids)
List the risk control techniques.
1) exposure avoidance
- by not participating in activities which might give rise to the risk of loss (remove peril)
2) loss prevention
- reduce the frequency of losses
ex) quit smoking
or business might take steps to prevent loss by ensuring employees take part in a health + fitness program
3) loss reduction
- reducing severity of loss
ex) make deposits into RRSP tp reduce impact of terminated wages at retirement
4) segregation of loss exposures
- reduce a loss when single event takes place
SEGREGATION
ex) dividing various functions of a manufacturing process
DIVERSIFICATION
ex) purchasing several different types of investments adds measure of protection
DUPLICATION
ex) company might operate 2 identical warehouses
5) contractual transfers (not insurance)
- transferring hazards activities to third party
ex) heart attack prone person gets someone else to shovel
List the risk financing techniques.
1) risk transfer
- buy insurance
- transferring risk to third party
2) risk retention
- client retains a portion of the cost themselves
ex) co-pay for meds, create a fund like RRSP
What steps must be taken when planning to determine needs?
- relates to risk management process
fact finding process and analysis (steps 1-3)
1) explore financial needs by identifying responsibilites
2) gather sufficient info
3) determining goals from identified needs - implementation stage (steps 4-5)
4) determine how life insurance can fulfill needs and how much is required
5) financial products necessary to complete risk management plan - monitoring process
6) periodically review clients situation
When should review of life insurance policy take place?
- every 2 years (not longer than 5)
- or when changes occur
What does documentation include and why is it important?
1) letters
2) premium notices
3) sales illustrations presented to client
4) applications
5) any other form
- is important for follow up and to protect agent against disputes
What are important components regarding effective communication with a potential client?
1) integrity builds trust
2) be observant - listening and observing
3) identify value systems
4) touching an emotional level
- once emotional level is reached client is likely to disclose information about things that really matter like their families wellbeing
What does a review of a financial position include?
1) death
2) security for retirement
What are the personal needs for life insurance?
Estate planning needs
1) Last expenses
- burial and funeral expenses, medical expenses before death, lawyer fees
2) repayment of loans + credit card balances
- small consumer loans such as car, boat, or homo renos
3) housing - mortgage, rent, lease
4) funding tax liabiities
- income taxes on death can be in the form of unpaid taxes or taxes payable on the estate
- if capital gains are used for payment of income tax ,50% must be included in the calculation of the deceaseds taxable income for the year which death occurs
5) estate equalization
- look for ways to allocate assets fairly
- if estate cannot be split equally, it may require a need for cash at the time of death
6) charitable giving
- satisfaction of giving and offsets tax liabilities
7) educational funding
- for children
8) support payment obligation
- continue child support for ex-spouse
- can name child as beneficiary but may need to set up a trust
What is a probate fee?
- provincial courts supervise settlement of estate
- base fees on the value of deceased assets passing through the estate (percentage or rate per thousand)
- if beneficiary or charity has been named on life policy they are not subject to probate fees
Define capital gains.
- the profits generated when specific types of assets such as stocks, bonds, or real estate are sold for more than the assets original purchase price.
Define charitable organization.
- a canadian body that has been registered as a charitable organization, private foundation, or public foundation, as defined in the income tax act.
Describe monitoring portfolios.
- needs fluctuate over time
there are permanent needs such as:
- last or final expenses
- estate preservation to address things like taxation
( property of high value, RRSP/RRIF, cottage)
- bequests and charitable goals
there are temporary needs such as:
- childrens education
- mortgage balance
- income replacement until retirement
- debts such as credit cards and loans
Business falls into what 3 general categories?
1) sole proprietorship
- not incorporated and owned by a single person
- owner has unlimited liability for debts of business
2) partnership
- not incorporated and owned by 2 or more people
- owners have unlimited liability for debts of business
- if one partner dies or become incapacitated, the law considers partnership to be terminated
3) corporations
- is a separate legal entity
- ownership is represented by shares (publicly or closely held by a limited number of people)
- owners are not responsible for debts or liabilities
Define key person.
- is an individual who is essential to an organization and upon whose performance the success of the organization depends
