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Financial Essentials > Study one > Flashcards

Study one Flashcards

1
Q

What were traditionally considered to be the 4 distinct sectors of the financial services industry?

A

-banking, insurance, investment, trust

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2
Q

What are the two main categories in the common law provinces?

A
  • life insurance

- health related insurance

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3
Q

What was the main purpose of industrial insurance? How did it operate?

A
  • maximum payable on death was $2000
  • provide for cost of burial and funeral
  • collected weekly on payday
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4
Q

Identify items that carry a financial value.

A
  • cash
  • bank balances
  • investments
  • proceeds of life insurance policy
  • household goods
  • real estate
  • vehicles
  • personal effects
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5
Q

How does the principle of insurance work?

A
  • to share the losses of the few among many
  • collecting small contributions from many to be collected into a “pool”, and used to pay funds to those who suffer a loss.
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6
Q

Define insurance.

A
  • the undertaking of 1 person to indemnify another person against loss or liability for loss for a certain risk or peril as described in a policy or to pay a sum of money or other thing of value when a specified event happens.
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7
Q

Define net worth.

A
  • a measurement of an individuals wealth at a particular moment.
  • total assets - total liabilities
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8
Q

Define time value of money.

A
  • the concept of how the value of money changes over time because of interest
  • based on assumed interest rate in the future.
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9
Q

Identify examples of wealth protection strategies

A
  • life insurance
  • general insurance
  • disability insurance
  • up to date will
  • using financial services professional
  • establish a trust arrangement to protect assets
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10
Q

What is accident and sickness insurance used for?

A
  • insurance payable when a person gets sick or injured
  • usually 60-70% of insureds pre-disability wage
    EXAMPLES:
  • income replacement due to disability, medical expenses, other fixed benefits (lump sum)
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11
Q

Define asset.

A
  • anything that has financial value

- earning potential of an individual is an important economic asset worth insuring

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12
Q

Define liability.

A
  • obligations that reduce assets
  • generally in the form of debt such as bank loans, credit cards balances
  • includes contracts for future payment
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13
Q

What activities increase and preserve personal net worth?

A

1) wealth accumulation
- depends on increasing assets, decreasing liabilities
2) wealth management
effective recognition and response to changes of:
- economic enviro changes
- tax laws
-family laws
3) wealth protection
(overlap and depend on eachother)

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14
Q

Identify wealth accumulation strategies?

A
  • invest early to capitalize on compound interest
  • maximize RRSP contribitions
  • pay off loans and mortgage at accelerated schedule
  • maximize contributions to a company pension plan when employer offers matching contributions
  • take advantage of employers stock option plan
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15
Q

Identify wealth management strategies.

A
  • re-evaluating investments in light of major life changes
  • contrinute to a RESP
  • minimize risk by diversifying investments
  • adjust according to economic climate or changes in financial market
  • adjust to benefit from changes in tax laws
  • invest internationally
  • find most tax effective way of making investments
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16
Q

What are 3 significant risk exposures to long-term financial security?

A

1) PREMATURE DEATH - a person supporting a family might die before accumulating sufficient wealth to provide for dependants
FINANCIAL EFFECTS OF SURVIVOR:
- inability to pay mortgage
- inability to make loan/lease payments
- postpone post secondary
- co-supporter may not be able to save for retirement

2) SICKNESS AND DISABILITY - an income earner might become sick or disabled and are unable to work
INCREASED EXPENSES SUCH AS:
- medical treatment
-drugs
- wheelchairs
- home renos
-nursing care

3) UNANTICIPATED LONGEVITY - an individual might outlive accumulated retirement savings

17
Q

What are uses of life insurance?

A
  • payable when a person dies or reaches a certain age
  • protects families by paying a lump sum benefit when insured person dies

INCLUDES:

  • last expenses (credit card balances, loan, legel fees associated with settling estate)
  • unpaid taxes
  • mortgage, rent, lease
  • education expenses
  • income replacement
18
Q

What are the business uses of life insurance?

A

1) collateral security for a loan
2) insurance to cover a key person
3) provide funds for surviving partners or shareholders (or buyout)

19
Q

What are the 3 basic protection components for health insurance?

A
  • income replacement (due to disability)
  • medical expenses
  • other fixed benefits
20
Q

Explain income replacement.

A
  • most common use of health insurance
  • the amount of the benefit is generally between 60-70% of the insureds pre-disability, pre-tax wages or salary
  • this is to encourage claimants to return to work asap
21
Q

What are 3 ways life and health insurance are delivered to consumers?

A

1) individual policies
2) group policies
3) social benefit by the government

22
Q

What are a persons main goals?

A

1) personal goals
2) career goals
3) financial goals

23
Q

Define risk tolerance.

A
  • is the level of risk an individual is prepared to accept

- GIC = low risk

24
Q

What are personal wealth accumulation plans based on?

A
  • age
  • income
  • expenses and obligations
  • financial goals
  • risk tolerance
25
Q

Define asset protection.

A
  • property and casualty insurance offers policyholders peace of mind and provides protection for their assets.
26
Q

When were life and disability insurance established?

A
  • 19th and 20th century

- provided an organized structure to help alleviate associated financial burdens

27
Q

Define estate and offer details on who manages it once owner dies.

A
  • includes all things of value that the individual owns at death
  • executor, nominated in will
  • administrator, appointed by court are both responsible for settling an estate

Financial Essentials (10 decks)

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