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49 Cards in this Set
- Front
- Back
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Group Life Insurance Taxation |
When an employer pays premiums for group life insurance on behalf an employee, it is a taxable benefit to the employee but the death benefit paid out to a beneficiary is tax-free |
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Group Health Plans Taxation |
1) Cost of benefits are tax deductible to the employer 2) Claim payments are non-taxable to employees |
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Group Disability Insurance |
1) If employer paid premium and did not charge as a taxable benefit to the employee then benefits received are taxable 2) If employer paid the premium and did charge as a taxable benefit to the employee, then benefits received are not taxable 3) If employee paid for the full premium, benefits are not taxable 4) If employer and employee shared the premium payments, and employer did not charge any portion as a taxable benefit to the employee, the benefit is taxable and reduced by the amount the employee contributed to the premium |
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Medical and Dental Group Plans |
1) Cost of benefits are tax deductible to the employer 2) Benefits and cost of the plan are non-taxable to employees |
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Property Insurance |
1) Provides coverage for damage to your home (inside and outside) (i.e. fence) 2) Provides coverage for items inside your home (i.e. furniture, artwork, electronics) 3) Provides 3rd party liability coverage (i.e. if someone slips and falls on your stairs) |
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Named Perils |
Provides coverage for things that can damage your home, including, fire, lightning, windstorm, hail, theft, etc |
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All Risks |
Provides coverage from anything that can cause you loss or damage (i.e. wear and tear, roof shingles was not properly installed and caused leakage) |
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Actual Cash Value (ACV) |
If you submit a claim on stolen or damaged property in your home, you only receive the value of the item - depreciation |
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Life Insurance Gifting |
1) Absolute Assignment 2) Designating Charity as Beneficiary 3) Use Life Insurance Policy to Fund a Bequest Within a Will |
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Absolute Assignment |
1) The charity becomes the owner of the policy 2) The charity will receive the death benefit upon death of the insured 3) Receive immediate tax relief |
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Designating Charity as Beneficiary |
1) The charity becomes the beneficiary of the policy 2) The charity will receive the death benefit upon death of the insured 3) Tax relief upon death of insured |
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Life Insurance Policy to Fund a Bequest Within a Will |
1) The testator's estate is named as beneficiary of the life insurance policy 2) Proceeds are paid to the estate upon death of the insured 3) The estate uses the proceeds to fund the charitable bequest and receives a donation receipt that can be used in the year of death or carried back one year |
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How to Calculate the Total Amount of Insurance Needed |
1) Calculate Total Assets 2) Calculate Total Immediate Cash Needs at Death 3) Calculate Ongoing Annual Income Needs => Insurance Need = Immediate Cash Needs + Ongoing Annual Income Needs - Total Assets |
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Total Assets |
All assets that can be liquidated (i.e. RRSPs, government and private pension death benefits, personal items) |
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Immediate Cash Needs |
Include last expenses, outstanding mortgages, education funding |
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Ongoing Annual Income Needs |
1) Income needs for surviving family members (i.e. CPP survivors, child benefits, private pension benefits) 2) Income need is divided/discounted by the capitalization rate |
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Capital Needs Analysis (CNA) |
Observes family's assets, liabilities and continuing income needs of the surviving family in the event that an individual passes away prematurely |
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Life Insurance Needs |
1. Immediate Cash Needs Upon Death (i.e. funeral costs, income taxes) 2. Debts and Lump-sum Needs/Obligations (i.e. debts, mortgages) 3. The need for longer-term income (i.e. income replacement for survivors) |
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Non-forfeiture Options |
Choices available for a policy owner if he decides to stop premium payments on a permanent policy with a cash value 1) Reduced Paid-Up 2) Extended Term Insurance 3) Automatic Premium Loan |
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Reduced Paid-Up |
Uses the CSV to purchase a reduced amount of insurance benefit that is fully paid-up
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Extended Term Insurance |
Allows policy owner to continue the same amount of insurance protection, but for a limited time through a term insurance policy |
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Adjusted Cost Basis |
1) The cost of insurance 2) ACB = Premiums - Dividends - Loans 3) ACB = (Premiums - NCPI) - Dividends - Loans |
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Net Cost of Pure Insurance (NCPI) |
1. Mortality charge for the pure insurance element of the policy 2. NCPI = Premiums + Interest - Dividends - ACB or death benefit - cash value |
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Policy Ownership Transfer |
Transfer of ownership is a policy disposition for non-arm's and arm length transfers
1) Previous owner has an Income Gain = Proceeds of Disposition - ACB 2) New owner acquires policy with an ACB = Old owner's proceeds of disposition (arm's length) or ACB = Old owner's CSV or ACB (if rollover provision permitted) |
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Policy Ownership Transfer Exceptions |
1) Deemed disposition at ACB=ACB when policy is transferred to a child (policy is for young child), spouse or former spouse from 2) The previous owner transfers policy at their original ACB 3) The new owner acquires policy at ACB=original owner's ACB or previous owner's transfer price |
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Taxable Policy Gain |
Taxable Policy Gain = CSV/transfer price - ACB |
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Transfer Policy to a Trust |
Taxable disposition for all types of trusts (even spousal trust) |
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Transfer to and from a Corporation to an Individual |
Taxable disposition from and to an individual or to a corporation if dealing at arm's length |
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How to Calculate Disability Insurance Needs |
1) Calculate Total Monthly Expenses 2) Calculate Total Monthly Gross Income 3) Calculate Total Income from Other Sources 4) DI Needs = Total Monthly Income - Total Monthly Expenses - Total Income from Other Sources |
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Workers Compensation |
Liability and disability non-contributory insurance program designed to protect workers and employers against the impact of work-related injuries |
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Workers Compensation Coverage |
1) Provides coverage in the event a full-time, part-time, temporary and casual worker becomes injured on the job 2) Benefits are non-taxable 3) Replaces approximately 90% of after-tax income, max of ~$6000/month 4) 1-day waiting period, can provide payments until age 65 |
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CPP Disability |
Provides coverage for Canadians that have contributed to CPP and suffer from a severe and prolonged disability and are unable to work |
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CPP Disability Eligibility |
Must have made enough CPP contributions in at least 4 of the last 6 years of working |
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CPP Disability Benefits |
1) CPP Disability Benefits are taxable 2) Dependent child under age 18 or full time student age 18-25 can also receive benefits 3) Benefit waiting period is 4 months after the date you were determined to be disabled 4) Benefits stop once individual returns to work, reaches age 65 or dies |
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Business Overhead |
Provides monthly coverage for a business owner for certain business expenses if he/she becomes disabled (i.e. rent, leasing costs, mortgage payments, property taxes, electricity, interest on loan to purchase equipment) |
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Business Overhead Benefits |
Benefits do not depend on net income like a regular DI policy |
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Employment Insurance (EI) |
Provides unemployment benefit if you have lost your job through no fault of your own (i.e. shortage of work, massive layoffs, maternity leave) |
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EI Contributions |
1. Maximum insurable earnings is $51 300 (2017) 2. Maximum EI contribution is 1.88% if your salary is above insurable earnings 3. Employers pay 1.4 times the amount that employees pay 4. Premiums are a tax-deductible business expense for employer 4. Premiums qualify for a non-refundable tax credit if employee |
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EI Benefits |
1) EI payments are taxable 2) Benefit period is 14-45 weeks (maximum) 3) 2 week unpaid waiting period 4) Can collect 55% of salary, up to a maximum of $51 300 |
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EI as second payer |
1. EI is second payer with respect to disability benefits received from CPP or Workers' Compensation or group disability benefits (each dollar received from CPP/WC/Group will reduce EI benefits by $1) 2. EI is not a second payer with respect to benefits received by individual disability insurance policies |
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Total Disability |
1) Completely disabled and is unable to perform important duties of regular job and not working elsewhere 2) Loss of income of 75% or more |
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Partial Disability |
Disabled and is able to perform important duties of regular job at least 50% of the time |
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Residual Disability |
1) Pays benefits according to how much income you have lost due to your disability 2) Pays benefits even if you're not totally disabled and are able to work part-time 3) RD = Loss of pretax income/Prior pretax income * Total DI Benefit |
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Disability Benefits Payer Priority |
1. CPP Disability Benefits 2. Workers Compensation 3. Employment Insurance (EI) 4. Auto policy 5. Group LTD (if you collect EI, EI will be reduced by group DI benefits) 6. Individual DI |
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Liability Coverage |
Provides coverage in the event you unintentionally cause injury or property damage to others (i.e. car accident) |
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Long-Term Care Insurance |
1. Provides a monthly benefit to help pay for the cost of long-term care for aging individuals 2. Benefits are paid out once the insured has difficulty completing ADL without assistance |
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Universal Life Death Benefit Options |
1. Level Face 2. Level Face + Deposits 3. Level Face + Account Value 4. Indexed Death Benefit |
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Level Face + Deposits |
Death benefit is the face amount + gross amount of deposits made into the policy |
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Level Face + Account Value |
Death benefit is the face amount of the policy + value held within the policy account
=> Good for people that want to create cash value |
