Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
49 Cards in this Set
- Front
- Back
|
How are UL policies unique? |
Policyowner can -increase or decrease the face amount of insurance -add additional lives insured -substitute one life insured for another |
|
|
What premium options can be chosen at the time of UL policy issue? |
-yearly term rates that increase each yearlevel term -rates that remain constant for life |
|
|
What is the cost of insurance in a universal life policy for the current month? |
net amount at risk x cost of insurance factors specified in the policy for the attained age and class of life insured. |
|
|
What mortality cost options are available at issue of policy? |
-most policyowners choose guaranteed mortality cost -some insurers offer variable mortality cost, where cost revised yearly based on experience, attractive if life expectancies continue to increase |
|
|
What is a side fund? |
-Receives deposits that exceed amount allowable under a tax-exempt universal life policy (otherwise would be refunded) External to the policy, does not get incorporated into the death benefit does not effect the net amount at risk deposits not usually subject to provincial premium tax |
|
|
cash surrender value of a universal life plan =? |
current account value less outstanding policy loans and surrender charges |
|
|
How do you calculating the surrender charges? |
annual minimum premium x #years the contract in force x set percentage based on the number of years the contract has been in force |
|
|
How do you calc the account value of a UL policy? |
gross values of all of the investment accounts + investment income - current month's deductions and expenses |
|
|
What are the death benefit options for a UL policy in order of least to most expensive premium? |
level death benefit level death benefit plus cumulative deposits indexed death benefit level death benefit plus account value |
|
|
What are considerations for selecting appropriate death benefit option of UL policy, in order of priority? |
1. the beneficiary's capital needs in the event of the death of the life insured 2. the investment objectives of the policyowner 3. the policyowner's ability to pay premiumsthe 4. policyowner's personal preferences |
|
|
Why would a policyowner not normally wish to risk quick paying or overfunding a UL policy with a level death? |
excess investment deposits could be lost to the insurance company in the event of the death of the life insured during the early years of the policy |
|
|
Why would a level death benefit plus cumulative deposit policy be more expensive than a level death benefit UL? |
Mortality deductions higher bc amount at risk to insurer increases w premium deposits at same time decreased by growth in account value. The net at risk would be reduced by each premium with a level db but since the db increases with cumulative deposits, the net at risk stays approx the same until premiums stop. |
|
|
Why is the level death benefit plus account value the most expensive death benefit option? |
net amount at risk under the policy remains constant and equal to the initial face amount |
|
|
What happens to the net amt at risk as the account value increases? 1 level death benefit 2 level death benefit plus cumulative deposits 3 indexed death benefit 4 level death benefit plus account value |
1 Decreases as a/c value approaches death ben 2 Varies, increased by deposits & decreased by growing a/c value 3 Varies year to year depending on value of db 4 remains constant and equal to initial db |
|
|
What is premium tax? |
tax levied by the provinces hidden tax for the consumer rate can vary by province, approx 2% |
|
|
Who are seg funds regulated by? What documents must be provided with purchase of seg? Whta must be issued w Seg funds? |
-Uniform Life Insurance Companies Act(ULICA) NOT provincial securities acts -Summary Information Folder NOT prospectus -issued in conjunction w a life insurance contract -require insurance agents license not MF |
|
|
What advantage is available to seg funds, but not mutual funds with regard to income? |
seg funds: Net capital losses flow through to unitholders MFs: must carry-forward their net losses to apply against capital gains in future years |
|
|
Name 3 advantages of segregated funds |
-not at risk in the event of the insolvency of the insurer -enjoy some creditor protection under the provincial insurance acts -death proceeds can bypass the probate process if beneficiary named |
|
|
How is interest income allocated in seg fund? |
BC a seg fund is an inter vivos trust, it will allocate a prorated portion of the year's income as of December 31 to each unitholder, even if she has redeemed her units before year-end. |
|
|
How are acquisition fee for a segregated fund policy accounted for by policy owner? |
At disposal, reduce amount of capital gains, or realize a capital loss NOT deductible when the policy is acquired NOT included in adjusted cost base |
|
|
According to date text issued, what is maximum timeframe for a seg fund guarantee of principal at withdrawal? What is min guarantee |
10 yrs, 75% ie. if cont $20K 11 yrs ago and value now 14K, what is minimum receive upon redemption? A: 15K |
|
|
What are some advantages of a named beneficiary? |
-PROBATE: not form part of the value of the estate for the purpose of calculating probate fees -SPEED: insurance company is required by law to pay the death benefit within 30 days of receiving satisfactory proof of death -CREDITOR: death proceeds protected from policyowners creditors under the Federal Bankruptcy Act -INCONTESTABILITY: assets of the deceased cannot contest the beneficiary named in the insurance contract |
|
|
What are Consequences of Naming Children as Beneficiaries of life insurance/seg funds? How should a minor be named? |
Under 18/19, insurer can only pay amts over $2K to courts. Child receives entire payouts at age of majority, regardless of the wishes stated in their parent's will Set up a trust and name trust as beneficiary |
|
|
How can a beneficiary of a life insurance policy be changed? |
Owner must sign written intent that named beneficiary is to receive proceeds of specified policy NOT need to be filed or completed w lawyer Note: even if will invalid, a valid ben dec in a will is still effective |
|
|
If parent named ben of life insurance property and gives proceeds to child, how would the investment income from the proceeds be taxed? |
attribution of property income (or loss) to parent, but not of capital gains or capital losses Anti-avoidance rules, attribute all income if sole purpose of avoiding tax |
|
|
Notes on establishing life insurance trust (testamentary trust) |
-trust doc should be filed w insurance co -spouse cannot be only trustee if they are also named ben of trust -trust must set out terms of investments -costs of trust, legal, filing, accounting, trustee -trust written in will or as stand alone -trust may be incorp in insurance policy by reference |
|
|
How to you ensure the Maximum Income Split for the beneficiary of a testamentary trust? |
1. establishing a testamentary trust for each beneficiary 2. having each trust allocate income equivalent to the basic personal amount to each beneficiary and then splitting the remaining taxable income equally between the beneficiary and the trust 3. allocating the insurance proceeds to the trusts in such a manner as to minimize the tax payable of each beneficiary and trust (ie needs) |
|
|
How does divorce impact life insurance beneficiary designations? |
-divorce will not revoke automatically the designation of spouse -may not be able to change ben if divorce order limits that right -beneficiary declaration contained in a will is always treated as revocable, since a will is revocable. -Irrevocable beneficiaries must be named in policy |
|
|
When is a tax deduction is permitted for a premium? |
If policy is collateral for a loan that will be used to generate income from a business or property, can deduct lesser of the premium and net cost of pure insurance REQUIREMENTS -assigned to a "restricted" financial institution -interest payable on the borrowed money must be tax deductible -formal assignment (legal transfer) |
|
|
What is simplified ACB calculation of a life insurance policy ? |
Premiums paid -Dividends received +interest paid on policy loan (if not deductible) +amount included in income from non-exempt -NCPI net cost pure insurance Simplified from 13 factors |
|
|
How is Disposition of Life Insurance Policies taxed? When would it be taxable? |
Proceeds of disposition - ACB 100% taxable, no capital gain rate and not allowed to claim loss if ABC more than proceeds. surrender, maturity, certain assignments, certain policy loans, policy becoming non-exempt |
|
|
Difference between exempt and non-exempt policies. |
Exempt: emphasizes benefits at death, max accum fund is MTAR, all pre Dec 2, 1982 policies Non-Exempt:emphasizes sheltering of investment income, unrealized gain reportable, (UL, can be WL or T100, but not usually, NEVER Term) diff between CSV and ACB taxable at death |
|
|
When are policy loans taxable? |
Any amount borrowed above ABC is taxable
|
|
|
To whom can you transfer a policy at ACB? |
Spouse, spousal trust, spouse upon death OR Child of policy owner if given for no consideration and child becomes life insured (advantageous as child taxed for surrender or loan w/ds above ACB) |
|
|
How are policy dividends taxed? |
Dividends are a reduction in the premium, not a form of income, thus are not taxed. Dividends reduce ACB of policy. |
|
|
What does Assuris do? |
administers the insurance industry's consumer protection plan |
|
|
When is an insurer insolvent? |
Insurance company unable to meet its financial obligations as they come due in the ordinary course of business |
|
|
What is the minimum coverage extended by Assuris? What type of insurance does not benefit from 85% maximum promised benefit? |
max is greater of 85% or
$200K of death benefit (in excess of CSV coverge) $60K CSV, seg guar amt, health, CI, travel $2K monthly RIF ben, payout annuity, LTC, DI max is $ value or $100K RIF side a/c, premium dep a/c |
|
|
With what are the federal insurance regulators primarily concerned? |
-regular financial reports of insurance co -conditions satisfied before a co enters insurance business -regulating investment activities -regulating calculation of policy reserves -protecting interests of policyholders |
|
|
With what are the provincial insurance regulators primarily concerned? |
policy contents, insurable interest,effect of the contract,premium payments,designation of beneficiaries,duty to disclose,incontestability,reinstatement,insured dealing with the contract,licensing of agents,unfair practices,claims procedures |
|
|
How would you calculate Assuris coverage of death benefit of $290K w CSV of $80K? |
1 Calc CSV coverage, since >60K, greater of 60K and 85%*80K, 68K 2 Calc portion of DB in excess of CSV coverage, $290K-$68K, $222K 3. Since > $200K, greater of $200K and 855*$222K, $200K 4. greater of $200K+$68K and 85%*$290K, $268K |
|
|
What is the difference between a void contract and a voidable contract? |
-void contract is invalid and cannot be corrected -voidable contract has imperfections that can, possibly, be corrected |
|
|
What is youngest age of life insurance owner? |
age 16 or over may apply for life insurance on his or her own life or on the life of another person |
|
|
What are conditions for insured to reinstate a lapsed contract within two years from the end of the grace period? |
-pays overdue premium & specified interest (<6%) -evidence of good health of life insured satisfactory to the insurer -evidence of insurability required by the insurer -NOT if CSV paid or paid-up insurance option exercised |
|
|
Written consent of the irrevocable beneficiary is required to: |
-assign the policy -surrender the policy -take out a policy loan, other than an automatic premium loan |
|
|
What can a policyowner do without the consent of the irrevocable beneficiary? |
-receive policy dividends -allow the policy to lapse -allow the premiums to be paid by an automatic premium loan -change the policy to a paid-up policy |
|
|
What are limitations of creditor to assigned life insurance policy? |
Right to CSV and death benefit, but cannot force the insured to surrender the policy in order to forgive the debt -can pay the policy's renewal premiums in order to ensure that it remains in force until the death of the insured -priority interest except CRA |
|
|
According to Bankruptcy Act, what requirements would make life insurance values exempt from seizure? |
irrevocable beneficiaries and beneficiaries who have a specified family relationship to the life insured -Must not have been changed < 1yr before bankruptcy |
|
|
What are 4 requirements to provide proof of claim? |
-Event occurred (death cert) -Age of insured -Right of claimant to receive payment -Name and age of beneficiary |
