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439 Cards in this Set

  • Front
  • Back
Absolute Assignment
The transfer of all of the rights of the original policy owner to another party, including the right to appoint a beneficiary.
Accelerated Death Benefit
A ider that pays all or some of the face amount of the policy to the life insured thereby reducing the amount of death benefit the beneficiary will ultimately received (aka living benefit rider/terminal illness benefit)
Accidental Death and Dismemberment
An accidental death benefit that also provides coverage for dismemberment, such as the loss of a limb.
Accidental Death Benefit
A payment made, in addition to the face value of the policy, if the life insured dies in an accident (aka double indemnity)
Accident & Sickness Insurance
Provides all or partial coverage for medial and dental expenses that are not covered by provincial health plans.
Accumulated Value
The net amount paid for a deferred annuity plus interest.
Accumulated Fund
The pool of savings built by depsits to a universal life policy
Accumulation Period
The period between the date a deferred annuity is purcahsed and the beginning of annuity payments during which the value of the deposit grows.
Actively-at-work Provision
Specifies that if an employee is absent from work on the day the group insurance contract is due to begin, (because of sickness, injury, or certain other specified reasons) coverage will not begin until the day the employee returns to work.
Actual Authority
The authority given to an agent to perform certain tasks.
Adjustable Premium
Premiums that change over the life of a whole life policy.
Adjusted Cost Base
A dollar representation, for tax purposes, of the policy owner's cost of capital property, eg. the amount spent to buy a cottage
Adjusted Cost Basis
A dollar representation, for tax purposes, of the policy owner's cost of a policy, eg. premiums paid.
Adverse Selection
The concept of providing insurance coverage for people b/c they are a member of a group and not because they need coverage.
Agency Contract
The arrangement btwn the principal and the agent.
A monthly benefit paid to residents of Canada who receive the OAS and have little other income.
A document that an applicant must sign to indicate that he or she accepts a rated policy before it is issued.
The person who receives an annuity or the proceeds of a seg fund on death or maturity of the fund contract.
When a pension fund is converted to an annuity.
Annuity Certain
Aka Term Certain Annuity. Pays annuitant a guaranteed amount for either a defined period, a period ending at a specified age, or a period equal to the number of years from annuitants age at the time of purchase and age 90 or until his or her spouse turns 90.
Annity Option
Offers the owner or beneficiary three payment options: monthly installments guaranteed for life, as a joint and last survivor annuity for the contract holder and his or her spouse, as a variable annuity, installment refud or cash refund.
Annity Units
The number of units (based on age, gender, and the prevailing interest rate) paid each month to the contract holder or beneficiary of a seg fund.
An investment that pays a sum of money annually or at other regular intervals.
Any Occupation (any occ)
A definition of disability that means a person is considered disabled if he or she is unable to work at any job.
Apparent Authority
The implied or suggested authority granted to an agent, even if this was not the intention of the principal.
Assignments of insurance policies can be absolute or collateral, and can be made to a person, a charity, or corporation.
Assuming Company
The reinsurer who accepts the transferred risk when the retention limit has been reached.
Automatic Premium Loan (APL)
A non-forfeiture benefit which automatically charges unpaid premiums as a loan against the CSV of a policy
Average Monthly Pensionable Earnings (AMPE)
Used to determine the amount of monthly retirement pension.
Average Tax Rate
One of two actual tax rates, also known as effective tax rate.
Back-End Load
A sales charge that is applied to the end of a contract.
Back-End Surrender Charge
A charge that may be applied if a policy is surrendered.
Basic Group AD&D
Can insure different classes of employees at rates that can be a multiple of salary. Premiums are paid by the employer.
Basic Promise
The promise in the policy that identified the life insured, the amount of the insruance payable, when and where that amount is payable, and to whom it is payable.
Bearer Form
The bearer of the bond can sell the bond and collect the interest from the coupon.
The person who receives all amounts payable when the contract holder dies.
Income or payment received by the policy owner.
Benefit Period
The length of time an income will be received.
Benefit Schedule
Identifies the amount of lie insurance coverage or the method by which the insurer will determine the amount of coverage.
Best Earnings Plans
A private pension beased on the average of the best years of pensionable earnings. Usually 3-5 consecutive years.
Represents a debt of a government or corporation to the bondholder.
Business Overhead Policy
Covers business overhead expenses when the prime revenue earner is unable to produce b/c of an accident or sickness that causes disability.
Buy-Sell Guarantee
A legal contract between the seller (the sole proprietor, partner, or shareholder) and the buyer. These agreements, funded with life insruacen, provide the beneficiary with sufficient funds to acquire the deceased's interset in the proprietorship, partnership, or corporation.
Callable Bond
Can be redeemed by the issuer before the maturity date under certain condtions.
Canada Education Savings Grant (CESG)
The contribution to an RESP made by the federal government.
Canada Pension Plan (CPP)
A federal government retirement and disability pension.
Canada Savings Bonds
Issued by the federal government with regular or compound interest. A minimum interest rate is guaranteed for one or more years, depending on the issue.
Capital Gains Tax
A tax on financial gains made on capital property investments.
Capital Losses
When capital property is worth less than its purchase price and can be used to offset capital gains.
Capital Property
Investments such as stocks, bonds, mortgages, real property, mtuual funds, and seg funds.
Capital Retention Approach
The capital required to provide th annual cash needs of the survivors. AKA Capital Needs Approach
Capitalization of Income
Based on the calculation of the present value of the survivor's share of the income stream that the deceased person would have received had he or she lived. AKA Human Life Value Approach.
Capitalized Value
Determines how much would have to be invested at a certain rate of return to equal the amount of money a person would earn in a year.
Career Average Earnings Plan
A private pension plan where the employee receives a pension credit in every year of employment based on employment income for that year.
Carry Forward
A feature of RRSP's that allows a person to carry forward any unused contribution indefinitely and apply it to subsequent years.
Case Law
Another name for Common Law
Cash Refund Annuity
Guarantees the annuitant an income for life. If the annuitant dies before receiving payments equal to the purchase price of the annuity, the difference between the purchase price and the total amount received is paid to either a beneficiary or the annuitant's estate in a lump sum.
Cash Surrender Value (CSV)
The money in the policy reserve which can be accessed by the policy owner and received in cash. The value of the CSV is premiums plus interest, less costs.
Certificate of Insurance
The document or booklet which a group plan member receives that outlines the benfits and other relevant details regarding the master contract held by the employer.
Children's Benefit
The benefit a child receives when a parent who was a CPP contributor dies.
Occurs when an agent seeks to replace an in-force policy with an existing insurance company with a new policy from the same company for the purpose of generating a commission.
The application made on behalf of an insured to recover benefits due as a result of death, disability, or accident.
The person or legal entity that is claiming the benefit from a life insurance policy.
A special tax which "claws back" all or part of the OAS pension from high income earners.
Codes of Ethics
Ethical conduct guidelines that have been established by the Canadian Life and Health Insurance Association (CLHIA) and Advocis.
Intimidating, threatening, or using undue influence to obtain insurance business.
Co-Insurance Factor
Is expressed as percentage of an insurance claim that is paid by the insurer.
Collateral Assignment
When a policy is assigned to a financial institution as security for a loan.
Collateral Life Insurance
A life insurance policy assigned as collateral for a loan.
Common Law
The law which comprises the bulk of law in Canada with exception of the Province of Quebec. Common law is based on custom and usage dating from ancient unwritten laws in England and which were collected together and established as the Common Law of the Realm. Aka Case Law.
Common Mistake
A mistake made in a contract that affects both parties. Aka mutual mistake.
Common Shares
Shares which represent ownership in a company and which give the holder voting rights. Dividends are paid on common shares if declared by the board of directors of the company.
Occurs when a person reinvests distributions from an investment (eg. interest), so that he or she is earning growth on growth (eg. interest on interest).
Conflicting Interest
An interest that would likely have an adverse effect on an agent's judgement advice, or loyalty to a client or prospective client.
A part of a contract which indicates the exchange of value.
Constructive Notice
Information given by an applicant to an agent is deemed to have been given to the insurer.
The policy can be made void within tow years of its date of issue if mistakes are discovered by the insurer.
Contingent Beneficiary
A beneficiary who would receive all or part of the insurance proceeds if the primary beneficiary is not living when the policy matures.
Contract Holder
The owner of a contract.
Contract of Adhesion
The term used for alife insurance contract b/c the applicant either accepts or declines all the terms and conditinos of coverage that are set out in the contract. There is no opportunity for negotiation.
A promise or a set of promises tha the law will enforce.
Contracts Under Seal
Do not require the elements of offer, acceptance, and consideration to be enforaceable, but do not require a seal.
Contributory Plan
The group member contributes towards the premium for group insurance.
Conversion Privilege
A clause that allows convertible term policies and policies with term riders to be converted to permanent life insurance without evidence of insurability.
Coordination of Benefits Guidelines
Guidelines developed by the Canadian Life and Health Insurance Association to coordinate extended health care and dental benefits paid under group plans to ensure that benefits do not exceed total eligible expenses.
When the group insured must pay a fixed percentage of costs. Also called co-insurance.
Corporate Bond
Evidence of a corporate debt.
An incorporated company. An incorporated company issues shares and shareholders are entitled to certain rights (eg. such as the right to receive financial info about the company, and to attend shareholder's meetings).
Cost Illustrations
Point-of-sale tools used to illustrate hypothetical policy dividends and other benefits derived from life insurance products that are not guaranteed.
Cost of Living Adjustment (COLA)
An adjustment made to help some incomes keep up with inflation. As an insurance rider benefits will increase according to the amount of increase specified in the rider.
Coupon Bond
Interest coupons are attached and can be presented for payment.
A person or an instituion that is owed money by another.
Criss-Cross Agreement
A partnership agreement which has all partners insuring the lives of each other equally.
Critical Illness Insurance
Designed to manage the risk associated with contracting certain dreaded diseases.
Critical Loss
Where financial ruin is a possible result.
Cross-Purchase Agreement
An agreement that names the buyer of the business as the policy beneficiary, when the business is a sole proprietorship. When the owner dies, the buyer receives the face amount of the policy. That money is then sued to buy the business from the heirs of the deceased.
When a taxpayer dies and all accrued income, and capital gains and losses must be reported in the year of death.
Current Yield
Reflects the annual rate of return on a share.
Death Benefit
The money which is paid the the beneficiary upon death of the insured.
A bond which is supported by the general credit worthiness of the issuing corporation.
Debt Securities
Short-term securities or long-term securities.
A perosn who owes money.
Decreasing Term Insurance
(Infrequently Used) term insurance which provides a level premium over a long term, a decrease in the face amount each year, and a death benefit paid to the beneficiary for the face amount in force at the time of death of the life insured during the term specified in the policy.
An amount the insured pays before payment is received from the issuer.
Deferred Annuity
An annuity that begins at a future date. The annuity can be purchased with either a single premium or a series of premiums.
Deferred Profit-Sharing Plan (DPSP)
A trust created for all employees of a company, or one or more classes of employees of that company, and registered with CCRA.
Deferred Sales Charge
The investor pays a sales charge when all or part of the original investment is redeemed. The sales charge declines over an agreed-upon number of years until, at the end, the charge is eliminated.
Defined Benefit Plan
A private pension plan where the employee knows exactly how much he or she is going to pay for the pension and how much he or she will receive when retired.
Defined Contribution Plan
Pools contributions of the employer and the employer to provide the pension. AKA Money purchase plan.
Dependency Period
The time following death during which the surviving spouse must have sufficient income to provide care for the children until the youngest reaches the age of eighteen.
Deposit-Based Guarantee
When deposits are made on a monthly basis to a seg fund, and when companies make the maturity date calculation on a monthly basis.
A financial product that is derived from and based upon another financial product, such as a stock market index, a commodity etc...
Direct Writer
The insurer that issues a policy.
Disability Buy-Out Insurance
Can only be used for businesses that have buy-sell agreements in place. It allows partners, owners, or shareholders of a business to purchase the share in the business held by another partner, owner, or shareholder who becomes disabled.
Disability Income Benefit
A rider that provides a monthly income, after a waiting period, when the life insured is totally disabled. This rider can only be added to a two-party contract.
As defined in a policy (ex. it may cover a physical impairment but not a mental disability); however, the disability must result from an accident or sickness that occurred while the policy was in force, and the disability must require medical attention.
When a life insurance policy is disposed of. Disposition has tax consequences.
The periodic payments of interest or dividends made by mutual funds or seg funds.
Dividends (Corporate)
A share of profits that have been earned by the corp and distributed to shareholders on a pro-rata basis. Dividend payments are not guaranteed.
Dividends (Life Insurance)
An overpayment of premiums by the participating policy owner returned to the policy owner in annual dividend form. They are not guaranteed and there are a number of ways the dividends can be received.
Dollar-Cost Averaging
Achieved when the same amount of money is invested regularly over a period of time.
Dread Disease Benefit
Payable when death is caused by one of a number of specified diseases, such as cancer.
Due Diligence
Being able to show that a reasonable basis exists for the recommendations given.
Earned Income (for RRSP and tax purposes)
Income from all sources. Earned income for tax purposes includes investment income (interest, dividends and capital gains) whereas earned income for RRSP purposes does not include investment income.
Earned Income (for Disability Insurance)
Includes salary, wages and commissions, royalties, alimony payments, net research grants, and net business income.
Effective Date
The date upon which the policy takes effect and the coverage starts.
Elimination Period
The time between the occurence of the disability and when benefits begin. The waiting period during which benefits are not paid.
Stealing and using another's money. Embezzlement is a criminal offense.
Employee Assistance Programs
Provide professional consultation to employees and their families to provide immediate support, education, and access to resources for a wide range of employee needs, such as counseling for stress and dependency problems.
Endowment Policy
A variation of a whole lie policy which pays the face amount if the life insured dies within a specified period of time (the endowment period)
Common or preferred shares.
Errors and Omissions Insurance (E & O)
Professional liability coverage carried by insurance agents and insurers against lawsuits claiming mistakes in professional judgement, and/or failure to properly execute the steps of putting a policy into effect.
A term commonly used on a person's death to refer to all his or her assets.
Ethich Conduct
The measure of a life insurance agent's business character and his or her adherence to the codes of ethics established by CLHIA and Advocis.
Evidence of the Contract
The insured's application and the insurer's policy.
Exclusion Rider
A rider that excludes some coverage.
Benefits denied under certain circumstances.
Execution Portion of Policy
The part of the policy that confirms the date of issue of the policy and when signed by the officers of the insurance company, finalizes the contract of insurance.
Exempt Policy
Provides tax benefits to the policy owner b/c the growth in the policy is not taxed until its disposition.
Exemption Test
Policies last acquired since December 2, 1982 must pass an annual test on the renewal date to determine whether the policy is classified exempt or non-exempt.
Expense Loading
The allocation of part of a premium toward the payment of the insurer's operating expenses.
Expiry Date
The day term insurance coverage ends.
Extended Elimination Period Amendment
A limitation in a disability policy that extends the elimination period when a claim arises from a pre-existing condition.
Extended Term Insurance (ETI)
An option which allows a policy owner who stops paying premiums to keep coverage in force by using the cash surrender value as a single premium to buy term insurance.
Face Amount
The amount of the insurance payable.
Face Page
Describes the basic components in the policy. Aka The Schedule
Failure of Others
When others do not fulfill obligations they have made to you and you face risk resulting from their inaction.
Fair Market Value
The value of an item today. It is based on what similar items are being sold, or bid, for in the marketplace.
Family Deductible
An amount the insured pays for all family members covered under the group plan before payment is received from the insurer; the amount is reduced if the single deductible is paid before the family deductible.
Fiduciary Duty
The responsibility of confidentiality and trust.
Fiduciary Relationship
The relationship between a fiduciary (someone having a responsibility of confidentiality and trust) and his or her client.
Final Average Earnings Plans
A private pension based on the final income-earning years.
Financial Services
The insurance industry is one element of CDN financial services which also includes banking and securities.
Fiscal Policies
Determine how the gov't will raise income through taxation and how the gov't will spend that income.
Fixed-Term Annuity
A term Certain Annuity
Flat Benefit Plans
A private pension that specifies the age and the number of years of service that are required before the employee is eligible for the benefit.
Something written or prepared in writing to deceived, such as a false signature. Forgery is a criminal offense.
A fraudulent misrepresentation intended to cheat or deceive; Within the insurance industry it is possible for the insured to defraud the insurance company and the agent, or the agen to defraud either the customer or the insurance company. Fraud is a criminal offense. A policy will be terminated if fraud has been committed.
Fraudulent Misrepresentation
A false representation which a party makes deliberately, knowing it to be false, and with the intent of deceiving the other party to enter into the contract.
Front-End Load
A sales charge that is applied at the beginning of a fund contract.
Fully-Insured Plan
A group plan where the policy owner pays a premium and the insurer pays all claims. Under this plan, it is possible for claims to exceed premiums.
Future Contracts
Contracts that involve a commitment to buy or sell a specific quantity of an asset, at a specific price, for delivery during a specific period of time.
Grace Period
The 30 or 31-day period during which the policy remains in full force before a policy is lapsed for non-payment of a premium.
Grandparented Policy
A policy last acquired before Dec.2,1982. The policy owners do not have to report income accruing for tax purposes.
Gross Premium
The net premium of a policy plus the expense load.
Group Creditor Life
Provided to creditors to insured the life of their debtors.
Group Insurance
Pools the risk of individual members of the group to provide insurance without requiring evidence of insurability.
group retirement savings plan (GRSP)
provides benefits similar to those offered by individual RRSPs except the employer administers them on a group basis. Employees contribute by wage deduction, matched in whole or part by employer.
growth allocation
the process of distributing growth in a segregated fund to each contract holder.
Guaranteed In come Supplement (GIS)
monthly benefits paid to residents of Canada who receive the OAS and have little other income.
guaranteed insurability
a benefit that protects the life insured from becoming uninsurable by giving the policy owner the right to buy more life insurance at certain times.
Guaranteed Investment certificates (‘GIgs,)
an interest-paying investment in which principal and interest are guaranteed.
in kind:
any assets not in the form of cash but which have a cash value.
income payments:
cash provided under the cash surrender value that is received as periodic payments over a period of time.
income splitting:
a term used to describe strategies used to save taxes by diverting income from a high $tax-bracket family member to a family member in a lower tax bracket.
incontestable clauses:
clauses that state that a life insurance contract is incontestable by the insurer when it has been in effect continually for two years after the issue or reinstatement date.
increasing term insurance:
term insurance which covers a life that is increasing in economic value, such as an essential employee whose salary increases annually.
individual variable insurance contract (IVIQ:
the contract that buys into a segregated fund.
inflation protection:
the level of protection against losses caused by inflation that an investor requires.
information folder:
the prospectus of segregated funds which provides the investor with information regarding the fund.
innocent misrepresentation:
a false representation made without the intent to deceive the other party. Also known as negligent misrepresentation.
inspection report:
detail any hazardous recreational or occupational activity of the policy applicant, as well as financial data on both policy holder and life insured.
installment refund annuity:
guarantees the annuitant a set number of payments equal to the purchase price. If the annuitant dies before receiving payments equal to the purchase price of the annuity, the difference between the purchase price and the total amount received is paid to either a beneficiary or the annuitant's estate in installments.
insurable interest:
when the death of the insured would be detrimental or cause harm to the person taking out the insurance.
the person who is the owner (policy owner) of the policy and pays its premium.
insurance regulators:
regulators of the insurance industry and segregated funds.
interest rate-sensitive policies:
policies that are linked to interest rates and react to changes in interest rates. (Also known as new money plans).
when a person dies without leaving a will.
investment returns:
the returns (growth in value) investors receive on their investments.
irrevocable beneficiary:
the policy holder cannot change the beneficiary unless the beneficiary agrees in writing to the change.
issue and participation limits:
designed to protect against overinsurance. They consider how much income a disabled person is earning from all sources, and provide the difference between the insured’s limit and what is already being received.
joint first/last to die:
a contract in which more than one life is insured and settlement is made to either the survivor (first to die) or the beneficiary (last to die).
joint and last survivor annuity:
provides a guaranteed income during the course of two people’s lives.
key employee:
an important employee whose death would cause the business a devastating blow.
key person disability insurance:
insurance used to cover a person who is a key employee. There are three parties to this contract: the policy owner (business), the insured (employee), and the insurer.
guaranteed policies:
whole life policies which have premiums and face amounts that are set (do not change over time).
guaranteed return:
ensures an investor will receive a predetermined amount of growth on the investment.
contribute to perils and can be both physical or moral.
health insurance:
sold through accident and sickness policies, it reimburses the insured for out-of-pocket expenses.
high severity/low frequency risks:
risks that have a low likelihood of occurrence, but that would cause severe losses should they occur.
holding out:
how an agent presents himself or herself to the general public. A license to sell life insurance must be obtained before a person can be identified or held out as a licensed life insurance agent
home buyer’s plan:
allows an RRSP plan holder to withdraw up to $20,000 from his or her RRSP for the first-time purchase of a home or for buying a home under certain conditions.
human life value approach:
based on the calculation of the present value of the survivor’s share of the income stream that the deceased person would have received had he or she lived. Also known as the capitalization of income.
immediate annuity benefit:
purchased with a single premium. Income begins at the end of the first annuity period after it is purchased (e.g. if the annuity period is one year, the first payment is received one year after the annuity has been purchased.
important loss:
where financial adjustments are required that will reduce the standard of living.
know your client rule:
part of the Code of Ethics for life insurance agents which states that an insurance agent must make every effort to understand his or her client’s needs and financial situation.
law of agency:
allows a client to purchase life insurance without direct contact with the insurance agency.
legal capacity:
a person is legally able to enter into a life insurance contract.
level death benefit plus cumulative gross premium:
the level death benefit of a universal life policy plus the amount of each gross deposit before premiums, taxes, deductions, and expenses.
level term insurance:
term insurance which specifies in the policy exactly how much the insurance will cost, how much it will pay out, who will receive the death benefit, and when the insurance expires.
leveraged deferred compensation plan (LDCP):
combines the benefits of a universal life insurance policy with a loan in retirement.
when borrowed nioney is invested.
liability risk:
when a person intentionally or unintentionally inflicts personal injury on someone else, or causes damage to another’s property.
life annuity with a guaranteed number of payments:
provides an income that is guaranteed for a specified period of time or until the death of the annuitant after that period of time. If the annuitant dies before the end of the period, the balance of the benefits are paid to the beneficiary until the guarantee period ends. If the annuitant outlives the guaranteed period, payments continue until the last installment before his or her death.
life annuity:
makes income payments for the lifetime of the annuitant.
life income funds (LIF):
retirement fund into which the accumulated savings in a Locked-in RRSP, LIRA, another LIF, locked-in pension funds, or a pension flmd may be transferred and then paid out to the fund owner as retirement income.
life insurance:
insurance which provides financial protection against financial loss resulting from death.
life insured:
the person whose life is insured by the life insurance contract.
life retirement income funds (LRIF):
a variation on the life income fund (LIF) in which there is no requirement to purchase an annuity by age 80.
life straight annuity:
pays a guaranteed income for life.
lifelong learning plan:
allows an RRSP plan to withdraw up to $20,000 educational expenses.
limited payment amendment:
a restriction in an individual disability income policy that limits the benefit period when a claim is made resulting from a pre-existing condition.
limited payment life:
another form of whole life insurance. Premiums on these policies are limited and only payable for a certain period or to a certain age.
linear reduction method:
the adjustment made to a segregated fund contract when there is a withdrawal that reduces the value of the contract by the dollar amount withdrawn.
the ease with which investments can be converted to cash or near cash.
sales charges for a mutual or segregated fund.
locked-in plans:
a restriction under the Pension Benefits Standards Act that prevents a person from cashing-out pension benefits to ensure that the person has an income for life. Pension monies must be placed in locked-in plans if the pension plan member wishes to transfer his or her plan out of the employer-sponsored plan.
locked-in income retirement account (LIRA):
a form of Locked-in RRSP into which pension benefits may be transferred from an employer’s plan when the employee leaves the company prior to the age of retirement.
locking in:
when vested money is locked in to an RRSP, a L.IRA, or LIF account until the employee retires or to a date specified in the plan.
long-term care benefit:
payable when the health condition of the life insured requires long-term care, such as in a nursing home.
long-term disability policy:
has a benefit period of five years or longer. Benefits begin after short-term disability or government benefits end.
look-see period:
the ten days that a policy owner has to decide whether or not to keep the policy after acknowledgement of receipt of the policy. (Also called the recission period).
loss prevention:
controlling risk by reducing the frequency of loss.
loss reduction:
controlling risk by reducing the severity of loss.
management expense:
fees that cover the cost of running a segregated fund.
marginal tax rate:
the rate at which an individual is taxed.
market risk:
investments that move with the market. If the stock market moves down, the value of the investment moves down.
market value adjustment:
when an annuity contract is surrendered, or an early withdrawal made, an adlustment is made to the interest rate on which the fixed benefit annuity is based.
master contract:
the group insurance policy which is given to the policy owner, usually an employer.
material loss:
where financial adjustments are required.
material misrepresentation:
a misrepresentation of a fact such that, if the truth had been known, a reasonable insurer would have refused to issue the insurance or would have charge a higher premium for it.
maturity guarantee:
provides for the guaranteed return of at least 75% of the initial deposit to a segregated fund 10 years after the date the contract is signed by the investor.
maximum tax actuarial reserve (MTAR):
the name given to the specified amount used in the annual exemption test to determine whether or not a policy is tax exempt.
meeting of the minds:
when the parties have agreed to all the details of a contract.
individuals who have not reached the age of majority as defined in the province where they reside.
When one of the parties to a contract has been induced or persuaded to enter into the contract through the misrepresentation (or false representation) of the other party.
when a mistake has been made about the details of a contract and there has been no meeting of the minds.
modal factor:
an additional charge factored into the premium cost to reflect additional costs associated with the processing of insurance premiums that are paid monthly or quarterly, rather than in a single payment.
monetary policy:
how the government manages the money supply.
morbidity experience:
the classification by occupation based on the probability of sickness and injury occurring.
mortality charge:
the cost for insurance protection in a universal life policy.
mortality rates:
the number of people expected to die at a given age, based on 1,000 people of the same age.
mortality tables:
the tables used by underwriters in the calculation of life insurance premium rates.
municipal bonds:
issued by municipalities. Usually term or serial bonds, Most are non-callable.
mutual companies:
companies owned by policyholders.
mutual funds:
pools of money managed by professional fund managers. funded by investors with similar investment objectives. The fund’s portfolio may consist of a variety of investments.
mutual mistake:
a mistake made in a contract that affects both parties. Also known as a common mistake.
negligent misrepresentation:
a false representation made without the intent to deceive the other party. Also known as innocent misrepresentation.
net asset value (NA V):
the net assets in a mutual fund minus liabilities, divided by the number of units outstanding.
net cost ofpure insurance (NCPI):
the life insurance cost within the policy.
net death benefit:
the face value of the policy plus any extras the policy owner may be entitled to receive.
net premium outlay:
the difference between premiums paid and premiums received.
no-load fund:
a fund that charges no sales fee but usually compensates by charging a higher management expense fee.
nominal rate of return:
the “named” rate of return for an investment (i.e. a GIC that pays 4% interest; 4% is the nominal rate of return).
non-contributory plan:
the group policy owner, often the employer, pays the full premium for the group insurance.
non-discriminatory benefits schedule:
all employees in a group plan receive the same coverage.
non-exempt policy:
the policy owner must report the income that is accruing in the policy yearly.
non-forfeiture options also called non-forfeiture benefits:
a benefit or value that allows coverage to continue even if premiums are not paid. There are three non-forfeiture values: automatic premium loan, extended term insurance, reduced paid-upinsurance.
non-participating policy:
a whole life policy which does not pay dividends.
non-refundable tax credit:
the amount of the credit is refunded only when tax is owed (charitable contribution).
notional units:
theoretical units assigned to investors in segregated funds so that they can monitor the growth of their investment.
occupational classification:
the five categories into which occupations have been classified based on the likelihood of a claim being made. The classification is based on the hazard inherent in the job and the likely duration of the disability that will result from work in that occupation.
offer and acceptance:
an essential element of a contract, also know as mutual assent or bargain.
old age security (OAS):
a monthly pension payable to all Canadians or legal residents age 65 and over who apply for the benefit and meet residence requirements.
open-ended investment fund:
a pooled investment in which new units are continuously sold to new investors and existing units are redeemed upon demand by the fund.
a contractual right or obligation to buy or sell a specific quantity of a security at a specific price, within a stipulated time period.
a lifetime and cumulative limit of $2,000 over the RRSP contribution allowed before a penalty of 1% per month is charged on the over contribution.
overhead expenses:
expenses incurred in running a business.
paying more to a disabled person than the person received as earned income.
own occupation (own occ):
a definition of disability that applies to a person who is unable to perform the essential duties of his or her own regular or previous occupation.
paid-up addition:
where dividends are used to buy additional paid-up insurance.
paid-up insurance (PUI):
an option when a policy owner stops paying premiums to convert the cash surrender value to a reduced face amount of the same policy type.
par policy:
a whole life participating policy (pays dividends).
parent waiver:
allows all future premiums to be waived if the parent dies or becomes totally disabled, until the child is a certain age, or until the end of the contract.
partial dispositions:
dividends and policy loans made after March 31, 1978 are considered to be partial dispositions.
participating policy:
a whole life policy which pays dividends.
partnership debt:
the responsibility of a partner for the debts incurred by the partnership.
partnership interest:
a share in the partnership which a partner is able to sell at a fair price to the other partners, if desired.
partnership property:
property owned by a partnership which a partner may sell at a fair price to the other partners, if desired.
a business entity owned by a group of two or more individuals,
past service pension adjustment:
the adjustment an employer makes to an employee’s pension plan for the years the employee worked for the employer before the pension plan was implemented.
past service benefits:
pensions for employees who have worked for their employer prior to the implementation of the pension plan by the employer.
pay-direct plan:
the insured is provided with a drug insurance plan card to pay for the drugs and the pharmacy bills the insurer directly.
pension adjustment:
the value of benefits accruing in a company-sponsored RPP or a DPSP. Pension adjustment for any current year must be deducted when calculating the allowable RRSP contribution for the subsequent year.
pensionable earnings:
the amount of income on which the pension contribution is based.
exposure to pure risk that leads to loss.
permanent insurance:
insurance which insures for life.
personal contract:
a contract in which the insured and the life insured are the same.
personal income needs approach:
identifies the needs of dependents and family members that must be met in the event of the loss of a major income stream.
personal risk:
risks that directly affect individuals and their dependents.
policy loan:
loans made against the cash surrender value of a policy. Most insurers limit loans to 90% of the CSV.
policy owner:
the owner of a policy, the policyholder.
policy reserve:
a portion of whole life policy premiums which accumulate to form a policy reserve.
policy-based guarantee:
when deposits to a segregated fund are made on an on-going basis (such as monthly) and the maturity date is calculated annually, thereby starting anew the ten- year guarantee period.
an investor’s holdings of stocks, bonds, etc. power of attorney: the appointment of a person to look after financial affairs of someone who becomes incapacitated due to sickness, accident, or other mishaps.
a past or present decision of a judge of a court that serves as the guiding principle in similar cases in other courts.
pre-existing condition:
a disability or illness which exists at the time of application.
preferred shares:
a type of share that entitles the owner to a dividend ahead of any dividends paid to common shareholders. Preferred shareholders typically do not have voting rights.
legally, the consideration for the contract; in other words, the payment required to bring the policy into force and to keep it in force.
premium offset:
when dividends from a whole life policy are used to reduce the cost of premiums.
premium portion of policy:
part of the face page of the policy that sets out the amount and method of payment, as well as the frequency and duration of premium payments.
premium rebating:
prohibited by provincial legislation and association by-laws. Premium rebating usually occurs when an agent offers to pay all or part of the premium required by the policy, it may also involve a gift, promotion, or inducement.
prescribed annuity:
annuity payments are a blend of capital and interest. The capital is spread evenly over the expected payment period and the balance of each payment is the interest. The interest portion is subject to tax, while the capital portion is tax- free.
present value of a single sum:
a formula used to illustrate how much money must be invested presently, in order to grow to a desired amount, at a specified time in the future.
present value of money:
the value of money in today’s terms for money paid in the future.
presumptive disability clause:
covers loss of limbs, sight, hearing, or speech. Full benefits are payable until the end of the benefit period or for life regardless of whether or not the person can return to work.
primary carrier:
the insurer of group extended health and dental plans that determines the benefits •first and then calculates the benefits as though duplicate coverage does not exist.
principal guarantee:
the maturity guarantee of segregated funds and the death benefit.
probationary period:
the length of time (usually one to six months) that a new group member must wait before being eligible to join the group plan.
professional standards:
rules and regulations imposed by a wide range of players in the insurance industry.
property risk:
risk faced by property owners of having their property lost or damaged.
proportional reduction method:
the adjustment made to a segregated fund contract when there is a withdrawal that reduces the value of the contract according to the number of units surrendered compared to the number of units prior to withdrawal.
publication prepared by mutual fund companies which provides specific information regarding the fund.
provincial bonds:
issued as a means to fund public works and guaranteed by the province.
pure risk:
offers no chance of gain.
qualification period:
a period of time after the accident or illness during which the insured must be totally disabled, as specified in a policy with a residual income benefit.
qualitative information:
information collected by a life agent that reveals the client’s lifestyle choices.
quantitative information:
information collected by a life agent regarding a client’s assets, income, and expenditures.
Quebec Pension Plan ~QPP~:
the Quebec equivalent of the Canada Pension Plan.
quick pay:
when dividends from a whole life policy are used to reduce the cost of premiums.
rated contract:
a contract with higher premiums offered to applicants identified as special risk or substandard risk.
rated premiums:
higher-priced premiums.
readjustment period:
financial support needed by dependents while adjusting to a new standard of living after the death of the income earner.
real rate of return:
the nominal, or “named” rate of return on an investment minus the current rate of inflation.
recurring disability:
if a disability recurs or a new disability begins within a period of time set out in the policy’s recurrence clause, it is treated as a continuation of the original claim and not subject to a new elimination period, but the benefit period is deemed to begin at the start of the original claim, not the date of the recurrence.
re-entry term insurance:
a form of term insurance which provides guaranteed renewability. Those who can prove good health will have a lower renewal rate than those who are unable to provide evidence of insurability.
registered bond:
the owner is identified on the bond certificate.
registered education savings plans (RESPs~):
a savings program developed by the federal government to encourage parents to save for the post-secondary education of their children.
registered pension plans (RPP):
private pensions, registered with CCRA, established by employers for the benefit of their employees.
registered plan:
a plan that has been registered with the Minister of Customs and Revenue as required by the Income Tax Act.
registered retirement income funds (RRIF):
a fund registered with CCRA to receive retirement income, it is an account to which accumulated RRSPs can be transferred without incurred tax at the time of transfer.
registered retirement plan:
one that has been registered with the CCRA so that tax advantages can be received by the plan owner.
registered retirement savings plans (RRSP):
a registered savings plan which is a tax shelter to assist individuals in saving for their retirement years.
regular occupation:
a definition of disabled that applies to a person who is unable to perform the essential duties of his or her regular occupation.
reimbursement plan:
the insured pays the cost of the medical service or drugs and is reimbursed by the insurer.
reinstatement clause:
a clause in the policy designed to assist when a life insurance contract lapses due to premium non-payment.
part of the risk that is passed along to a reinsurer if the retention limit is exceeded.
being able to renew an insurance policy.
a term used to describe the act of surrendering an insurance policy or part of the coverage of an insurance policy in order to buy another policy.
the right to cancel the policy within ten days of acknowledgment of receipt of the policy.
reset feature:
when investors decide to lock in the value of their segregated funds, thereby resetting the maturity guarantee and maturity date of the contract.
residual disability benefit:
the benefit paid proportionate to pre-disability earnings. The loss must be between 20-80% of pre-disability earnings to qualify for a residual benefit.
retention limit:
the cap or upper limit that insurance companies place on an individual life.
retiring allowance:
severance pay, sick leave credits, and court awards for wrongful dismissal that may be transferred tax-free to an RRSP without using up annual RRSP contribution limits.
the process of sharing the risk among several insurers or retrocessionaires.
revocable beneficiary:
the policy owner may change the beneficiary named in an insurance contract at any time, in writing.
policy extras. Premiums are higher based on the riders that are attached to the policy.
right of redemption:
the issues of the investment can repurchase or redeem them at a time and price that is set out in the security itself.
right of withdrawal:
the right of unit holders to withdraw their investment by submitting their units to the mutual fund.
options granted to shareholders to purchase additional shares directly from the company that issues them.
the probability of suffering harm or loss in the future. Another definition is the price volatility of one type of security compared to the price volatility of another.
risk avoidance:
the easiest way to reduce risk butavoiding all risk is not possible.
risk control:
by loss prevention, which reduces the frequency of loss, or by loss reduction, which reduces the severity of loss.
risk financing:
includes transferring risk and retaining risk.
risk frequency:
the probability that a loss will occur.
risk management:
the process of planning for risk.
risk retention:
when a person accepts or retains all or part of a given risk,
risk severity:
the dollar cost of a loss.
risk transfer:
shifting some or all of the cost of a potential loss to a third party.
rule of 72:
illustrates how long it takes for an investment portfolio to double in size when its income is reinvested.
describes the basic components in the policy. Also known as the face page.
secondary carrier:
the insurer of group extended health and dental plans that determines the benefits second and then limits its benefits coverage to the lesser of the amount that would be paid by the primary carrier or 100% of all eligible expenses reduced by all other benefits payable for the same expenses by the primary carrier.
segregated funds (seg fund):
an investment fund held by an insurance company called an Individual Variable Insurance Contract (IVIC), in which the funds are separate from the other assets of the insurance company.
self-directed plan:
the RRSP plan holder’s assets are administered by a bank, trust company, or investment dealer. All investment decisions are made by the plan holder.
self-insured plan:
the group policy owner pays all claims.
the amount paid to the beneficiary when the life insured dies.
settlement options:
the options available to the beneficiaries to settle the contract when the life insured dies.
short-term disability policy:
has a benefit period of two years or less.
simple contract:
a contract that can be enforced as long as there is an offer and acceptance and also a consideration (an exchange of value) between the parties.
sole proprietorship:
a business entity owned and operated by one person.
special risk:
a rating assigned to some life applicants who are at high risk for some reason usually due to health, habit, or occupation. Also known as the fifth dividend option.
special term additions:
a one-year renewable term policy that is equal to the cash surrender value of the policy at the end of the policy year. Also known as the fifth dividend option.
specially contract:
does not require the elements of offer, acceptance, and consideration but does require a seal. Also known as contracts under seal.
speculative risk:
a risk where someone knowingly gambles on a risk, such as the stock market.
standard group:
must have a minimum of 25 people for group insurance purposes.
stock companies:
companies owned by shareholders.
stock market indices:
statistical tools used to measure the state of the market or the economy.
straight life:
the most common form of whole life policies. Premiums are paid over the entire lifetime of the life insured.
stripped bond:
interest coupons have been removed and sold separately.
structured settlement annuity:
used to settle large accident and liability claims that result in serious permanent disability.
a legal process that allows an insurance company to assume the policyholder’s right to collect damages from a third party.
substandard risk:
a rating assigned to some life applicants who are at high risk for some reason.
suicide exclusion clause:
suicide is excluded as a cause of death for which the death benefit is paid if it occurs up to two years after the policy is issued.
supplementary benefits:
policy extras. Premiums are higher based on the supplementary benefits that are attached to the policy.
survivor income plan:
provides ongoing income for the spouse and dependent children of a deceased group life plan member.
survivor ljfe income needs:
the period of time, which may be life long, during which the surviving spouse requires income.
tables of non-forfeiture:
the tables the policy owner can use to determine the value of the non-forfeiture options in the policy.
tax brackets:
four federal tax rates applied to different income levels.
tax credits:
a direct reduction in tax.
Tax deductions:
expenses, payments, and contributions that are allowed to be deducted from taxable income.
tax deferral:
tax is paid at a later date.
taxable income:
income received during the year that is subject to Canadian income taxes.
temporary insurance agreement (TIA):
a temporary but binding contract between the insurance company and a proposed life insured to provide coverage during the underwriting process.
term additions:
uses the whole dividend of a whole life policy to buy a non-renewable one-year term addition that will be paid if the life insured dies during that year.
term certain annuity:
an annuity that pays an income for a pre-determined period of time or to a specific age.
term insurance:
life insurance for a specific period of time.
terminal illness benefit:
payable when the death of the life insured will occur within six months as declared in a doctor’s certificate.
terminal tax return:
the final tax return flied upon the death of the taxpayer.
term-to-lOO insurance:
a hybrid of term insurance and permanent insurance which provides a term- type policy to age 100. For most people this would provide coverage for life.
third party cojitract:
a contract in which the insured insures the life of another person (the life insured).
tied selling:
when a financial institution requires a client to transact other business with the institution as a condition of doing business.
time horizon:
the length of time available for money to be invested before it is needed.
time value of money:
the sum of money received today is worth more than if the same amount of money is received in the future.
income based on the length of time notional units in a segregated fund are held.
tolerance for risk:
the level of risk a person is prepared to take in the purchase securities and insurance.
tort law:
designed to compensate a person who has been harmed for any damage caused by wrongful civil behaviour.
total disability:
is defined in the insurance policy by the work the insured may be able to resume.
treasury bills:
short-term investments issued by the federal government.
trigger date:
a date established in a mandatory buy- out clause of a disability buy-out contract, which states when the disabled owner, partner, or shareholder must sell his or her share in the business.
when an agent induces a policyholder to surrender or lapse a policy with one insurer and replace it with another insurer, to the detriment of the policyholder.
the listing separately of the cost of insurance, the guaranteed interest rate, and the expense charges of the insurer in a universal life policy.
insurance officials who assess risks.
the process of assessing and classifying the potential degree of risk that a proposed insured represents to an insurance company.
unfair trade practices:
the use of coercion, premium rebating, and gifting to clients.
unilateral contract:
term used for insurance contracts because the insurance company is the only party bound by the contract and is obliged to fulfill the contract as long as premiums are paid.
unilateral mistake:
a mistake made by one party that may only be remedied if it is an obvious mistake recognized by the other party.
universal life insurance:
an interest rate-sensitive policy that is a unique combination of insurance and investment.
vanishing premiums:
when dividends from a whole life policy are used to reduce the cost of premiums.
variable annuity:
takes the notional units credited to the contract in a segregated fund and converts them to annuity units.
the right of an employee to keep the previous employer’s pension contributions when switching jobs after, usually, two years of employment.
voluntary group AD&D:
an option for employees covered by a basic plan that increases coverage.
waiting period:
the period from the time a claim is made until benefits begin (provided in the policy).
waiver of premium:
a rider to a policy which ensures that the premiums on the policy are paid if the life insured becomes disabled.
a certificate that grants the holder the opportunity to buy shares in a company at a stated price over a specific period.
whole life insurance:
permanent insurance available as straight life or limited payment life. These policies are in force for the lifetime of the insured and are guaranteed policies.
year’s basic exemption (YBE):
the amount of income below which CPP contributions are not made.
year’s maximum pensionable earnings (YMPE):
the amount of pre-retirement earnings that can be contributed to a pension plan every year. The YMPE is set by the federal government.
yield to maturity:
the return an investor can expect by holding an investment to maturity.
return on investment.