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;
45 Cards in this Set
- Front
- Back
|
Life Insurance |
Life insurance is used to protect individuals and businesses from loss due to the premature death of an individual |
|
|
Parties to a Personal Insurance Contract |
-Insurer (the insurance company) -Insured (the owner of the policy) -Life Insured (the person whose death will trigger a death benefit) |
|
|
Revocable Beneficiary |
Policy owner can change all parts of the policy (i.e. change beneficiary, change face value) without permission of the beneficiary |
|
|
Irrevocable Beneficiary |
Policy owner can change parts of the policy only with the permission of the beneficiary (i.e. When a couple has a divorce, the husband (policy owner) would need the ex-wife's consent to change the irrevocable beneficiary) |
|
|
Types of Personal Insurance |
1. Term Insurance 2. Permanent Whole Life Insurance 3. Universal Insurance |
|
|
Term Insurance |
-Designed to cover short term needs (e.g. loan, mortgage or child's education fund) -Designed as a lower cost alternative |
|
|
Weaknesses of Term Insurance |
-Duration is limited (i.e. max of 75 years of age) -Most term policies expire unpaid since most people live beyond 75 years of age |
|
|
Characteristics of Term Insurance |
-Face value (the death benefit) can be level, decreasing or increasing -Premium is fixed for the term, but increases on renewal -Policy can be non renewable to cover items (i.e. short term debt) -Policy can be renewable and convertible to permanent coverage |
|
|
Non-renewable Policy |
-Policy owner must reapply medically for new policy if non-renewable policy lapses -Medical insurability required upon renewal |
|
|
Renewable Term Policy |
-Policy automatically renews after policy lapses -Medical insurability is not required -Premium increases to 3X the original premium |
|
|
Re-entry term |
-If the insured is still insurable, the insured has the option to re-qualify medically and pay lower premiums -If the insured is not insurable anymore, then premiums will default to 3X original premium -Eligibility ends at age 65 |
|
|
Convertible Term Policy |
-Option to convert term to permanent without medical insurability -Keep the same premiums but death benefits could decrease -Incontestability and suicide clause does not restart -Eligibility ends at age 65 |
|
|
Joint-first-to-die policies |
-Provides a single death benefit when the first person in a couple dies -Recommend this policy to deal with mortgage, debts and education |
|
|
When do you recommend term insurance? |
-Need is short term -Affordability is an issue -Recommend renewable term if needs may change in the future -Recommend convertible term if permanent needs may arise in the future |
|
|
Term to 100 |
-Level premiums for life -Death benefit lasts for life -Policy is paid up at 100 years of age -No CSV |
|
|
When do you recommend Term to 100 |
-The need will last to the end of life -The need is not increasing over time |
|
|
Permanent Life Insurance and Whole Life Insurance |
Non-participating and participating |
|
|
Whole Life Non-participating |
-Designed to meet lifetime needs that are not increasing -Low price permanent insurance (similar to T-100) -Has guaranteed level premiums for life -Has guaranteed CSV -Insured does not receive a dividend |
|
|
When do you recommend Non-participating? |
If the need is for the whole of life, and the need is not increasing over time |
|
|
Whole Life Participating |
-Designed to meet lifetime needs that may be increasing -More expensive premiums, guaranteed level for life -Has both guaranteed and non guaranteed CSV (depending on dividend options chosen) -Pays dividends but dividends are not guaranteed |
|
|
Dividends can be taken in the form of |
CAPPITS -Cash (dividend returned to policy owner) -Accumulating with interest (invest dividend in side account) -Premium offset (use dividends to reduce premiums paid) -Paid Up Additions (PUA) -Insuring CSV -Term (One year renewable convertible term) -Segregated fund investments (invest dividend in side account) |
|
|
Paid Up Additions (PUA) |
-Insured chooses to use annual dividend to buy PUA of whole life insurance (small whole life policies with CSV) -Insurance can be used to fulfill the needs of an increasing insurance requirement (may be found in an estate that has increasing tax liabilities over time) -Most beneficial option |
|
|
When do you recommend Participating Whole Life with PUA? |
-End of life needs that are affected by inflation (i.e. capital gain on a cottage) -A desire for premium offset |
|
|
Additional Term Insurance (similar to YRT) |
-Cheapest insurance -Purchase most amount of the death benefit available today -YRT is cheaper than PUA |
|
|
Premium Offset |
-Dividends payout increases every year -Use dividends to reduce premiums paid -In later years, dividends would be equal or larger than the required payment of premiums (i.e. by year 18, the policy can pay for itself) -Less aggressive approach |
|
|
Premium Offset using PUA |
-In early years, use dividends to buy PUA insurance -In later years, use dividends + CSV of the PUA are used to pay for premiums -More aggressive approach |
|
|
Non-forfeiture Options |
CARE -Cash (CSV can be returned to the insured) -Automatic Premium Loan (if someone misses a premium payment) -Reduced Paid Up Insurance (If the insured does not want to pay anymore premiums but still wants permanent insurance but at a reduced amount -Extended term insurance (If the insured does not want to pay anymore premiums but still wants the same amount of insurance. When the CSV have been completely depleted then the policy expires) -CRE results in termination of original contract but APL does not |
|
|
Universal Life Insurance (UL) |
-Flexible policy -Control of options -Variety of investments -Very complex -High administration costs |
|
|
Customer Decisions about policy design for UL |
T-100 or YRT
|
|
|
Yearly Renewable Term (YRT) |
-Premiums increase every year, like a term insurance policy |
|
|
When do you recommend YRT? |
-Not a good idea for most clients -YRT results in low costs in the early years of the policy and high mortality costs in the later years |
|
|
Death benefits of UL Policies |
-Level Death (face value only) -Level + Account Value -Level + Accumulated Deposits -Indexed Death Benefit |
|
|
Needs and Recommendations Summary (MEDELS) |
MEDELS Mortgage Emergency Fund Dependent Income Education fund for the children Last Expenses Survivor Income |
|
|
Contractual Rights and Policy Provisions of all Policies -Definition of the contract includes
|
-The application -The policy -Riders -Other Ancillary documents |
|
|
Reinstatement of Lapsed Policy |
-On request from client, policy can be reinstated, with medical re-qualification -Suicide period and incontestability period needs to be re-qualified -Missed payments (and interest payments on the missed payments) need to be caught up -Age is saved |
|
|
Policy Assignment |
Assignment implies there is a new owner of the policy There are two kinds of assignment -Absolute -Collateral |
|
|
Absolute Assignment |
-The insured gives the policy to another person, absolutely -The person becomes the insured, and owns the policy with all of its rights -The new insured will automatically become the beneficiary (unless if new insured assigns another person as beneficiary) |
|
|
Collateral Assignment |
1. To secure a loan, the insured assigns the policy to a financial institution 2. If the insured defaults on the loan, the financial institution withdraws the CSV to repay the loan 3. If the life insured dies, the financial institution will take the amount necessary to repay the loan from the policy and the remainder will be returned to the estate of the life insured 4. If the bank has demanded the policy as collateral, and if the loan is for a business or investment (not an RRSP) then the policy premium can be tax deductible |
|
|
Riders |
A rider is a change to the insurance policy that adds additional benefits to the contract or limits benefits otherwise payable (exclusion rider) |
|
|
Accidental Death and Dismemberment (Double Indemnity) (AD&D) |
A policy that pays benefits to the beneficiary if the cause of death is an accident -Benefits are 2X face amount if death is caused by accidental event -Benefits are face amount if death is caused by natural causes |
|
|
Accelerated Death Benefit |
Life insured has a terminal illness, dread disease or needs long term care -If you contract dread disease or CI, then the Insurance company can accelerate a portion of death benefits while you are alive |
|
|
Dread Disease (DD) |
Life insured has -Life threatening cancer -AIDS -Heart Attack -Stroke -Coronary Bypass |
|
|
Long Term Care (LTC) |
-Benefit is paid to an insured if the individual is unable to perform at least one of the normal activities (i.e. dressing, bathing, eating, etc.) -Benefit is paid as monthly amount -For a successful claim, proof of disability or an elimination period is required |
|
|
Guaranteed Insurability Benefit (GIB) |
-The policy owner has the option to purchase additional insurance at standard rates in the future -Guarantees to add more coverage when you need it, without reapplying for medical |
|
|
Term Insurance Riders |
-A term insurance rider adds an additional level of temporary (term) insurance coverage to an existing or newly issued life insurance contract -term rider cannot be longer than term length on the base policy |
