CH 1 - INSURANCE Flashcards

Question

what factors determine a clients ability to qualify for long-term care insurance ?

Answer 1

* Medical * Age * Health history * Financial * Policy structure * Lifestyle

Answer 2

* Non-forfeiture benefit * Premium structure * Premium payment period * Pre-existing conditions * Family discount

Answer 3

* Renewability * Policy lapses * Benefit triggers * Elimination or waiting period * Benefit periods

Answer 4

* Mental or nervous disorder or disease, other than Alzheimer’s disease or other dementia * Alcohol or drug addiction * Illness or injury caused by an act of war * Conditions that have been treated by the government in a government facility * Treatment for conditions for which the government has already paid * Attempted suicide or intentionally self-inflicted injuries

Answer 5

* Inflation protection or cost of living adjustment * Waiver of premium * Third-party notification * Home care benefit * Future purchase option

Answer 6

* Income model * Reimbursement model * Indemnity model

Answer 7

* Part-time skilled nursing care * Practical nursing assistance * Services of a nurse’s aide * Physical or occupational therapy * Homemaker assistants to provide assistance with daily living activities

Answer 8

The benefit is a stated monthly amount with a lifetime maximum.

Answer 9

Long-term care policies usually have an elimination or waiting period of up to one year.

Answer 10

ADL: * Eating * Bathing * Dressing * Toileting * Mobility * Continence

Answer 11

Some do to determine if the client could qualify for benefits. -(i.e. if they are that impaired cognitively, then they would require the care) due to mental challenge.

Answer 12

The policy has inflation protection, so that the maximum daily policy limit increases by a percentage i.e. (4% each policy year to keep with inflation).

Answer 13

Monthly amount

Answer 14

Yes, it has a lifetime maximum benefit amount.

Answer 15

$2,000 (Annual)

Answer 16

2.5 times more, than a 65 yr olds policy.

Answer 17

6 times more, than at 55 yrs old.

Answer 18

The daily amt x a multiple. i.e. (250 daily benefit x 1,000 multiple) = Maximum of $250,000.

Answer 19

* Client’s ability to fund the premium payments * Services covered under the insurance policy * Duration of benefits * Conditions the policy covers * Ability to self-fund * Other sources of income

Answer 20

Through a policy loan

Answer 21

1) impact on death benefit 2) cash surrender 3) impact on use of non-forfeiture options 4) Cost of borrowing, interest obligations and interest deductibility

Answer 22

the policyholder will not be permitted to recover any taxes that the policyholder previously paid through offsetting tax deductions

Answer 23

the insurer issues a cheque to the policyholder equal to the cash value of the policy.

Answer 24

All permanent insurance contracts contain a table from which the cash value can be calculated at any particular time. The policyholder will be entitled to receive an amount equal to the cash surrender value of the policy minus the outstanding policy loan, as well as any unpaid premiums.

Answer 25

If you already have a policy loan and a non-forfeiture options needs to be generated, then the policy may still lapse if their is not enough cash value available.

Answer 26

* Purchase additional permanent insurance (often called paid-up insurance). * Purchase additional temporary insurance (often called extended term insurance). * Avoid paying future premiums by relying on the accumulated cash value (and dividends or interest payments), or on the funds generated from surrendering paid-up insurance to pay the future premiums required to keep the policy in force (often called premium offset).

Answer 27

* The ability of the policyholder to purchase paid-up insurance or term insurance may be limited. * The time at which the policyholder can use premium offset may be extended.

Answer 28

They charge a variable rate.

Answer 29

Not always, For the interest paid on a policy loan to be deductible, the insurance company must verify the interest (as per the ITA)

Answer 30

* Interest was paid (or payable) in each year the deduction is being claimed * The policyholder had a legal obligation to pay the interest. * The policyholder borrowed the funds to earn income or property (other than property that produces exempt income).

Answer 31

The key advantage of a policy loan is that it allows your clients to access the cash held in the investment component of their permanent life insurance policy to address their needs, such as an emergency need for cash or to supplement their income in retirement.

Answer 32

This is because a policy loan can be repaid at any time, other methods for accessing the cash held in a life insurance policy. For example, full or a partial surrender of the life insurance policy can lead to a permanent reduction of the value of the policy or a complete loss of insurance protection. [Full surrender or partial surrender of an exempt insurance policy are both considered a disposition of an interest in an insurance policy.]

Answer 33

* Before issuing a loan to the client, a bank (or other lender) may ask to review or understand the nature of the life insurance policy, or to assess the client’s creditworthiness, which can be inconvenient, time consuming, or unpleasant. * The lender may have the right to force repayment of the loan in certain circumstances, unlike with a policy loan, which is more accurately an advancement on the policyholder’s rights to the cash held within the policy. Therefore, a client who is unable to repay the policy loan cannot be forced to do so.

Answer 34

* If the amount of a policy loan is less than or equal to the ACB of the policy, there is no policy gain, which means that the client can obtain the policy loan tax free. * Even if there is a policy gain, and the client has to pay tax on the gain, the tax penalty may be: reduced by repaying all or part of the policy loan. In certain circumstances, the ITA allows the policyholder to recover some or all of taxes previously paid through offsetting tax deductions. Also, taxes payable under a policy loan are usually lower than taxes payable under other methods of accessing the cash held within life insurance policies (i.e. partial surrender of the insurance policy).

Answer 35

1) the ITA limits the maximum amount available to the cash surrender value of the policy. 2) a policy loan is considered a disposition of an interest in a life insurance policy, which may mean that the client has to pay tax on the policy gain (i.e., the amount that exceeds the ACB of the policy).

Answer 36

50 - 90% of the value. [The less risky the underlying investments the greater the percentage].

Answer 37

* Repay all or part of the loan. * Provide the lender with additional security as collateral for the loan. * Partially surrender the cash value from the life insurance policy to repay the loan. * Fully surrender the life insurance policy to repay the outstanding bank loan, which could result in a taxable policy gain for the client.

Answer 38

*Impact on the death benefit, upon the death of the insured * Impact on the cash surrender value if the policy is surrendered * Cost of borrowing * Interest obligations and Interest deductibility

Answer 39

* It allows clients to access the cash value within their exempt life insurance policy without having to surrender or dispose of their interest in the policy under the ITA. * It allows clients to access liquidity while the policy continues to remain in force, earning tax-deferred investment income and accruing tax-free death benefits. * It allows clients to maintain insurance coverage while preserving cash flow. * If the life insured client is also the policyholder, repayment of the loan is deferred while the policyholder is alive and the death benefit can be arranged to pay off any debts upon the death of the life insured client. * Like interest paid on policy loans, interest paid by the policyholder to the lender may be deductible under certain circumstances. * If a policyholder uses a life insurance policy as collateral for a loan, a portion of the premium payments may be deductible under certain circumstances. Generally, if the deduction for interest payments is denied, the premium deduction will also be denied. * When the life insured client dies, if the life insurance policy is owned by a corporation, the corporation may receive a credit to its capital dividend account (CDA) that is equal to the proceeds of the life insurance minus the corporation’s ACB of the policy

Answer 40

the lender may ask for additional collateral, recall the loan entirely, or surrender the policy to repay the loan.

Answer 41

* CRA may consider the bank loan to be policy loan. * Future changes to the ITA may not grandfather (or exempt) the existing collateral assignment arrangements. * CRA may apply the General Anti-Avoidance Rule to consider the arrangement invalid. * The policyholder may not meet the requirements to deduct interest expense, under the ITA. Often, the attractiveness of collateral loan arrangements lies in the ability of the policyholder to deduct interest expense.

Answer 42

* An insurance trust can provide a benefit to a spouse, although the trust will likely not qualify as a spousal trust under the ITA. This may be particularly useful in a blended family context, where the surviving spouse is not the parent of the deceased client’s children. * An insurance trust can provide a benefit to minor beneficiaries, severally disabled beneficiaries, or spendthrift beneficiaries, who may be unable to manage insurance proceeds on their own. * An insurance trust can provide a benefit to the shareholders of a corporation for the purpose of a buy-sell arrangement.

Answer 43

* Replace a key person * Repay business loans and debts * Fund a buy-sell obligation * Pay for capital gains taxes * Compensate an executive * Pay capital dividends to shareholders

Answer 44

* Lower rates to better afford insurance * Tax-free death benefit * CDA credit * Simpler buying and selling between shareholders * Simpler post-mortem tax planning

Answer 45

* Protection from the policyholder’s creditors * Potential taxable shareholder benefit * Transfer upon sale of corporation * **Failure to qualify for lifetime capital gains exemption**

Answer 46

If the shareholder is the owner of the policy, or if the shareholder (or estate) is designated as the beneficiary, the shareholder may be subject to a benefit tax on either the premiums or the death benefit, under the ITA. * If a person related to the shareholder (as defined under the ITA) is named as the owner, or if the related person (or estate) is designated as a beneficiary of the policy, the shareholder may be subject to a benefit tax on either the premiums or the death benefit, under the ITA. * If an employee of the corporation is named as the owner of the policy, or if the employee (or estate) is designated as the beneficiary of the policy, the employee may be subjected to a benefit tax on either the premiums or the death benefit, under the ITA

Answer 47

* The purpose of the life insurance policy * The advantages and disadvantages of purchasing a life insurance policy as an individual or as a corporation * Tax implications of purchasing a life insurance policy as an individual or through the corporation

Answer 48

A split-dollar life insurance arrangement involves two parties (e.g., a corporation and its employee, or a corporation and its shareholder) splitting the benefits and costs associated with owning, funding, and designating the beneficiary of a life insurance policy.

Answer 49

For example, each party must pay a reasonable amount for the benefit each party is entitled to under the split-dollar arrangement; otherwise, they may be subject to a taxable benefit, under the ITA. Also, the parties must record the terms of the arrangement in a written agreement. They must also set out the premium and benefit allocations under the policy

Answer 50

* The funds can be taken in cash. * They can be left on deposit to accumulate with interest. * They can be used to reduce premiums. * They can be used to purchase additional term insurance in the form of a term rider. The actual amount of additional coverage would be based on the life insured client’s age and gender. * They can be used to purchase paid-up additions. This is additional insurance coverage on which no premiums are payable (i.e., the insurance is paid in full)

Answer 51

The benefits from a life insurance policy are paid tax free to the beneficiaries, if the insured client owns the policy and pays the premiums. The benefits from a health or disability insurance policy are paid tax free to the policyowners, if the insured client owns the policy and pays the premiums. An individual life insured client who owns the policy and designates a registered charity as beneficiary will not receive a charitable tax credit for the continued premium payments. However, upon the death of the client, the proceeds of the life insurance are paid to the charity and the life insured client (or estate) receives a tax credit for the amount of the death benefit An individual life insured client who owns the policy and designates a registered charity as beneficiary will not receive a charitable tax credit for the continued premium payments. However, upon the death of the client, the proceeds of the life insurance are paid to the charity and the life insured client (or estate) receives a tax credit for the amount of the death benefit.

Answer 52

* The employee is the owner of the policy and can therefore designate the beneficiary on the policy. * The employee is also a shareholder of the business. * The employer is the owner and beneficiary of the policy.

Answer 53

If the employer pays the premiums for a life insurance policy on the life of an employee, and the employee owns the policy, the employer may be able to deduct the premium payments. The employer can deduct the payments on its statement of business income and expenses, as long as the premiums are a reasonable business expense. The amount of the premiums that an employer may deduct depends on the type of policy and on the nature of the premium payments.

Answer 54

* The policy is for group term life insurance and the policy benefits include policy dividends, experience rating refunds, or amounts payable upon the death of an employee, former employee, or covered dependent. * The policy offers coverage that employees are not obliged to receive, such as optional dependent life insurance coverage on eligible dependents or employees. If the employee pays a portion of the insurance premiums, the employer cannot deduct the payments.

Answer 55

Generally, life insurance premiums paid by an employer on the life of an employee are considered a taxable benefit to the employee, if the employee is the owner of the policy. Therefore, the value of the premium payments must be included in the income of the employee for income tax purposes. Also, because taxable benefits are pensionable income, employers must deduct Canada Pension Plan contributions on that amount of the taxable benefit. If the employee pays a portion of the insurance premiums, the payments are not deductible by the employer, and are therefore not a taxable benefit to the employee.

Answer 56

A shareholder benefit does not apply in three cases: * The corporation, rather than the shareholder-employee, is the owner and beneficiary of the policy. * The premium payments are paid for the shareholder-employee in the capacity of employee, rather than shareholder. * The premiums are a reasonable business expense incurred for the purpose of earning income from a business or property.

Answer 57

1.TAX TREATMENT OF INSURANCE BENEFITS, IF THE EMPLOYER PAYS THE PREMIUMS BUT THE EMPLOYEE OWNS THE POLICY 2. TAX TREATMENT OF INSURANCE BENEFITS, IF THE CORPORATE EMPLOYER PAYS THE PREMIUMS, IS THE OWNER, AND IS THE BENEFICIARY

Answer 58

* Ownership of the policy is split between the employer and the employee. * Ownership of the policy is held only by the employer or the employee.

Answer 59

the employer and employee may agree that the employer owns the policy’s cash value and the employee owns the death benefit exceeding the policy’s cash value. In this case, upon the death of the life insured client, the death benefit of the policy is paid tax free.

Answer 60

Premiums paid for return of premium benefits are usually not deductible to the policyholder. If a return of premium is paid to the policyholder upon the surrender or maturity of a policy, the benefit may be paid tax free to the policyholder, as long as it does not exceed the amount of premiums paid.

CH 1 - INSURANCE Flashcards

(85 cards)