Ethics Chapter 2

Question 1

What is the minimum guarantee for IVICs (segregated funds)?

Answer 1

75% of the original investment at maturity or annuitant’s death.

Question 2

If $175,000 is invested in an IVIC, what is the minimum guaranteed value?

Answer 2

$131,250 (75% of $175,000)

Question 3

When can a client get temporary insurance coverage?

Answer 3

While the application is being underwritten, if they qualify.

Question 4

What are the 3 ways temporary insurance coverage ends?

Answer 4

1. Main policy approved
2. Main policy declined
3. Specified time (e.g., 90 days) expires

Question 5

Who is the Annuity Holder?

Answer 5

The purchaser of the annuity.

Question 6

Who is the Annuitant Grantee/Payee?

Answer 6

The person receiving the annuity payments.

Question 7

Who is the Beneficiary/Payee in an annuity contract?

Answer 7

The person receiving remaining benefits after the annuitant’s death.

Question 8

Why is there less medical underwriting for accidental insurance?

Answer 8

Health has less impact on accident risk.

Question 9

How can a policy be creditor-proofed before death?

Answer 9

Name a protected class beneficiary (spouse, child, etc.) or make them irrevocable.

Question 10

What is a material misrepresentation?

Answer 10

Omitting info that affects the insurer’s decision, like a past heart attack.

Question 11

What is an immaterial misrepresentation?

Answer 11

Info like a past wart removal that doesn’t impact underwriting.

Question 12

What happens during the contestability period (first 2 years)?

Answer 12

Insurer can cancel or deny claims due to material misrepresentation.

Question 13

What must an insurer prove after 2 years (incontestability period)?

Answer 13

Fraud – that the applicant intentionally lied.

Question 14

What is a collateral assignment in life insurance?

Answer 14

Using the policy as loan security, like a home mortgage. The lender is repaid from the policy if needed.

Question 15

Why is ROP (Return of Premium) controversial in CI insurance?

Answer 15

It may blur the line between insurance and investment since premiums can be refunded.

Question 16

What are two advantages of a third-party loan over a policy loan?

Answer 16

1. Can be unsecured and exceed policy value
2. Not a taxable event

Question 17

What are two disadvantages of a policy loan?

Answer 17

1. Only part of cash value is available
2. Considered a partial disposition and may be taxable

Question 18

Can life insurance co-owners create side agreements?

Answer 18

Yes, with or without the insurer’s knowledge

Question 19

Who is the policyholder?

Answer 19

The person or entity who owns the policy and can make changes

Question 20

Who is the life-insured?

Answer 20

The person whose death triggers the benefit

Question 21

What is a successor policyholder?

Answer 21

The person named to take ownership if the policyholder dies but the life-insured is still living

Question 22

Who is the beneficiary?

Answer 22

The person/entity who receives the death benefit

Question 23

What does ‘unilateral’ mean in insurance contracts?

Answer 23

The insured can cancel anytime, insurer can only cancel under specific circumstances

Question 24

When can creditor protection be lost?

Answer 24

If a beneficiary is named in bad faith, e.g. to dodge an impending financial crisis

Question 25

Why might a policyholder want to backdate a policy?

Answer 25

To use a younger age for lower premiums, despite paying extra backdated premiums

Question 26

What happens if all children are named as primary beneficiaries?

Answer 26

They share the benefit equally. Contingent beneficiaries only receive it if the primary dies first.

Question 27

What is a Deferred Profit Sharing Plan (DPSP)?

Answer 27

A group-only profit-sharing plan funded solely by employers; vests after 2 years.

Question 28

How is a DPSP typically set up when offered by a life insurance company?

Answer 28

As a group annuity contract.

Question 29

What is a Future Income Option (FIO)?

Answer 29

An add-on to a disability policy that lets insured increase coverage on set dates without medical proof.

Question 30

What type of underwriting applies to FIO?

Answer 30

Financial underwriting (based on pre-disability income).

Question 31

What is a LIRA and why is it 'locked in'?

Answer 31

A retirement account from pension funds, restricting when withdrawals can be made.

Question 32

What is a deferred annuity?

Answer 32

An annuity where payments are delayed; earnings grow and are taxed annually unless tax-sheltered.

Question 33

Which province's laws apply to group insurance?

Answer 33

The province where the insured resided when they joined the group plan.

Question 34

What are three characteristics of structured settlement annuities?

Answer 34

1. Paid up front with a single premium 2. Non-assignable and non-commutable 3. Special tax treatment

Question 35

What constitutes acceptance of a life insurance policy?

Answer 35

When the life insurance agent accepts the application on behalf of the life insured.

Question 36

What happens if there is a change in insurability between application and policy delivery?

Answer 36

The policy does not take effect, even if it was delivered and the first premium taken. The insurer is entitled to know and consider any change in risk before being bound to the coverage

Question 37

What are 3 examples of changes in insurability

Answer 37

1) Change in Health 2) Change in Financial Situation 3) Planned vacation to another part of world