OVERVIEW (LLQP Flashcards)
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What are the documents that constitute the entire agreement between the parties of an individual life insurance contract?
- Application
- Policy
- Any document attached to the insurance policy when issued
- Any amendment (also called rider, endorsement, or addendum) to the policy agreed to in writing after the policy is issued.
(Refer to Section 2.6.1.1)
Insurance companies, also known as insurers, can be incorporated in two different ways. What are the ways in which they can be incorporated?
Federally or provincially.
Federally incorporated companies are able to carry on business across the country, and provincially incorporated companies can only operate in the province in which they are incorporated.
(Refer to Section 4.1.1)
Which organization is an association of insurers conducting business in Canada that has prepared a series of 18 guidelines for the guidance of its members to promote consistent practices and standards for the life and health industry?
The Canadian Life and Health Insurance Association (CLHIA).
(Refer to Section 2.6.5)
Which organization is responsible for determining the financial soundness of federally incorporated life insurance companies?
The Office of the Superintendent of Financial Institutions (OSFI).
(Refer to Section 4.1.1)
What are the legal requirements for an agent to sell insurance in Canada?
- Be licensed
- Enter into an agency contract
- Practice the highest standards of conduct
- Acquire errors-and-omissions (E&O) insurance.
(Refer to Chapter 1)
Which Act regulates insurers at the federal level?
The Insurance Companies Act.
(Refer to Section 4.1.1)
Over the years, the insurance acts of all the common-law provinces have become very similar. Collectively, the provincial acts are referred to as the Uniform Insurance Act. Québec, however, has a different insurance act. Why?
The provinces’ laws are based on common law, and therefore have a uniform act. Québec’s laws, however, are based on civil law and so it has a different insurance act.
(Refer to Section 1.2)
Which body is responsible for governing the marketing of life insurance policies?
The provincial insurance acts are responsible for the marketing of life insurance products and are therefore regulated by provincial insurance regulators.
(Refer to Section 4.1.1)
What type of law applies to the interpretation of a life insurance contract?
The law of the province or territory where the policy was contracted.
(Refer to Section 1.2)
Civil fault is an action or omission which causes someone loss or harm for which the wrongdoer is liable. A breach of the privacy obligations of an agent could lead to a civil action against the agent in torts. A client claiming to be the victim of civil wrongdoing could initiate civil litigation against an agent. How can insurance agents protect themselves against a claim against them under tort law?
Life insurance agents protect themselves from claims by carrying errors and omissions (E&O) insurance.
Note: E&O insurance does not protect agents from intentional acts, misappropriations, fraud, or criminal activities such as forgery.
(Refer to Section 4.2.5.1)
Assuris is a not-for-profit organization that protects Canadian policyholders if their life insurance company should fail. How does Assuris provide protection for insurance policyholders?
If a member insurance company becomes insolvent, Assuris facilitates the transfer of its policies to a solvent company and ensures benefits are continued under the original terms of the policy.
(Refer to Section 4.1.4.3)
According to provincial insurance legislation, what is considered the minimum age for individuals to have the capacity to contract for insurance on their own behalf?
16 years
Provincial insurance legislation says that, for contracting a policy, a person 16 years of age or older has the capacity to contract for insurance on its own behalf.
(Refer to Section 1.2.3)
Emma was filling out her insurance application and accidentally filled in the year of her birth as 1988 instead of 1989. Is this considered a mistake or a misrepresentation, and what is the difference?
This would be a mistake. Emma did not do this intentionally. Furthermore, there would be no benefit to the client to inform the insurance company that she is older than she really is, as this would result in a higher premium.
A mistake is not a conscious act, whereas a misrepresentation may not be a conscious act.
(Refer to Section 2.4.1.1)
Clark is healthy, exercises regularly, and maintains a healthy diet. He works in an office as a graphic designer. However, Clark also likes to skydive a few times a year for fun. While meeting with his insurance agent, Clark decides not to mention the fact that he skydives. He has heard that he might have to pay a higher premium for having a “risky lifestyle” if he tells the insurance company about his hobby. Since he only does this a few times a year, he prefers not to tell them about it.
What type of misrepresentation is this, and how might it affect the policy?
Clark’s failure to disclose his skydiving hobby is considered material misrepresentation.
Material misrepresentation is a misrepresentation of a fact, which, if the truth had been known, might have resulted in the insurer refusing to issue the policy, or charging a higher premium for it.
(Refer to Section 2.4.1)
What is the duration of the “incontestability” period?
The “incontestability” period is the first two years that a policy is in force.
(Refer to Section 2.4.1.2)
All insurance contracts are unilateral contracts. What does this mean?
This means that the insurance company is the only party bound by the contract and is obliged to fulfill the contract, as long as premiums are paid, whereas the insured can cancel it at any time.
(Refer to Section 2.3.2)
Jenny has two life insurance policies with JKL Insurance. The insured are her two daughters, Sarah and Jessica. Sarah is the beneficiary named on Jessica’s policy, and Jessica is the beneficiary named on Sarah’s policy. Which two parties have entered into an insurance contract and therefore have the contractual rights associated with these policies?
The two parties with contractual rights in an insurance contract are the insurance company that accepts the risk (the insurer – JKL Insurance), and the person who makes the contract with the insurer (the insured – Jenny). The insured can also be known as the policy owner.
(Refer to Section 2.1)
Tommy has applied for life insurance on the life of his friend, Sam. Tommy does not have an insurable interest on Sam in any way, but he is willing to pay the premiums. How will the insurance company respond to this?
The insurance company will not issue the policy. A lack of insurable interest implies that the insurer should not issue the policy.
(Refer to Section 2.1.3)
Devin purchased life insurance in 2009, naming his daughter Julie as the sole beneficiary on the policy. In 2010, he married Melissa and moved in with her and her daughter, Mandy. In 2012, Devin updated his will. In his will, Devin designates the proceeds of his life insurance policy to be split 50/50 between his daughter, Julie, and his new stepdaughter, Mandy. If Devin dies today, who would be considered the beneficiary of the policy?
Julie and Mandy.
If a beneficiary for insurance proceeds is named in a will, and a later declaration names a different beneficiary for insurance proceeds, the beneficiary named closest to the death of the insured will prevail.
(Refer to Section 1.2.7)
Earl and Emily were married and lived together in a beautiful home in Toronto before they divorced. Earl and Emily were so busy moving into their new homes and splitting their bank accounts that they forgot to update their insurance policies. If Earl and Emily do not change the beneficiaries on their policies, and one of them dies, how will the fact that they are now divorced impact the death benefit?
The surviving ex-spouse would still receive the death benefit. Except in Québec, if the spouse of the policyholder has been named as the beneficiary, and the parties subsequently divorce, the divorce does not alter the rights of the former spouse as beneficiary.
(Refer to Section 1.2.7.1)
Which party is said to control an insurance policy?
An insurance policy is controlled by the policy owner.
The policy owner names the beneficiary, decides whether to take a loan or make a withdrawal, is able to terminate the policy, and can decide if the policy should be assigned.
(Refer to Section 2.1.2)
Andreas went into a financial institution to take out a loan to purchase a car. The financial institution insisted that he purchase a life policy to insure the loan.
Identify the professional standard that the financial institution has violated.
Tied selling.
(Refer to Section 4.2.3.1)
What should agents do to demonstrate ethical behaviour to build a trusting agent–client relationship? (name at least three)
- Deal with conflicts of interest
- Perform client needs analysis
- Sell ethically
- Meet fiduciary obligations
- Comply with statutes, regulations, and codes of conduct
(Refer to Section 4.1)
