Study one Flashcards
What were traditionally considered to be the 4 distinct sectors of the financial services industry?
-banking, insurance, investment, trust
What are the two main categories in the common law provinces?
- life insurance
- health related insurance
What was the main purpose of industrial insurance? How did it operate?
- maximum payable on death was $2000
- provide for cost of burial and funeral
- collected weekly on payday
Identify items that carry a financial value.
- cash
- bank balances
- investments
- proceeds of life insurance policy
- household goods
- real estate
- vehicles
- personal effects
How does the principle of insurance work?
- to share the losses of the few among many
- collecting small contributions from many to be collected into a “pool”, and used to pay funds to those who suffer a loss.
Define insurance.
- the undertaking of 1 person to indemnify another person against loss or liability for loss for a certain risk or peril as described in a policy or to pay a sum of money or other thing of value when a specified event happens.
Define net worth.
- a measurement of an individuals wealth at a particular moment.
- total assets - total liabilities
Define time value of money.
- the concept of how the value of money changes over time because of interest
- based on assumed interest rate in the future.
Identify examples of wealth protection strategies
- life insurance
- general insurance
- disability insurance
- up to date will
- using financial services professional
- establish a trust arrangement to protect assets
What is accident and sickness insurance used for?
- insurance payable when a person gets sick or injured
- usually 60-70% of insureds pre-disability wage
EXAMPLES: - income replacement due to disability, medical expenses, other fixed benefits (lump sum)
Define asset.
- anything that has financial value
- earning potential of an individual is an important economic asset worth insuring
Define liability.
- obligations that reduce assets
- generally in the form of debt such as bank loans, credit cards balances
- includes contracts for future payment
What activities increase and preserve personal net worth?
1) wealth accumulation
- depends on increasing assets, decreasing liabilities
2) wealth management
effective recognition and response to changes of:
- economic enviro changes
- tax laws
-family laws
3) wealth protection
(overlap and depend on eachother)
Identify wealth accumulation strategies?
- invest early to capitalize on compound interest
- maximize RRSP contribitions
- pay off loans and mortgage at accelerated schedule
- maximize contributions to a company pension plan when employer offers matching contributions
- take advantage of employers stock option plan
Identify wealth management strategies.
- re-evaluating investments in light of major life changes
- contrinute to a RESP
- minimize risk by diversifying investments
- adjust according to economic climate or changes in financial market
- adjust to benefit from changes in tax laws
- invest internationally
- find most tax effective way of making investments
What are 3 significant risk exposures to long-term financial security?
1) PREMATURE DEATH - a person supporting a family might die before accumulating sufficient wealth to provide for dependants
FINANCIAL EFFECTS OF SURVIVOR:
- inability to pay mortgage
- inability to make loan/lease payments
- postpone post secondary
- co-supporter may not be able to save for retirement
2) SICKNESS AND DISABILITY - an income earner might become sick or disabled and are unable to work INCREASED EXPENSES SUCH AS: - medical treatment -drugs - wheelchairs - home renos -nursing care
3) UNANTICIPATED LONGEVITY - an individual might outlive accumulated retirement savings
What are uses of life insurance?
- payable when a person dies or reaches a certain age
- protects families by paying a lump sum benefit when insured person dies
INCLUDES:
- last expenses (credit card balances, loan, legel fees associated with settling estate)
- unpaid taxes
- mortgage, rent, lease
- education expenses
- income replacement
What are the business uses of life insurance?
1) collateral security for a loan
2) insurance to cover a key person
3) provide funds for surviving partners or shareholders (or buyout)
What are the 3 basic protection components for health insurance?
- income replacement (due to disability)
- medical expenses
- other fixed benefits
Explain income replacement.
- most common use of health insurance
- the amount of the benefit is generally between 60-70% of the insureds pre-disability, pre-tax wages or salary
- this is to encourage claimants to return to work asap
What are 3 ways life and health insurance are delivered to consumers?
1) individual policies
2) group policies
3) social benefit by the government
What are a persons main goals?
1) personal goals
2) career goals
3) financial goals
Define risk tolerance.
- is the level of risk an individual is prepared to accept
- GIC = low risk
What are personal wealth accumulation plans based on?
- age
- income
- expenses and obligations
- financial goals
- risk tolerance
