Mixed Deck — All LLQP Topics Flashcards

What is the 'capital needs analysis' primarily used to calculate?

Answer: The lump sum needed to fund specific financial obligations at death

Capital needs analysis identifies the specific lump sum required at death to cover obligations such as debts, final expenses, education costs, and income replacement.

Why is it important for an insurance advisor to know the amount of a client's CPP and OAS benefits when conducting a needs analysis?

Answer: Government benefits provide a baseline income floor that reduces the amount of additional insurance or savings coverage the client may need

CPP, QPP, and OAS provide a guaranteed income floor in retirement. When calculating life insurance needs, disability coverage gaps, and retirement savings targets, the advisor must offset projected government benefits against total income needs. Ignoring these programs leads to recommending more coverage than necessary.

Which type of life insurance product is typically sold without a medical exam, using only a short health questionnaire to determine eligibility?

Answer: Simplified issue life insurance

Simplified issue life insurance uses a brief health questionnaire instead of a full medical exam, trading faster approval for higher premiums or lower coverage limits.

An employee who is covered by $200,000 of group life insurance resigns from their job. Which of the following statements best describes the 'conversion privilege' available to this employee?

Answer: The employee is entitled to receive the cash surrender value of their group coverage.

The conversion privilege allows an employee whose group life coverage terminates (e.g., due to leaving their job) to convert that coverage into an individual permanent life insurance policy without having to provide evidence of insurability. This must typically be done within 31 days of the termination of group coverage.

How does tobacco use affect life insurance underwriting in Canada?

Answer: Tobacco users typically pay significantly higher premiums than non-tobacco users due to increased mortality risk

Tobacco use significantly increases premiums because it is one of the strongest predictors of increased mortality, with smoker rates typically being double or more the non-smoker rates.

What is the 'free look' or 'cooling off' period in Canadian insurance?

Answer: A period after policy delivery during which the policyholder can cancel for a full refund

The free look period gives policyholders a specified number of days after receiving their policy to review it and cancel for a full premium refund.

What is the typical waiting period before a new employee becomes eligible for group benefits in Canada?

Answer: Usually 3 months, though it varies by employer

The most common waiting period for group benefits eligibility is 3 months, though employers can set different periods based on their plan design.

What does the 'convertibility' feature in a term life insurance policy allow?

Answer: Converting the term policy to a permanent policy without providing medical evidence

Convertibility allows term life policyholders to convert their policy to a permanent life insurance product without providing evidence of insurability.

What is the primary function of the MIB Group, Inc. (MIB) in the life insurance underwriting process?

Answer: To serve as an information exchange for member insurers to detect potential omissions or misrepresentations on applications.

The MIB's main purpose is to protect insurers from fraud, omissions, and misrepresentations by allowing them to check an applicant's information against a database of coded data from previous insurance applications. It acts as a "red flag" system, alerting underwriters to discrepancies that may require further investigation. The MIB does not contain detailed medical records, nor does it make underwriting decisions or set premium rates.

In most Canadian provinces, can continuing education credits earned in one province be applied to meet requirements in another province?

Answer: Potentially, if the course is approved by the receiving province's regulator

CE credits may be transferable between provinces if the specific course has been approved by the receiving province's regulator.

How are employer-paid group life insurance premiums treated for tax purposes in Canada?

Answer: Premiums paid by the employer are a taxable benefit to the employee for coverage exceeding certain thresholds

Employer-paid group life insurance premiums are generally a taxable benefit to the employee and must be included in their income for tax purposes.

When a beneficiary designation is irrevocable, what restriction is placed on the policy owner?

Answer: The policy owner cannot change the beneficiary, assign the policy, borrow against it, or make material changes without the irrevocable beneficiary's written consent

An irrevocable beneficiary designation removes the policy owner's unilateral control: any change to the beneficiary, policy assignment, policy loan, or surrender requires the irrevocable beneficiary's written consent. This is commonly used in divorce settlements or creditor protection strategies.

A client's segregated fund contract matures and the market value is below the guarantee amount. Who bears the cost of the maturity guarantee shortfall?

Answer: The insurance company

The insurance company bears the cost of making up the shortfall between the market value and the guaranteed maturity amount.

A client over-contributes $5,000 to their TFSA. What penalty applies?

Answer: 1% per month on the excess amount for each month it remains

CRA imposes a 1% per month tax on the highest excess TFSA amount in each month the over-contribution exists. The penalty accumulates monthly until the excess is withdrawn, so prompt action is critical.

When an underwriter determines that an applicant presents a higher-than-average risk but is still insurable, which of the following is a common course of action?

Answer: Offer a rated policy with a higher premium or add an exclusion rider.

For a substandard risk that is still insurable, the underwriter must compensate for the additional risk. The two primary methods are to charge an increased premium (known as a 'rating') or to add an exclusion rider that removes coverage for a specific high-risk activity or condition. Declining the application is for uninsurable risks, and insurers cannot mandate lifestyle changes or unilaterally cut the death benefit as a rating method.

What is a 'flex benefits' or cafeteria plan in the context of group benefits?

Answer: A plan that gives employees a set dollar allowance to choose among various benefit options

Flex or cafeteria plans provide employees with credits they allocate among benefit options such as health, dental, life, and disability according to their personal needs.

What is the regulatory requirement when an insurance agent discovers that a client has made a material misrepresentation on their application?

Answer: Report it to the insurer and advise the client to correct the information

The agent must report any known material misrepresentation to the insurer and advise the client to provide accurate information.

What is the 'incontestability clause' in a Canadian life insurance policy?

Answer: A clause preventing the insurer from voiding the policy after it has been in force for a specified period

The incontestability clause prevents the insurer from voiding a policy based on misrepresentation after it has been in force for a specified period, typically two years.

What is 'term to 100' life insurance and how does it differ from traditional whole life?

Answer: It provides coverage to age 100 with level premiums but typically has no cash value or dividends

Term to 100 (T100) provides permanent-like coverage to age 100 with level premiums but typically does not accumulate cash value or pay dividends, making it less expensive than whole life.

When is a life insurance agent's license considered 'inactive'?

Answer: When the agent has no current insurance company appointment

A license becomes inactive when the agent has no active appointment with an insurer, meaning they are licensed but not authorized to transact business for any company.