LLQP Dictionary

(Life License Qualification Program inc. Accident & Sickness)

LLQPDICTIONARY

The

Definitions and Explanations of Key Concepts in Plain English

Copyright 2012 Susan Yates. All Rights Reserved. iii

Contents of The LLQP Dictionary -A- Accident and Sickness Insurance……………………………………………. Accidental Death Benefit + ……………………………………………………. Accidental Death and Dismemberment Adjusted Cost Basis ……………………………………………………………. Annuities ………………………………………………………………………….. Application ……………………………………………………………………….. Assignment ………………………………………………………………………. ASO plans ………………………………………………………………………… Assuris……………………………………………………….…………………….. Authority………………………………………………………………...………… Automatic Premium Loan………………………………………………..... -B- Beneficiary……………………………………………………………………….. Business Disability Insurance………………………………………………... Business Life Insurance………………………………………………………. Business Overhead…………………………………………………………….. -C- Canada Deposit Insurance Corp……………………………………………… Canada Pension Plan………………………………………………………….. Capital Gains……………………………………………………………………. Capital Retention Approach………………………………………………….. Capitalization of Income Approach…………………………………………. Cash Surrender Value…………………………………………………………. Churning and Twisting………………………………………………………… Claims…………………………………………………………………………….. Co-insurance…………………………………………………………………….. Conflict of Interest……………………………………………………………… Continuing Expenses………………………………………………………….. Contract………………………………………………………………………….. Co-ordination of Benefits……………………………………………………… Corporation……………………………………………………………………… Cost Illustrations………………………………………………………………… Creditor Protection…………………………………………………………….. Criminal Law…………………………………………………………………….. Critical Illness Insurance……………………………………………………… -D- Death Benefit……………………………………………………………………… Death Benefit Guarantee………………………………………………………. Deductible………………………………………………………………………… Defined Benefit Plan…………………………………………………………… Defined Contribution Plan……………………………………………………… Definitions of Disability……………………………………………………….. Deposit-based Guarantee……………………………………………………….. Disability Income Insurance………………………………………………….. Disposition……………………………………………………………………….

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Copyright 2012 Susan Yates. All Rights Reserved. 4

-E- Earned Income…………………………………………………………………….. Effective Date………………………………………………………………………. Equities…………………………………………………………………………………. Errors and Omissions…………………………………………………………….. Estate………………………………………………………………………………… Ethics………………………………………………………………………….…….. Exclusions………………………………………………………………………….. -F- Face Page………………………………………………………………………..…. Fiduciary Duty…………………………………………………………………..…. Fixed-income Investments………………………………………………………. Fraud…………………………………………………………………………………. -G- Grace Period……………………………………………………..………………… Grandfathered Policies………………………………………..………………… Group Disability Insurance…………………………………..…………………. Group Health Insurance…………………………………….…………………… Group Insurance…………………………………………………………………… Group Life Insurance……………………………………………………………… Guarantees……………………………………………………………….…………. -H- Holding Out…………………………………………………………………………. -I- Income Splitting……………………………………………………………………….. Income Tax…………………………………………………………………………….. Incontestability………………………………………………………………………. Inflation………………………………………………………………………………… Information Folder…………………………………………………………………. Insurable Interest…………………………………………………………………….. Insured………………………………………………………………………………… Interest……………………………………………………………………………………. Irrevocable Beneficiary -J- Joint and Last Survivor Annuity…………………………………………………………. -L- Last Expenses ……………………………………………………………………… Law of Agency……………………………………………………………………… Life Annuities……………………………………………………………………….. Life Income Funds…………………………………………………………………. Locked-in Plans……………………………………………………………………….…… Locked-in Retirement Accounts……………………………………………….. Long-term Care Insurance…………………………………………………..….. Long-term Disability………………………………………………………………

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-M- Marginal Tax Rate……………………………………………………………………. Maturity Guarantee…………………………………………………………………. Maximum Tax Actuarial Reserve……………………………………………….… Misrepresentation………………………………………………………………..…. Mistakes………………………………………………………………………………… Morbidity……………………………………………………………………………….. Mortality…………………………………………………………………………………. Mutual Funds………………………………………………………………………….. -N- Net Cost of Pure Insurance………………………………………………………… Non-forfeiture Options……………………………………………………………….. Notional Units………………………………………………………………………… -O- Occupational Classifications……………………………………………………….. Offset………………………………………………………………………………….. Old Age Security…………………………………………………………………….. -P- Participating Whole Life Insurance………………………………………………… Permanent Life Insurance…………………………………………………………… Personal Contract…………………………………………………………………….. Policy-based Guarantee……………………………………………………………… Policy Dividends………………………………………………………………………. Policy Loan……………………………………………………………………………. Pre-existing Condition……………………………………………………………….. Premium……………………………………………………………………………………. Prescribed Annuity………………………………………………………………….. Prescribed Retirement Income Funds……………………………………………… Present Value of Money……………………………………………………………. Privacy and Confidentiality………………………………………………………… -R- Rated Contract ……………………………………………………………………….. Recurring Disability……………………………………………………………………. Registered Disability Savings Plans……………………………………………….. Registered Education Savings Plans…………………………………………….. Registered Pension Plans…………………………………………………………… Registered Plans…………………………………………………………………….. Registered Retirement Income Funds…………………………………………… Registered Retirement Savings Plans…………………………………………… Reinstatement………………………………………………………………………… Reinsurance……………………………………………………………………………. Renewable Term Life Insurance………………………………………………….. Replacement………………………………………………………………………….. Rescission…………………………………………………………………………….. Reset…………………………………………………………………………………… Residual Disability…………………………………………………………………….. Riders…………………………………………………………………………………… Risk Tolerance………………………………………………………………………… Rule of 72……………………………………………………………………………….

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-S- Sales Charge……………………………………………………………………………. Segregated Funds………………………………………………………………………. Self-directed RRSP…………………………………………………………………….. Settlement Options………………………………………………………………………… Short-term Disability………………………………………………………………………. Sole Proprietorship………………………………………………………………………. Spousal Plan……………………………………………………………………………….. Spousal Roll-over…………………………………………………………………………. Stocks………………………………………………………………………………………… Subrogation………………………………………………………………………………… Suicide Exclusion Clause…………………………………………………………………. -T- Tax Free Savings Account…………………………………………………………….. Taxation of Life Policies…………………………………………………………………. Temporary Insurance Agreement………………………………………………………. Term Annuity……………………………………………………………………………….. Term Life Insurance……………………………………………………………………. Term-to-100 Life Insurance…………………………………………………………….. Time Horizon…………………………………………………………………………….. Time Value of Money……………………………………………………………………. -U- Unbundling………………………………………………………………………………… Underwriting………………………………………………………………………………. Unfair Trade Practices……………………………………………………………………. Uniform Life Insurance Act…………………………………………………………….. Universal Life Insurance……………………………………………..………………. Universal Life Insurance Death Benefits………………………………………….. -W- Waiver of Premium……………………………………………………………………… Whole Life Insurance………………………………………………………………….. -Y- Yield to Maturity………………………………………………………………………… COPYRIGHT NOTICE The LLQP Dictionary is copyright 2012 © by Susan Yates. All rights reserved. No part of The LLQP Dictionary may be copied or duplicated by any means without the written consent of the publisher. ISBN: 0-9879002-0-3 Centre for Life Insurance and Financial Education (CLIFE) Inc. 1595 Sixteenth Avenue, Suite 301 Richmond Hill, ON L4B 3N9 www.CLIFEce.ca

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Copyright 2012. Do not photocopy these pages or reproduce them in any way. 5

Application After the life insurance agent has presented insurance options to the

client, and calculated the correct amount of insurance required in a

fact-finding interview, the client may then proceed to apply for the

insurance policy.

Completing the application form correctly is a key job for the agent

because its details, together with other information, form the basis for

underwriting the policy.

- The concept of constructive notice applies to the agent during

the application process. This means the insurance agent

must disclose all information about the proposed policy owner

and proposed life insured to the insurance company.

- A power of attorney may complete an application for a

physically or mentally disabled person. (A power of attorney

is appointed in a legal document as a person who assumes

decisions for another.)

- After the application is completed, it must be reviewed with

the proposed insureds, and signed by the proposed policy

owner and agent. The agent must not sign on behalf of the

client; this is forgery.

- If the agent believes that the standard premium rate will

apply, he or she will ask for a cheque in the amount of the

first premium to accompany the application.

- The agent must promptly deliver the application to the

insurance company, and be prepared to acquire more

information if requested by the underwriters.

- All details of an application are highly confidential and must

never be shared with another person without the consent of

the proposed insureds.

- When the application is approved, the policy is issued.

- The application together with the policy forms the entire

contract between the policy owner and the life insurance

company.

Students Take Note:

1. The policy owner provides

information about his or her

income and finances on the

application to prove that

premiums can be paid.

2. The underwriting of the

policy determines premiums.

This will include medical

information from the Medical

Insurance Bureau (MIB).

3. If the agent thinks that the

life insured presents a higher

risk than is covered by the

standard premium, the agent

should not ask for payment to

accompany the application.

4. The agent may be required

to complete an Inspection

Report, Drug and Alcohol

Questionnaire, or Hazardous

Sports and Occupations

Questionnaire to go along with

the application.

Related Terms: Cost

Illustrations. Underwriting.

Contract. Temporary

Insurance Agreement.


Conflict of Interest A conflict of interest occurs when private interests (usually

financial) or personal considerations of an agent are incompatible

with the interests of a client. As a result, if the situation or

circumstance in which the conflict of interest continues, the agent

does not treat the client objectively, and the agent has put his

interests ahead of those of the client.

An example of conflict of interest would be to recommend

replacement of a policy solely for the purpose of obtaining a new

commission. The acts of replacing for a new commission are

called churning and twisting.

Conflict of interest can also occur if an agent acts as a power of

attorney, or a policy beneficiary --- either personally or, for

instance, on behalf of a charity the agent may be involved with.

The standard management of conflict of interest is to:

- recognize a conflict when it arises;

- disclose the conflict to the client;

- eliminate the conflict by being removed from the decision

or situation where the conflict has arisen.

Students Take Note:

1. If in doubt, bow out.

Related Terms: Ethics.

Churning and Twisting.

Unfair Trade Practices.


Defined Benefit Plan (DBP) A defined benefit plan (DBP) is one form of registered retirement

pension plan provided by employers. It is a type of company pension.

A defined benefit plan accumulates contributions from the employer

and employee over the years the employee works for that employer.

- The employee has no say in how the contributions are invested.

Note: this is a major difference from the Defined Contribution Plan.

- The employee will receive a pension statement every year that will

report how much will be received as the pension. (This is also a major

difference from the Defined Contribution Plan.)

- The amount to be received is determined as a combination of how

many years have been worked and the amount of salary that has

been received.

- On retirement, a pension is provided to the retired employee.

- If an employee stops working for that employer before retiring, all

contributions made after the first two years of work belong to the

employee. This is called vesting. The employee has a number of

options available for those funds, but cashing out is not an option.

The money will be locked-in until retirement.

- A defined benefit plan commits the employer to provide the pension

reported in the pension statement on retirement. If contributions over

the years are lower than anticipated, the employer must make up the

difference between the contributions and the pension promised. This

can make a defined pension plan very expensive for the employer.

Students Take Note:

1. Agents must be aware of the

basics about pension plans

because such plans are a major

asset to the individual who has

one. The value of a pension

must be taken into

consideration when planning

finances or planning for

retirement.

2. Less than half of all

employees are provided with a

pension from their employer.

3. One of the largest groups in

Canada with the defined

benefit plan form of pension is

Ontario teachers.

4. Contributions to a registered

retirement plan (company

pension) reduce the amount

that can be contributed to an

individual’s Registered

Retirement Savings Plan.

Related Terms: Registered

Pension Plans. Defined

Contribution Plans. Locked-

in Plans.


Information Folder The Information Folder is a document that must be provided to

every prospective segregated fund contract owner. It compiles all

the information about the fund into one document identified on its

cover as “Information Folder.”

The idea underlying the Information Folder is that the proposed

contract owner can read all about the investment he or she is

making, and make comparisons with other seg funds or other

investments, such as mutual funds. In fact, the complexity and

length of the Information Folder may suit regulatory requirements

but is unlikely to be understood in full by most people.

The Information Folder will describe:

- the sales charge

- how withdrawals are calculated

- how benefits are determined

- the valuation of units

- investment policy of the fund

- management fees

- the effects of switches and transfers

- guaranteed and non-guaranteed benefits

- many other factors

The prospective owner must sign a receipt confirming that he or she

received the Information Folder for the fund before the sale is

finalized.

Students Take Note:

1. Mutual fund investors

receive an equivalent to the

Information Folder when they

buy units in a mutual fund. It is

called a simplified prospectus.

Regulators have recognized

that even the simplified

prospectus is too complicated

for most people to understand

and have permitted Fund Facts

to be issued instead. Fund Facts

are greatly shortened and easier

to read versions of simplified

prospectuses.

Related Terms: Segregated

Funds, Mutual Funds


Registered Disability Savings Plans (RDSPs) A Registered Disability Savings Plan (RDSP) is a type of savings

account that helps Canadians with disabilities and their families

save for the future.

The beneficiary of the plan is the person who will eventually receive

the funds that have been deposited.

Contributions can be made by anyone to an RDSP, providing the

RDSP holder gives written permission. There is no annual

contribution limit. The lifetime contribution limit is $200,000.

The Government of Canada contributes to every RDSP through the

Canada Disability Savings Grant. The beneficiary may apply for a

Canada Disability Savings Grant once he or she is 18, or the family

of the beneficiary can apply before age 18. The amount of grant

received will be based on the amount contributed to the plan and

the family income of the beneficiaryʼs family. The annual maximum

of the Grant is $3,500. The lifetime maximum is $70,000.

Low and modest income contributors may receive the Canada

Disability Savings Bond from the Government. The amount of the

bond is based on income, not contributions.

Unused grant and bond entitlements can be claimed for up to 10

years.

Students Take Note:

1. Funds from a deceased

person who has an RRSP,

RRIF, or registered pension

plan can be rolled-over to an

RDSP.

Related Terms: Registered

Plans. Disability Income

Insurance.


Universal Life Insurance Death Benefits Universal life insurance is structured with life insurance coverage that

provides a death benefit and a separate account value. The account

value is created by deposits made by the policy owner that are

greater that the amount needed for straight life insurance coverage.

Universal life policy owners must choose what form of death benefit

they wish their policy to pay out to their beneficiary.

- A policy owner can choose the death benefit as provided by the

life insurance coverage in the policy. This choice carries the lowest

premium for UL insurance. It is called the level death benefit.

- A policy owner could choose to apply an “indexing factor” to the

death benefit as provided by the life insurance coverage in the

policy. This factor increases the death benefit by a figure related to

an increase in the cost of living, or the Consumer Price Index.

Either way, the death benefit keeps pace with inflation. This is

called the indexed level death benefit.

- The policy owner can enhance the amount of death benefit that

will be paid by adding the value in the investment account to the

life insurance coverage. Thus, an account with good investment

returns from deposits made over many years could add

significantly to the life insurance death benefit. This is called the

level death benefit plus account value.

- The final option available is the ability of the beneficiary to

receive the death benefit plus the value of all deposits made to the

investment account. This is called the level death benefit plus

deposits.

Students Take Note:

1. The death benefit choice is

made with the policy

application. The choice affects

premiums with the lowest

premium associated with the

life insurance death benefit,

and the highest with the life

insurance death benefit plus

total account value.

2. Only universal life policy

owners have to make this type

of choice about their death

benefit because only universal

life policy owners have life

insurance and an investment

account.

Related Term: Universal

Life.

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