ONGOING SERVICE (Chapter 12)

Question 1

Chapter 12 - Ongoing service

Name some of the life events that may impact insurance needs.

Answer 1

• New dependants;
• Marriage;
• Divorce;
• Employment changes;
• New mortgage;
• Acquiring a business;
• Leaving Canada;
• Updated needs analysis and appropriate
  recommendations.

Question 1

Clients who become business owners may want to buy life insurance to…

Answer 1

• Fund a buy-sell agreement;
• Cover a key employee;
• Protect their wealth from creditors of that business;
• Secure a business loan.

Question 2

It is important for the agent to review the terms and conditions of the existing policy of a client who is leaving the country because…

Answer 2

Some policies are only valid if the life insured is resident in Canada, or they include an exclusion if the death occurs in certain countries.

[Ref. 12.1.7]

Question 3

The life agent can help with the more substantial changes that usually require additional underwriting, such as…

Answer 3

• Adding a life insured;
• Adding a rider or supplementary benefit;
• Increasing coverage;
• Changing smoking status;
• Changing health status or lifestyle category;
• Changing the dividend option on a par policy to paid-up additions;
• Changing the type of death benefit (e.g., from level death benefit, to level death benefit plus account value)

Question 4

Explain Twisting and Churning

Answer 4

• Churning takes place when the existing policy is replaced with the new policy from the same insurance company.
• If the existing and new policies are with different insurance companies, the practice is called “twisting.”

Question 5

To protect consumers from churning and twisting, most jurisdictions require the policyholder to…

Answer 5

Receive and sign a life insurance replacement declaration (LIRD)

Question 6

3 things that the LIRD must be accompanied with a written explanation that specifies…

Answer 6

• Why the policy is being replaced;
• How the new policy benefits the policyholder;
• Any situations where benefits under the new policy may not be paid.

Question 7

Name some common reasons why would a policyholder would want to cancel his policy?

Answer 7

• He no longer needs the protection;
• He needs a different type of policy (e.g., whole-life coverage instead of term);
• He could obtain a better rate with a new policy, compared to renewing the existing policy;
• He can no longer afford the premium

Question 8

What happens when the policyholder
fully surrenders a whole life or universal life policy?

Answer 8

He is giving up all rights under the contract. No death benefit will be paid once he surrenders the policy.

Question 9

In the claims process, one of the first things the claims examiner will do is confirm that the policy was in force at the time of death.

The policy may not be in force in one of the following cases, name them.

Answer 9

• The policyholder allowed the policy to lapse, as a result of failing to pay the premiums;
• The policyholder had surrendered the policy prior to death;
• The policy has expired because the term was limited.

Question 10

Explain letter’s probate

Answer 10

A letter that verifies the authority of the executor to act on behalf of the estate, including signing off on the receipt of life insurance proceeds.

Question 11

In Québec the executor is also known as..

Answer 11

Liquidator

Question 12

TRUE OR FALSE?

If the life insured dies without a will, then the court will have to appoint an administrator, and it confirms his authority by issuing “letters of administration.”

Answer 12

TRUE

• The cost of obtaining these documents is born by the estate.

[Ref. 12.8.5]

Question 13

TRUE OR FALSE?

If the policyholder dies after missing a premium payment, the death benefit will not be paid.

Answer 13

FALSE

If the policyholder dies after missing a premium payment, the death benefit will still be paid as long as death occurred during the policy’s grace period. However, the death benefit will be reduced by the amount of the unpaid premium.

Question 14

TRUE OR FALSE?

After the life insured has passed away, there is a required time limit for filing a life insurance claim.

Answer 14

FALSE

There is no actual time requirement for filing a life insurance claim. As long as the
claims examiner determines that the policy was valid at the time of death, the death benefit will be paid, including interest.

[Ref. 12.12]

Question 15

How do you calculate accrued interest on an outstanding policy loan?

Answer 15

FA = $500,000
LOAN = $100,000
INTEREST = 4.5%

• FA - LOAN = Death Benefit

Calculation of accrued interest
- This is the original policy loan plus compound interest calculated as:

• Year 1: $100,000 + (4.5% × $100,000) = $104,500;
• Year 2: $104,500 + (4.5% × $104,500) = $109,202.50;
• Year 3: $109,202.50 + (4.5% × $109,202.50) = $114,116.61.

As a result, her beneficiary would receive $385,883 calculated as:
$500,000 – $114,117

[Ref. 12.10.7]