LLQP Dictionary

De f i n i t i o n sa n dEx p l a n a t i o n so f Ke yCo n c e p t si nPl a i nEn g l i s h

LLQP The

( Li f eLi c ens eQual i f i c at i onPr ogr am i nc .Ac c i dent& Si c knes s )

DI CTI ONARY

Contents of The LLQP Dictionary -AAccident and Sickness Insurance……………………………………………. 1 Accidental Death Benefit + ……………………………………………………. 2 Accidental Death and Dismemberment Adjusted Cost Basis ……………………………………………………………. 3 Annuities ………………………………………………………………………….. 4 Application ……………………………………………………………………….. 5 Assignment ………………………………………………………………………. 6 ASO plans ………………………………………………………………………… 7 Assuris……………………………………………………….…………………….. 8 Authority………………………………………………………………...………… 9 Automatic Premium Loan………………………………………………..... 10

-BBeneficiary……………………………………………………………………….. Business Disability Insurance………………………………………………... Business Life Insurance………………………………………………………. Business Overhead……………………………………………………………..

11 12 13 14

-CCanada 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………………………………………………………

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

-DDeath Benefit……………………………………………………………………… 33 Death Benefit Guarantee………………………………………………………. 34 Deductible………………………………………………………………………… 35 Defined Benefit Plan…………………………………………………………… 36 Defined Contribution Plan……………………………………………………… 37 Definitions of Disability……………………………………………………….. 38 Deposit-based Guarantee………………………………………………………..39 Disability Income Insurance………………………………………………….. 40 Disposition………………………………………………………………………. 41

iii

-EEarned Income…………………………………………………………………….. 42 Effective Date………………………………………………………………………. 43 Equities…………………………………………………………………………………. 44 Errors and Omissions…………………………………………………………….. 45 Estate………………………………………………………………………………… 46 Ethics………………………………………………………………………….…….. 47 Exclusions………………………………………………………………………….. 48

-FFace Page………………………………………………………………………..…. Fiduciary Duty…………………………………………………………………..…. Fixed-income Investments………………………………………………………. Fraud………………………………………………………………………………….

49 50 51 52

-GGrace Period……………………………………………………..………………… Grandfathered Policies………………………………………..………………… Group Disability Insurance…………………………………..…………………. Group Health Insurance…………………………………….…………………… Group Insurance…………………………………………………………………… Group Life Insurance……………………………………………………………… Guarantees……………………………………………………………….………….

53 54 55 56 57 58 59

-HHolding Out…………………………………………………………………………. 60

-IIncome Splitting……………………………………………………………………….. 61 Income Tax…………………………………………………………………………….. 62 Incontestability……………………………………………………………………….63 Inflation…………………………………………………………………………………64 Information Folder…………………………………………………………………. 65 Insurable Interest…………………………………………………………………….. 66 Insured…………………………………………………………………………………67 Interest……………………………………………………………………………………. 68 Irrevocable Beneficiary 69 -JJoint and Last Survivor Annuity…………………………………………………………. 70

-LLast Expenses ……………………………………………………………………… 71 Law of Agency……………………………………………………………………… 72 Life Annuities……………………………………………………………………….. 73 Life Income Funds…………………………………………………………………. 74 75 Locked-in Plans……………………………………………………………………….…… Locked-in Retirement Accounts……………………………………………….. 76 Long-term Care Insurance…………………………………………………..….. 77 Long-term Disability……………………………………………………………… 78

-MMarginal Tax Rate……………………………………………………………………. 79 Maturity Guarantee…………………………………………………………………. 80 Maximum Tax Actuarial Reserve……………………………………………….… 81 Misrepresentation………………………………………………………………..…. 82 Mistakes………………………………………………………………………………… 83 Morbidity……………………………………………………………………………….. 84 Mortality………………………………………………………………………………….85 Mutual Funds………………………………………………………………………….. 86

-NNet Cost of Pure Insurance………………………………………………………… 87 Non-forfeiture Options……………………………………………………………….. 88 Notional Units………………………………………………………………………… 89

-OOccupational Classifications……………………………………………………….. 90 Offset………………………………………………………………………………….. 91 Old Age Security…………………………………………………………………….. 92

-PParticipating Whole Life Insurance…………………………………………………93 Permanent Life Insurance…………………………………………………………… 94 Personal Contract…………………………………………………………………….. 95 Policy-based Guarantee………………………………………………………………96 Policy Dividends………………………………………………………………………. 97 Policy Loan……………………………………………………………………………. 98 Pre-existing Condition……………………………………………………………….. 99 100 Premium……………………………………………………………………………………. Prescribed Annuity………………………………………………………………….. 101 102 Prescribed Retirement Income Funds……………………………………………… Present Value of Money……………………………………………………………. 103 Privacy and Confidentiality………………………………………………………… 104

-RRated Contract ……………………………………………………………………….. 105 Recurring Disability…………………………………………………………………….106 Registered Disability Savings Plans………………………………………………..107 Registered Education Savings Plans…………………………………………….. 108 Registered Pension Plans……………………………………………………………109 Registered Plans…………………………………………………………………….. 110 Registered Retirement Income Funds…………………………………………… 111 Registered Retirement Savings Plans…………………………………………… 112 Reinstatement………………………………………………………………………… 113 Reinsurance…………………………………………………………………………….114 Renewable Term Life Insurance………………………………………………….. 115 Replacement………………………………………………………………………….. 116 Rescission…………………………………………………………………………….. 117 Reset…………………………………………………………………………………… 118 Residual Disability……………………………………………………………………..119 Riders…………………………………………………………………………………… 120 Risk Tolerance………………………………………………………………………… 121 Rule of 72………………………………………………………………………………. 122

-SSales Charge……………………………………………………………………………. 123 Segregated Funds………………………………………………………………………. 124 Self-directed RRSP…………………………………………………………………….. 125 126 Settlement Options………………………………………………………………………… 127 Short-term Disability………………………………………………………………………. Sole Proprietorship……………………………………………………………………….128 129 Spousal Plan……………………………………………………………………………….. 130 Spousal Roll-over…………………………………………………………………………. 131 Stocks………………………………………………………………………………………… 132 Subrogation………………………………………………………………………………… 133 Suicide Exclusion Clause………………………………………………………………….

-TTax Free Savings Account…………………………………………………………….. 134 Taxation of Life Policies…………………………………………………………………. 135 Temporary Insurance Agreement………………………………………………………. 136 Term Annuity……………………………………………………………………………….. 137 Term Life Insurance……………………………………………………………………. 138 Term-to-100 Life Insurance……………………………………………………………..139 Time Horizon…………………………………………………………………………….. 140 Time Value of Money…………………………………………………………………….141

-UUnbundling…………………………………………………………………………………142 Underwriting……………………………………………………………………………….143 144 Unfair Trade Practices……………………………………………………………………. Uniform Life Insurance Act……………………………………………………………..145 Universal Life Insurance……………………………………………..………………. 146 Universal Life Insurance Death Benefits………………………………………….. 147

-WWaiver of Premium……………………………………………………………………… 148 Whole Life Insurance………………………………………………………………….. 149

-YYield to Maturity………………………………………………………………………… 150

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

Application Students Take Note: After the life insurance agent has presented insurance options to the

1. The policy owner provides

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

information about his or her

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

income and finances on the

insurance policy.

application to prove that premiums can be paid.

Completing the application form correctly is a key job for the agent because its details, together with other information, form the basis for

2. The underwriting of the

underwriting the policy.

policy determines premiums.

The concept of constructive notice applies to the agent during

This will include medical

the application process. This means the insurance agent

information from the Medical

must disclose all information about the proposed policy owner

Insurance Bureau (MIB).

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

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.

the proposed insureds, and signed by the proposed policy owner and agent. The agent must not sign on behalf of the

4. The agent may be required

client; this is forgery.

to complete an Inspection

If the agent believes that the standard premium rate will

Report, Drug and Alcohol

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

Questionnaire, or Hazardous

first premium to accompany the application.

Sports and Occupations

The agent must promptly deliver the application to the

Questionnaire to go along with

insurance company, and be prepared to acquire more

the application.

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.

Related Terms: Cost

When the application is approved, the policy is issued.

Illustrations. Underwriting.

The application together with the policy forms the entire

Contract. Temporary

contract between the policy owner and the life insurance

Insurance Agreement.

company.

Conflict of Interest Students Take Note: A conflict of interest occurs when private interests (usually financial) or personal considerations of an agent are incompatible

1. If in doubt, bow out.

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.

Related Terms: Ethics. Churning and Twisting. Unfair Trade Practices.

Defined Benefit Plan (DBP) Students Take Note: A defined benefit plan (DBP) is one form of registered retirement pension plan provided by employers. It is a type of company pension.

1. Agents must be aware of the basics about pension plans

A defined benefit plan accumulates contributions from the employer

because such plans are a major

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

asset to the individual who has

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

one. The value of a pension

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

must be taken into consideration when planning

- 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.

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

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

benefit plan form of pension is Ontario teachers.

- If an employee stops working for that employer before retiring, all contributions made after the first two years of work belong to the

4. Contributions to a registered

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

retirement plan (company

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

pension) reduce the amount

The money will be locked-in until retirement.

that can be contributed to an individualâ&#x20AC;&#x2122;s Registered

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

Retirement Savings Plan.

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.

Related Terms: Registered Pension Plans. Defined Contribution Plans. Lockedin Plans.

Information Folder Students Take Note: The Information Folder is a document that must be provided to every prospective segregated fund contract owner. It compiles all

1. Mutual fund investors

the information about the fund into one document identified on its

receive an equivalent to the

cover as â&#x20AC;&#x153;Information Folder.â&#x20AC;?

Information Folder when they buy units in a mutual fund. It is

The idea underlying the Information Folder is that the proposed

called a simplified prospectus.

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

Regulators have recognized

making, and make comparisons with other seg funds or other

that even the simplified

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

prospectus is too complicated

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

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.

The prospective owner must sign a receipt confirming that he or she received the Information Folder for the fund before the sale is finalized.

Related Terms: Segregated Funds, Mutual Funds

Registered Disability Savings Plans (RDSPs) Students Take Note: A Registered Disability Savings Plan (RDSP) is a type of savings account that helps Canadians with disabilities and their families

1. Funds from a deceased

save for the future.

person who has an RRSP, RRIF, or registered pension

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

plan can be rolled-over to an

the funds that have been deposited.

RDSP.

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 beneficiary始s 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.

Related Terms: Registered Plans. Disability Income Insurance.

107

Universal Life Insurance Death Benefits Students Take Note: Universal life insurance is structured with life insurance coverage that provides a death benefit and a separate account value. The account

1. The death benefit choice is

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

made with the policy

greater that the amount needed for straight life insurance coverage.

application. The choice affects premiums with the lowest

Universal life policy owners must choose what form of death benefit

premium associated with the

they wish their policy to pay out to their beneficiary.

life insurance death benefit,

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

and the highest with the life

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

insurance death benefit plus

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

- A policy owner could choose to apply an â&#x20AC;&#x153;indexing factorâ&#x20AC;? 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.

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.

- 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.

Related Term: Universal Life.

147