Sickness-E312-2018-10-5ED.pdf - Accident and sickness insurance Life Licence Qualification Program(LLQP Exam Preparation Manual 5th Edition 2018

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Unformatted text preview: Accident and sickness insurance Life Licence Qualification Program (LLQP) Exam Preparation Manual 5th Edition, 2018 Accident and sickness insurance 5th Edition, 2018 Revised by Normand Larivière Project management Jérôme Gagnon 1st Edition and 2nd Edition, 2015 Written by Robert N. Ransom Consultation committee Adrienne D. Benkson, Fred Bridel, Andrew Gordon, Sean Long, Nicholas Parnell and Roderick Smith Project management Sandra Ciccocioppo, Jérôme Gagnon and Geneviève Vigneault French adaptation Normand Larivière French adaptation committee Hélène Doré, Audrey Lacroix and François Nadeau © Autorité des marchés financiers, 2018 All translation and adaptation rights, in whole or in part, are reserved for all countries. No part of the material protected by this copyright may be reproduced or utilized in any form or by any means, electronic or mechanical, including microreproduction, photocopying, recording or any information storage or retrieval systems, without permission in writing from a duly authorized representative of the Autorité des marchés financiers. Despite the preceding paragraph, an authorized course provider may use copyright material as permitted under a licence agreement entered into with the Autorité des marchés financiers. Legal deposit – Bibliothèque et Archives nationales du Québec, 2018 ISBN 978-2-551-26318-9 (PDF) Accident and sickness insurance iii FOREWORD This Manual is an exam preparation tool for future life insurance agents registered in the Life License Qualification Program (LLQP). Its contents will help candidates develop the competency targeted in the accident and sickness insurance module of the LLQP Curriculum: Recommend individual and group accident and sickness insurance products adapted to the client’s needs and situation. Chapter overview page The first page of every chapter outlines the Curriculum module competency components and sub-components that will be covered. Highlighting which of the evaluation objectives are addressed in each of the manual’s chapters serves to identify the contents that are essential to attain these objectives. It is thus recommended that candidates regularly review the competency components and sub-components in order to contextualize and assimilate them as they read each chapter. This will help develop an understanding of the nature and scope of the evaluated competency. Candidates must have fully understood the knowledge, strategies and skills covered in each chapter in order to successfully pass the corresponding module of the LLQP licensing exam. In this text, the masculine form is used for both men and women. Accident and sickness insurance iv TABLE OF CONTENTS List of diagrams and tables.......................................................................................................... xviii List of abbreviations..................................................................................................................... xx CHAPTER 1 FINANCIAL PROTECTION PROVIDED BY ACCIDENT AND SICKNESS INSURANCE 1.1 For individuals and their families.......................................................................................... 2 1.1.1 Financial goals of individuals and their families......................................................... 2 1.1.1.1 Wealth accumulation................................................................................... 3 1.1.1.2 Retirement income....................................................................................... 3 1.1.1.3 Family needs............................................................................................... 4 1.1.2 Financial risks that threaten individuals and their families......................................... 4 1.1.2.1 Unexpected expenses................................................................................. 4 1.1.2.2 Loss of income............................................................................................. 5 1.1.2.3 Loss of savings............................................................................................ 5 1.1.2.4 Lower standard of living............................................................................... 5 1.1.2.5 Inflation........................................................................................................ 5 1.1.2.6 Longevity..................................................................................................... 6 1.1.2.7 Debt............................................................................................................. 6 1.1.3 Personal risks that threaten individuals and their families......................................... 7 1.1.3.1 Likelihood of disability.................................................................................. 7 1.1.3.2 Loss of independence and costs of long-term care..................................... 8 1.1.4 Needs met by accident and sickness insurance for individuals................................. 8 1.1.4.1 Protection for income................................................................................... 8 1.1.4.2 Protection for savings.................................................................................. 9 1.1.4.3 Protection for assets.................................................................................... 9 1.2 For business owners............................................................................................................ 10 1.2.1 Goals......................................................................................................................... 11 1.2.1.1 Business profitability.................................................................................... 11 1.2.1.2 Business succession................................................................................... 11 1.2.1.3 Sale at fair market value.............................................................................. 11 1.2.2 Business risk............................................................................................................. 12 Accident and sickness insurance v 1.2.3 Risk management...................................................................................................... 12 1.2.3.1 Self-funding.................................................................................................. 12 1.2.3.2 Insurance..................................................................................................... 13 1.2.4 Needs met by accident and sickness insurance for businesses............................... 13 CHAPTER 2 INSURANCE TO PROTECT INCOME 2.1 Sources of income protection............................................................................................... 16 2.1.1 Individual disability insurance.................................................................................... 16 2.1.2 Group disability insurance......................................................................................... 17 2.1.3 Creditor disability insurance (and other providers).................................................... 17 2.1.3.1 Mortgage disability insurance compared to individual disability insurance (traditional).................................................................................. 17 2.2 Individual disability insurance............................................................................................... 18 2.2.1 Types of individual policies........................................................................................ 18 2.2.1.1 Non-cancelable policy.................................................................................. 19 2.2.1.2 Guaranteed renewable policy...................................................................... 19 2.2.1.3 Cancelable policy......................................................................................... 19 2.2.1.4 Guaranteed issue policy.............................................................................. 20 2.2.1.5 Non-traditional disability insurance plans.................................................... 21 2.2.2 Policy benefits........................................................................................................... 22 2.2.2.1 Amount of benefit......................................................................................... 22 2.2.2.2 Waiting period.............................................................................................. 23 2.2.2.3 Benefit period............................................................................................... 24 2.2.2.4 Exclusions and limitations ........................................................................... 24 2.2.2.5 Denial of benefits......................................................................................... 25 2.2.2.6 Rehabilitation benefit................................................................................... 27 2.2.2.7 Benefits for recurring disability..................................................................... 27 2.2.2.8 Benefits for presumptive disability............................................................... 30 2.2.2.9 Survivor benefit............................................................................................ 30 2.2.3 Policy premium factors.............................................................................................. 30 2.2.3.1 Impact of gender and age............................................................................ 31 2.2.3.2 Health issues............................................................................................... 32 Accident and sickness insurance vi 2.2.3.3 Definitions of disability................................................................................. 32 2.2.3.4 Occupational clause.................................................................................... 34 2.2.3.5 Waiver of premium....................................................................................... 36 2.2.4 Riders to address needs............................................................................................ 36 2.2.4.1 Concept of customization............................................................................ 36 2.2.4.2 Differences between “equivalent” riders...................................................... 36 2.2.4.3 Future purchase option (FPO)..................................................................... 37 2.2.4.4 Cost of living adjustment (COLA)................................................................ 38 2.2.4.5 Accidental death and dismemberment (AD&D)........................................... 39 2.2.4.6 Partial and residual disability benefits.......................................................... 40 2.2.4.7 Return of premium (ROP)............................................................................ 41 2.2.4.8 Ratings and exclusion riders........................................................................ 42 2.2.4.9 Hospitalization benefit.................................................................................. 42 2.2.5 Taxation of individual disability insurance (DI) benefits............................................. 43 2.2.5.1 Tax treatment of premiums and benefits...................................................... 43 2.2.5.2 Taxation differences between personally owned and corporately owned disability insurance (DI) policies....................................................... 44 2.2.6 Conversion of policy.................................................................................................. 44 2.3 Group disability insurance.................................................................................................... 45 2.3.1 Providers of group disability insurance...................................................................... 45 2.3.1.1 Employer...................................................................................................... 45 2.3.1.2 Association.................................................................................................. 45 2.3.2 Types of group disability insurance (DI) policies....................................................... 46 2.3.2.1 Short-term disability (STD).......................................................................... 46 2.3.2.2 Long-term disability (LTD)............................................................................ 47 2.3.2.3 Leave of absence........................................................................................ 48 2.3.3 Plan enrolment and membership............................................................................... 48 2.3.3.1 Qualification period...................................................................................... 48 2.3.3.2 Premium payment........................................................................................ 49 2.3.3.3 Terminating membership............................................................................. 49 2.3.4 Amount of benefit...................................................................................................... 50 2.3.4.1 Non-evidence maximum coverage.............................................................. 50 2.3.4.2 Maximum overall coverage.......................................................................... 50 2.3.4.3 All-sources Maximum (also sometimes called “Group offset amendment”)............................................................................................... 52 Accident and sickness insurance vii 2.3.4.4 Denial of benefits......................................................................................... 52 2.3.5 Taxation of group disability insurance benefits.......................................................... 53 2.3.6 Integrating a group policy with an individual policy.................................................... 54 2.4 Creditor disability insurance (and other providers)............................................................... 55 2.4.1 Amount of benefit...................................................................................................... 56 2.4.2 Taxation of creditor disability insurance benefits....................................................... 56 2.5 How they compare............................................................................................................... 56 CHAPTER 3 INSURANCE TO PROTECT ASSETS 3.1 Critical illness insurance (CI)................................................................................................ 59 3.1.1 Coverage provided.................................................................................................... 60 3.1.1.1 Minimum/Maximum issue ages................................................................... 60 3.1.1.2 Minimum/Maximum face amount................................................................. 60 3.1.1.3 Qualification period...................................................................................... 61 3.1.1.4 Survival (waiting) period.............................................................................. 61 3.1.1.5 Duration of coverage................................................................................... 61 3.1.2 Types of policies........................................................................................................ 62 3.1.3 Conditions covered.................................................................................................... 62 3.1.3.1 “Big 4” – heart attack, stroke, cancer, and coronary bypass surgery........... 63 3.1.3.2 Expanded coverage..................................................................................... 63 3.1.4 Riders available......................................................................................................... 64 3.1.4.1 Return of premium....................................................................................... 64 3.1.4.2 Waiver of premium....................................................................................... 65 3.1.5 Payment of benefits................................................................................................... 65 3.1.5.1 Tax treatment of critical illness premiums, benefits and return of premium benefit....................................................................................... 66 3.2 Long-term care..................................................................................................................... 67 3.2.1 Canadian demographics............................................................................................ 67 3.2.2 Long-term care options.............................................................................................. 69 3.2.2.1 Home care................................................................................................... 69 3.2.2.2 Respite care................................................................................................. 69 Accident and sickness insurance viii 3.2.2.3 Assisted living.............................................................................................. 70 3.2.2.4 Nursing home (facility) care......................................................................... 70 3.2.3 Providers of long-term care....................................................................................... 70 3.2.3.1 Publicly funded facilities............................................................................... 71 3.2.3.2 Publicly funded home care.......................................................................... 71 3.2.4 Cost of long-term care............................................................................................... 71 3.3 Individual long-term care insurance (LTC)........................................................................... 72 3.3.1 Purpose/Who needs it............................................................................................... 73 3.3.2 Advantages................................................................................................................ 73 3.3.3 Coverage provided.................................................................................................... 74 3.3.3.1 Activities of daily living (ADLs)..................................................................... 75 3.3.4 Long-term care riders available................................................................................. 76 3.3.4.1 Cost of living adjustment (COLA)................................................................ 76 3.3.4.2 Return of premium....................................................................................... 76 3.3.5 Policy benefits........................................................................................................... 77 3.3.5.1 Tax treatment of long-term care benefits..................................................... 77 3.3.6 Premiums.................................................................................................................. 78 3.3.6.1 Tax treatment of long-term care premiums.................................................. 78 3.4 Coordinating long-term care insurance (LTC) with other types of accident and sickness insurance...................................................................................... 78 3.4.1 Long-term care insurance (LTC) and disability insurance......................................... 79 3.4.2 Long-term care insurance (LTC) and critical illness insurance (CI)........................... 79 3.5 Limitations of critical illness insurance (CI) and long-term care insurance (LTC)................. 80 CHAPTER 4 INSURANCE TO PROTECT SAVINGS 4.1 Types of extended health coverage to protect savings........................................................ 83 4.1.1 Individual extended health insurance...
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