mock exam- life insurance

Nicole has a $500,000 UL policy with a $200,000 CSV and a $100,000 ACB. She needs $120,000, but does not want to be obligated to make repayments in the next few years. How can Nicole proceed to meet her need in a way that will minimize the income tax impact?

policy loan. While the collateral loan would not result in income taxes, it is most likely that Nicole would have to repay at least the interest cost on a regular basis. She has stated she does not want to be obligated to make payments for the next few years, so the collateral loan would not be the ideal solution for her. Among the other three options, the policy loan is the one that would have the least impact on income taxes. The policy loan would result in a $20,000 policy gain ($120,000 − $100,000), while the withdrawal would result in a $60,000 policy gain [$120,000 − ($100,000 = ($120,000/$200,000))]. Surrendering the policy would result in a $100,000 policy gain. STUDY REFERENCE: 7.4 Taxation of a partial surrender7.10 Taxation of life insurance strategies

Jimmy earns an annual salary of $70,000 from his employer. His group life insurance coverage offered by his employer is three times his salary, up to a maximum of $200,000. Jimmy has added coverage for his dependants under which his spouse, Nadia, is covered for $10,000 and their daughter, Nicky, is covered for $5,000. The group plan automatically offers accidental death coverage on the lives insured. The AD benefit for Jimmy is equal to 100% of his group life insurance coverage. The AD benefit for Nadia is 50% of Jimmy's AD coverage, and for each child, it is 15% of Jimmy's AD coverage. If Nadia and Nicky die in a car accident, what will be the total benefit paid under the group plan?

$145,000 The total benefit paid will include the basic coverage and the accidental death (AD) coverage. The basic coverage for Nadia et $10,000 and for Nicky, it is $5,000. The AD coverage on Nadia and Nicky is based on Jimmy's AD coverage. Jimmy's AD coverage is 100% of his basic coverage, which is $200,000 because of the maximum coverage of the plan (three times his salary exceeds the limit). So the AD coverage for Nadia is 50% of Jimmy's AD coverage (50% x $200,000 = $100,000). For Nicky, it is 15% of Jimmy's AD coverage (15% x $200,000 = $30,000). So the total benefit paid is equal to: $10,000 + $5,000 + $100,000 + $30,000 = $145,000. STUDY REFERENCE: 6.5-accidental-death-and-dismemberment-add

James has an after-tax income of $65,000 per year. His wife earns $100,000 a year, resulting in an average tax rate of 30% and a marginal tax rate of 44%. James wants enough life insurance coverage to replace his after-tax income if he dies. Assuming an annual rate of return of 4%, ignoring inflation and using the income replacement approach, calculate the amount of life insurance coverage James will need.

$2,901,786 In this situation, because the amount of income to be replaced is the life insured's after-tax income, the recipient's marginal tax-rate should be used to determine the after-tax rate of return, calculated as follows: After-tax rate of return = rate of return x (1 - tax rate) = 0.04 x (1 - 0.44) = 0.0224 Necessary life insurance amount is then calculated as follows: Capitalized value = $65,000 ¸ 0.0224= $2,901,786 STUDY REFERENCE: 11.2.2.1-accounting-for-income-taxes

Denise is working with her life insurance agent to determine the amount of life insurance coverage she needs. She is married to Martin who earns an annual salary of $50,000 a year, resulting in a 20% average tax rate. The couple has two children; a 10-year-old daughter and 6-year-old son. Denise has indicated that if she dies, she wants the mortgage and car loan to be repaid so that her family can stay in the same house and keep the car. The couple believes that their expenses for food, clothing and "others" would be reduced by one third if Denise dies, while the car-related expenses would be reduced in half. Martin would continue to work. Their current monthly expenses are:Mortgage payment: $1,000 Property tax: $375 Home insurance: $125 Home maintenance: $250 Utilities: $600 Food: $675 Clothing: $450 Childcare services: $900 Car payments: $550 Car insurance: $150 Gasoline: $300 Others: $3,000 Excluding CPP benefits, what would be the surviving family's annual income shortfall if Denise dies?

$22,700 Starting with the expenses that will no longer exist following Denise's death is the mortgage payment ($1,000) and car payment ($550) because her life insurance will provide the money to repay those loans as Denise has indicated. Food expenses will be reduced from $675 to $450 per month, clothing from $450 to $300 per month, and "others" from $3,000 to $2,000 per month. Car-related monthly expenses are reduced by half; car insurance from $150 to $75 and gasoline from $300 to $150. The rest of the expenses stay the same after Denise's death. So if Denise dies, the family's monthly expenses will be: $375 + $125 + $250 + $600 + $450 + $300 + $900 + $75 + $150 + $2,000 = $5,225 $5,225 × 12 = $62,700 in annual expenses Martin's annual after-tax income will be $50,000 × (1 − 0.20) = $40,000 The family's income shortfall will be: $62,700 − $40,000 = $22,700 STUDY REFERENCE: 11.3.1 Income earned by survivors11.3.2 Ongoing expenses 11.3.3 Income shortfall

Rashaad is an architect for a small firm. His monthly gross salary is $6,500. On that amount, his employer withholds $250 for CPP, $425 for the company pension plan, $75 for employment insurance and $1,450 for income taxes. Rashaad also contributes $200 monthly to his TFSA. Taking into consideration his wife's income, Rashaad believes that his family could maintain their same lifetime if they would continue to receive 75% of his income if he dies. What is the amount of monthly income that Rashaad's needs analysis should be based on to determine the amount of life insurance he will need?

$3,075 A life insurance needs analysis is generally based on the take-home pay of the life insurance because family expenses are based on take-home pay. So the first step would be to determine Rashaad's monthly take-home pay. $6,500 - ($250 + $425 + $75 + $1,450 + $200) = $4,100 Then, 75% of that amount is the amount of monthly income that should be used in the life insurance needs analysis: 75% x $4,100 = $3,075 STUDY REFERENCE: 10.2.1.1 Current income

Allison earns a monthly gross salary of $4,000. She is confident her salary will rise on average 2% every year. She wants enough life insurance coverage to replace her increasing income if she dies. It is assumed that a rate of return of 3.5% annually is achievable. Using the income replacement approach, calculate the amount of life insurance coverage she will need.

$3,265,306 First, the inflation-adjusted rate of return must be calculated as follows: [(1+ return) ÷ (1 + inflation rate)] − 1 = (1.035 ÷ 1.02) − 1 = 0.0147 Then use the inflation-adjusted rate of return to determine the required life insurance coverage: Annual income ÷ rate of return = ($4,000 × 12) ÷ 0.0147 = $3,265,306 STUDY REFERENCE: 11.2.2.1 Accounting for inflation

Martha is the sole owner of a CCPC that qualifies for the lifetime capital gains exemption (LCGE). Ten years ago, she claimed $300,000 of LCGE when she sold shares of another qualifying CCPC. The company's fair market value is $2,000,000 and its ACB is $100,000. Martha plans to leave the business to her son, Luke, but wants to ensure she has a life insurance policy in place to cover the tax cost of the deemed disposition of her company's shares if she dies. Assuming that her marginal tax rate is 46% in her year of death, that the LCGE maximum is $800,000 and that the FMV and ACB of her company does not change, how much life insurance coverage will she need to cover the tax cost of the deemed disposition of her company?

$322,000 FMV: $2,000,000 Less ACB: −$100,000 Capital Gain: $1,900,000 Less LCGE (800k - 300k): −$500,000 FMV: $2,000,000 Less ACB: -$100,000 Capital Gain: $1,900,000 Less LCGE (800k - 300k): -$500,000 Capital Gain: $1,400,000 x 50% Taxable Capital Gain: $700,000 Marginal Tax Rate: x 46% Tax cost (life insurance coverage): $322,000 STUDY REFERENCE: 8.2.3.2 Capital gains exemption

Diane has a $300,000 UL policy with a level death benefit plus account value. Three months ago, when her cash value was $100,000, she withdrew $50,000 to pay for major renovations to her house. Yesterday, she died in an accident. Assuming that the net return on the investments over the last three months is 2%, that Diane hadn't paid any premiums since her withdrawal and that the annual insurance cost and policy expenses were due to be deducted next month, how much will her beneficiaries receive from her policy?

$351,000. A withdrawal is considered a partial surrender and will decrease the amount of the death benefit. In Diane's case, because her policy has a level death benefit plus account value, her beneficiaries will receive the face amount of $300,000 plus the accumulated value in the investment account. That value was reduced to $50,000 when she made her withdrawal. Between that time and her death, the cash value earned a 2% net return. So at the time of her death, the account value was $51,000 ($50,000 × 1.02). Therefore, Diane's beneficiaries will receive a total death benefit of $351,000. STUDY REFERENCE: 4.6.2 Policy withdrawls (partial surrender)

Orville has an after-tax annual income of $100,000, resulting in an average tax rate of 28% and a marginal tax rate of 40%. His wife stays at home to take care of their children. Orville wants enough life insurance coverage to replace his after-tax income if he dies. He expects his salary to increase by 1.5% per year. Assuming an annual rate of return of 5%, calculate the amount of life insurance coverage Orville will need to replace his increasing income.

$4,027,386 In this situation, the first step is to determine the after-inflation rate of return: (1.05 ÷ 1.015) − 1 ÷ 0.03448 Then, we calculate the after-tax, after-inflation rate of return: 0.03448 × (1 − 0,28) = 0.02483 The average tax rate is used here because relative to Orville's wife's income (the recipient), his income is large. Finally, we can calculated the amount of insurance required for Harold: $100,000 ÷ 0.02483 = $4,027,386 STUDY REFERENCE: 11.2-insurance-needs-analysis-income-replacement-approach

Gary, now retired, decided to annuitize his whole life insurance policy to supplement his retirement income. At the time of the annuitization, his $500,000 whole life policy had a $270,000 CSV and an ACB of $90,000. Assuming Gary's marginal tax rate is 36%, how much income tax will he have to pay on the annuitization of his policy?

$64,800 By annuitizing the CSV of his policy, Gary is essentially cancelling the contract and surrendering the policy. As a result, a policy gain to the extent that the policy's CSV exceeds its ACB will be realized: $270,000 − $90,000 = $180,000 With a 36% marginal tax rate, Gary will have to pay the following amount in income taxes: $180,000 × 36% = $64,800 STUDY REFERENCE: 7.10.2 Annuitizing the cash surrender value (CSV)

Fred has a take-home income of $50,000 and is married to Penny. While reviewing the couple's insurance needs, it is determined that if Fred dies, Penny will have a net annual income of $32,000 and net annual expenses of $48,000 for her and her children to maintain the same lifestyle. Using the capital needs approach and assuming an after-tax inflation adjusted rate of return of 2.5%, how much life insurance would Fred need if the capital retention method is applied, so that his family may maintain their current lifestyle?

$640,000 When using the capital needs approach, the first step is to determine the income shortfall of the surviving family members. In this situation, the shortfall is: $48,000 (expenses) - $32,000 (Penny's net income) = $16,000 Then, when using the capital retention method, we must determine the amount of capital needed to generate the same amount as the income shortfall, as follows: $16,000 ¸ 0.025 = $640,000 STUDY REFERENCE: 11.3.3 Income shortfall11.3.3.1 Capitalization of income shortfall

Howard had a UL policy with the level death benefit plus account value option. The policy's face amount was $500,000. When Howard died, the policy's cash value was $175,000. The year before his death, Howard had taken a $100,000 policy loan at a 6% annual interest rate. He did not repay any part of that loan before his death. How much will the policy beneficiary receive as a death benefit?

$675,000 − $106,000 = $569,000 Because Howard had not repaid any part of the policy loan, the amount owed to the insurance company is deducted from the death benefit. That amount is $100,000 plus one year of accrued interest ($6,000), for a total of $106,000. Before any deductions, the death benefit would be $675,000 ($500,000 + $175,000) because the UL had the level death benefit plus account value option.

Eight years ago, Harry had assigned his $500,000 life insurance to his credit union to secure a $500,000 loan. The policy had an AD rider equal to the amount of coverage. The beneficiary on this life insurance policy is his wife Lucille. When Harry died in a car accident one week ago, the balance on his loan was $140,000. How much will Lucille receive from Harry's life insurance?

$860,000 When a life insurance policy is assigned to a lender as security for a loan, the insurance company will pay the equivalent amount of the outstanding balance of the loan to the creditor, and the remaining amount to the policy's beneficiary. In this situation, Harry's outstanding balance of the loan is $140,000; that amount will be paid to the credit union. The remainder of the death benefit, $360,000 of basic coverage plus $500,000 of AD benefit, for a total of $860,000, will be paid to Lucille. STUDY REFERENCE: 12.10.6 Policy assigned as collateral

Yvonne is married to Alan and they have three children. It was determined that in order for her family to maintain the same lifestyle they currently have, Yvonne should have $2,000,000 of life insurance coverage, before taking into consideration any life insurance coverage she already has in place. Alan works for in a pulp and paper mill, but he has recently learned that his job will be terminated in three months due to labour cuts by the company. Yvonne already owns a $600,000 policy with Alan as beneficiary. Also, her employer owns a $500,000 key person life insurance policy on Yvonne's life. Alan is a member of his employer's group life insurance plan, which offers life insurance coverage for the whole family. The insurance for the employee is convertible to an individual policy, but not the insurance for his family members. With this group plan, Yvonne is covered for $25,000. In order for Yvonne's family to maintain their current lifestyle, what amount of life insurance coverage should Yvonne purchase?

1,400,000$ The insurance coverage needed to ensure Yvonne's family can maintain their current lifestyle if she dies is $2,000,000. The $600,000 life insurance that she owns will benefit her family. However, the key person life insurance that Yvonne's employer has on her life is not for the benefit of the family, but for the benefit of the employer. Therefore, we cannot include that amount of coverage in determining how much additional life insurance Yvonne must buy. Also, we cannot include the $25,000 coverage on Yvonne available through Alan's group plan since Alan will not be with this employer for much longer. After he leaves his employer, Yvonne's $25,000 coverage will no longer exist. Therefore, the amount of additional life insurance that Yvonne should purchase is: $2,000,000 - $600,000 = $1,400,000 STUDY REFERENCE: 10.4.2 Business insurance10.4.3 Group insurance

A few years ago, Ann took a $50,000 policy loan on her whole life insurance to start a business. At that time, the policy's ACB was $40,000 and the CSV was $70,000. Today, she wants to repay $15,000 of the loan capital and $5,000 of accrued interest. How much of her repayment will she be able to deduct for income tax purposes?

10,000$ When Ann took her $50,000 policy loan, it resulted in a policy gain of $10,000 ($50,000 - $40,000), which was fully taxable. When a policyholder repays the policy loan in part or in full, she can deduct the repayment from her taxable income, up to the amount of the policy gain she had to report when she took out the loan. By repaying $20,000, Ann is able to deduct a maximum of $10,000, which was the amount of the policy gain when she took the loan. STUDY REFERENCE: 7.5.1-repaying-a-policy-loan

Maya is a self-employed entrepreneur. Her annual net business income is on average $125,000, but each year is different. Some years she makes more, and other years, she makes less, but she expects her average take-home pay will remain the same. She plans on working at this level of income for another 20 years. Maya wants to buy life insurance to replace her net income, cover her final expenses and possibly create an estate if possible if she dies. What type of life insurance policy would be better suited for Maya's situation?

A UL policy gives her that option. Since Maya's income is variable, flexibility in her premium payments is a key feature that would be a good fit for her. A UL policy gives her that option. In the years when she makes more that her average income, she could pay higher premiums. On the other hand, in the lower income years, she could lower her premiums or even stop paying the premiums for a while. The other policies don't offer that flexibility. While the 20-year term insurance is most likely less expensive than the UL policy, it would not meet her permanent needs of covering her final expenses and the possibility of creating an estate. The whole life policies don't offer the flexibility needed for the premiums. STUDY REFERENCE: 4.2.1-timing-and-amount-of-premiums-deposits10.2.1-employee

Frank and Allison have a participating whole life insurance with the paid-up additions dividend option to cover income taxes that will be due after the second death. They are concerned that if they live long enough, the taxes owed after their deaths will be minimal, and they will have paid a considerable amount of money in an insurance policy they may no longer need. How could Frank and Allison access cash from their policy to recuperate some of the money they have paid as premiums? i. Surrender part or all of their policy to receive the cash surrender value. ii. Get a policy loan. iii. Withdraw parts of the CSV without lowering the insurance coverage. iv. Change the dividend option from paid-up additions to cash.

All of the suggestions are possible ways the couple will be able to receive money through their participating whole life insurance policy, except for withdrawing CSV amounts without lowering the insurance coverage. The latter is only possible with a UL policy. The other three options will not generate the same amount of cash nor have the same impact on the death benefit so the best option will depend on how much money the couple wants to receive and how much insurance coverage they want to maintain for their beneficiaries. STUDY REFERENCE: 3.4 Dividend payment options for participating policies3.5.1 Cash surrender value (CSV)

Nelson has the following accounts: 10,000 in a chequing account 8,000 in a savings account 250,000 in an RRSP 100,000 in a locked-in retirement account (LIRA) 40,000 in a TFSA 200,000 in a non-registered portfolio (the ACB is $80,000) Nelson is single and has two adult children whom he has designated as beneficiaries of all his assets. Assuming the marginal tax rate in the year of his death is 47%, how much income tax would Nelson's estate have to pay due to the deemed disposition of the above assets?

All registered assets, such as RRSPs, LIRAs, RRIFs and LIFs, will be taxable at their full amount after the death of the account holder, unless a rollover applies. Since Nelson is single and his children are adults with no indication of financial dependency due to disability, no rollover is possible. So a total of $350,000 will be included in Nelson's total income following his death. The other account that will trigger taxable income is the non-registered accounts. Upon Nelson's death, the deemed disposition of the assets in the non-registered portfolio will result in a $120,000 capital gain, generating taxable income of $60,000 (half of the capital gain). The chequing account, savings account and TFSA won't trigger taxable income on Nelson's death.

Leon is 35 years old and applied for life insurance. He wanted to submit his application before leaving for a two-week vacation in the United States. In addition to completing the entire insurance application with his life insurance agent, Leon answered a separate series of question for the temporary insurance agreement (TIA). The answers to those questions were all "No". He did not pay any premiums because he wants to know if he qualifies for life insurance before paying a premium. Because of the amount of insurance coverage he's applying for, Leon will have to get a paramedical examination done, including giving urine and blood samples. He asked his life insurance agent to have this schedule when he returns from vacation. For what reason will Leon not be covered by the TIA?

He did not pay at least one month's premium. The reason why Leon won't benefit from the TIA is because he did not pay at least one month's premium. This is one of the conditions in order to get the TIA. The fact that he is going on vacation in the United States and that he did not get his paramedical exam done does not bar him from getting the TIA. At age 35, Leon is not too old to get the TIA. Typically, the maximum age for the TIA is between 60 and 70. STUDY REFERENCE: 9.3.1-requirements-for-coverage

Janet had applied for life insurance with her agent, Greg, a few weeks ago. Today, Greg came to see Janet to deliver her life insurance policy. When asked if there had been any changes since the day the application was filled out, Janet mentioned that she went for tests at the hospital after having felt numbness in the entire left side of her body and she is waiting for the results. What should Greg do with regards to the underwriting process?

He should not deliver the policy because of the changes to Janet's situation, and advise the underwriter of this new development. The insurance agent can only complete delivery if he is satisfied that nothing has changed since the application date. In this case, there have been changes in Janet's situation, so Greg should not deliver the policy and should inform the underwriters of these changes so that they may re-evaluate the risk to determine if they can still offer life insurance protection and at what price. Even though there have been changes in Janet's situation, it doesn't mean that she will no longer be able to qualify for life insurance. STUDY REFERENCE: 9.1.4 Issuing and delivering the policy

Roberta Matheson is a widow without children. She has six nieces and nephews, but is especially close to her niece, Cleo Matheson and her nephew, Nathan Smith. That is why she has decided to designate them as beneficiaries of her life insurance policy. Which of the following beneficiary designation will most likely result in a faster claims process?

Her niece, Cleo Matheson, and my nephew, Nathan Smith The key for a claims process to be as efficient as possible is to have very specific beneficiary designations. For example, indicating the full name of the beneficiary and their relationship to the life insured will help speed up the claims process. In Roberta's situation, indicating the first and last name of her beneficiaries and specifying that they are her niece and nephew is key to a quick claims process. Naming "the estate" as beneficiary is specific, but the claims examiner will need a copy of the probated will to confirm who is the executor of the estate before proceeding with the payment of the claim. STUDY REFERENCE: 12.8.8-confirmation-of-beneficiary

Valerie has life insurance coverage through her employer's group plan. The total annual premium for Valerie's coverage is $500 of which she pays 40% and her employer pays 60% of the premium. Which of the following statements is true?

If an employer pays some of the premiums for a group life insurance plan, that amount can be deducted as a business expense (60% × $500 = $300). The part of the premium that is paid by the employer shall be considered as a tax benefit for the employee. Therefore, Valery will have a taxable benefit of $300. STUDY REFERENCE: 6.1.5 Premiums

On the policy anniversary of Mitchell's UL policy, which has a face amount plus account value death benefit, it is determined that the cash value of the policy exceeds the MTAR value, making the policy non-exempt for tax purposes. Which remedy will be applied to make Mitchell's policy tax-exempt, without reducing the death benefit, nor incurring an increase in the mortality cost?

Moving the excess amount in a taxable side fund will keep the policy tax-exempt, it won't reduce the death benefit and it won't increase the mortality cost. STUDY REFERENCE: 7.6 Taxation of exempt vs. non-exempt policies

Ron has had a non-participating whole life policy for the last three years and has always paid his premiums on time. He decided to surrender his policy but did not receive anything in return. Why did Ron not receive an amount of cash surrender value?

Surrender charges are applied in the first years of the policy. A non-participating whole life policy offers a CSV as the premiums exceed the insurance company's actual costs for the policy in the early years. However, because of the costs to the insurance company of issuing an insurance policy, surrender charges will be applied if the policy is cancelled in its first years, resulting in no CSV being paid to the policyholder. With a whole life policy, the policyholder is not subjected to investment risk. STUDY REFERENCE: 3.5.1-cash-surrender-value-csv

Kevin and Sandra, age 35 and 36 respectively, are married and have an 8-year-old son, Riley. In planning for life insurance, the couple indicates that they want to ensure their family maintains their current lifestyle until their retirement in thirty years. Kevin and Sandra have a mortgage on their home and a line of credit they sometimes use to help with major purchases. If Kevin or Sandra were to die prematurely, they want the debts repaid and want to leave enough money to cover Riley's post-secondary education. The couple also want enough insurance to cover their final expenses and create an estate for their son and his future family. Among Kevin and Sandra's needs and goals, which ones can be addressed with term insurance?

Term insurance is used to cover temporary needs. The temporary needs identified by Kevin and Sandra are: replacing income until retirement (the need ends at retirement) paying off their debts (debts are temporary in nature) Riley's post-secondary education costs (the need will cease to exist once Riley has completed his post-secondary education) On the other hand, the couple's final expenses and desire to leave an estate are permanent in nature and cannot be covered by term insurance. STUDY REFERENCE: 11.1.3-duration-of-risk-12.8-uses-of-term-insurance

Lyle works at a large manufacturing company. Like the other full-time employees, Lyle has life insurance coverage offered by his employer with coverage equal to three times his salary, up to a limit of $200,000. Which of the following statements is true?

The insurance contract is between the manufacturing company and the insurance company. The master contract of a group life insurance plan is between the policyholder, which is the manufacturing company, and the insurance company. Lyle is a group plan member, but not a policyholder. However, it is the group plan member that chooses who will be the beneficiary of his life insurance coverage, not the policyholder, also referred to as the plan sponsor. STUDY REFERENCE: 6.1 How group life insurance works

Luke and Lea have just consolidated all of their debts into a $450,000 mortgage loan. They expect to repay this loan over a 25-year period with fixed monthly payments. They would like to ensure that if one of them dies, the survivor would have sufficient funds to reimburse the loan balance. They are cautious about the cost of life insurance and are looking for the least expensive option to cover their need. Which life insurance policy best meets their needs?

The premiums for a decreasing term insurance are lower than that of a level term insurance, and since the loan balance decreases over time, the decreasing joint first-to-die insurance would cover the clients' needs at the lowest price.

Amanda has maximised her self-directed RRSP and TFSA, and still has considerable disposable income that she wants to invest in a tax efficient manner. Her main insurance need currently is her mortgage balance, which is scheduled to be fully repaid in 15 years. Because the interest rate on her mortgage is 2.89%, she prefers to invest her disposable income because she is confident she can get a better return on her investments than the interest cost of her mortgage. Amanda has a high risk tolerance, a good understanding of the stock markets, and is looking for high growth investments. While she understands the need for life insurance to cover her mortgage, she is more interested in rapidly maximising her tax-sheltered investment that is available with a life insurance policy. There is a good chance she will cancel her policy after her mortgage is paid. Which life insurance policy is a better fit for Amanda?

UL policy with a YRT cost of insurance Amanda is interested in maximising her tax-sheltered investments. Since she has already maximized her RRSP and TFSA, she is now turning her attention to the investment component of a life insurance policy. Term insurance does not have an investment component, so it would not be a good option for Amanda. Amanda is looking for high growth investments and has a high-risk tolerance with good knowledge of the stock markets. She would most likely prefer the liberty to choose her investment options instead of letting an insurance company determine how to invest her money. That is why a UL policy will be most suitable for Amanda. Because she has the desire to rapidly maximise the tax-sheltered investments in the insurance policy, has considerable disposable income and the possibility that she will cancel the policy once the mortgage is paid, the YRT cost of insurance would be the best option for Amanda. With the lower initial cost of insurance, it gives her the opportunity to grow her tax-sheltered investments more quickly than with a level cost of insurance. STUDY REFERENCE: 4.3.4 Choosing between yearly renewable term (YRT) and level cost of insurance (LCOI) costing

Carole and Arnold are analyzing their life insurance needs with their life insurance agent. They want to ensure that they have sufficient coverage, but don't want to buy more than is necessary. Over the years, they have accumulated investment assets and fixed assets that they would like to leave to their kids. Carole has group life insurance coverage for the family with her employer. She expects to work there until retirement, which will be in 15 years. In their analysis, which resource available upon death should not be taken into consideration?

Worker's Compensation benefits Workers' Compensation (WC) benefits are only payable if the death is caused by a work-related accident or illness. Since there is no way of knowing what will be one's cause of death, it is not prudent to rely on WC benefits to satisfy the couple's life insurance needs because there is a good chance that they will not be paid. STUDY REFERENCE: 10.4.4-government-benefits

Among the following four individuals, which two have higher odds of dying than the average Canadian? i. Jeff, who drinks on average three glasses of wine per week. ii. Linda, a car mechanic, whose parents died in a car crash in their forties. iii. Peter, a smoker whose parents both died of cancer before the age of 55. iv. Sarah, an active member of her local parachute club, jumping on a weekly basis.

iii and iv Smoking increases your risk of dying, as does an individual's family health history. The fact that Peter smokes and that his parents both died of cancer at a relatively young age makes Peter's risk of dying higher than the average Canadian. Hazardous activities, such as parachuting, increase an individual's risk of dying relative to the average Canadian. Therefore, Sarah also has a higher risk of dying than the average Canadian. Even though her parents died young, Linda is does not have a higher risk of death because her parents' cause of death has nothing to do with a disease that could have a genetic component. As for Jeff, three glasses of wine per week is not considered excessive. STUDY REFERENCE: 11.1.1.2 Personal and family health history11.1.1.3 Lifestyle risks