Q1: Which of the following benefits may be paid by a long-term-care policy?

Top of Form
A) Long-term-care facility charges

B) Home-care charges

C) Respite care

D) All of the above -

Rationale:
Learning objective:
Describe what happens to the balance of a RRIF upon death.

Rationale:
All statements are true and self-explanatory.

Q2: Why are Administrative Service Only (ASO) contracts not recommended for smaller
companies?
Top of Form
A) Higher risk to corporate cash flow -

B) Deficits are carried forward

C) Insurer keeps surplus

D) A and C

Rationale:
Learning objective:
Compare and contrast the following funding methods: non-refund accounting,
refund accounting, and administrative services only (ASO).

Rationale:
A smaller company may not have the cash flows to have a self-insured plan.

Q3: Ryan Cruz purchased a whole-life policy for a face amount of $200,000 when he was 35
years old. The agent accidentally checked of his gender as a female on the online application.
The error was not noticed, and the policy was issued for a female aged 35 years of age. The
error went unnoticed. He had named his daughter Dorothy as the beneficiary. Recently Ryan
Cruz died at the age of 80. When the claim was made, the insurer discovered the
misrepresentation in the sex of the life insured. Which of the following is true?
Top of Form
A) As misrepresentation of sex is a material misrepresentation, the insurer will cancel
the policy and refund all the premiums paid to Ryan's estate.

B) The policy is voidable at the discretion of the insurer.

C) Dorothy will receive the death benefit, since misrepresentation of sex is not a
material misrepresentation as per the Insurance Act.

D) Dorothy will receive a death benefit of less than $200,000, because the Insurance
Act states that the insurer cannot cancel a policy for misrepresentation of sex, but
will have to adjust the death benefit to be commensurate with the premiums paid. As
female premiums are lower than those for males, the face amount will be adjusted
downward.-

Rationale:

D
Learning Objective: Explain the impact of incomplete or inaccurate information
in the application.

Rationale: Misstatement of age or sex is a special case of misrepresentation.

The insurer cannot cancel a policy because age or sex has been
misrepresented, but the Insurance Act allows an insurer to adjust the benefit to be
commensurate with the premiums paid.

Q4: Which of the following are true with respect to the balance in a RRIF account on the
death of the annuitant?
I. If the spouse of the annuitant is the named beneficiary, the spouse can make a
transfer of the balance to his/her RRSP/RRIF, by way of a special transfer. The spouse
will be taxed on withdrawals, and the annuitant's final tax return need not pay any tax
on the RRIF balance.
II. If the spouse of the annuitant is named the beneficiary, the spouse can use the
balance in the RRIF to purchase an immediate or a deferred annuity, depending on the
spouse's age. The payments from such an annuity will be taxed to the spouse.

III. If a financially dependent child or grandchild is the named beneficiary of the RRIF
account, the balance in the RRIF can be used to purchase a term-to-18 annuity for the
child.

IV. If a handicapped child or grandchild is the named beneficiary of the account, the
balance can be transferred to the child's RRSP or used to buy a life annuity for the
handicapped child.
 V. If anyone other than the spouse, a financially dependent child, or a handicapped child
is the named beneficiary of the account, the balance will be taxed as income to the
deceased annuitant in the final tax returns.

Top of Form
A) I, II, III, and IV only

B) I, III, IV, and V only

C) II, III, IV, and V only

D) All of the above-

Rationale:
Learning objective:
Describe what happens to the balance of a RRIF upon death.

Rationale:
All statements are true and self-explanatory.

Q5: Sam Singh is a self-employed person, who runs a business of home renovations. He has
done well in the business, and he and his wife, Cindy, a stay-at-home mom, have purchased a
new home with a $250,000 mortgage outstanding. The couple have two children, aged five
and three. Sam comes to you to discuss his insurance requirements, since neither he nor his
wife have any kind of insurance except their car and home insurance. Which of the following
ordering of insurance products is in the best order of priority in view of their insurance
requirements?
Top of Form
A) Life insurance on Sam and Cindy, disability insurance on Sam, critical-illness (CI)
insurance on Sam and Cindy, long-term-care (LTC) insurance on Sam and Cindy

B) Disability insurance on Sam, life insurance on Sam and Cindy, critical-illness

insurance on Sam and Cindy, long-term-care insurance on Sam and Cindy-

C) Critical-illness insurance on Sam and Cindy, disability insurance on Sam, life

insurance on Sam and Cindy, long- term-care insurance on Sam and Cindy

D) Long-term-care insurance on Sam and Cindy, critical-illness insurance on Sam and

Cindy, disability insurance on Sam, life insurance on Sam and Cindy,

Rationale:
Learning objective:
 Given a case study containing specific client information, select the most
appropriate insurance products (life, health, and/or disability) to match a
particular client's situation/needs.

Rationale:
For a self-employed person under age 65, the first priority for insurance must be
disability insurance. This is followed by life insurance to cover the financial risks
of death. Other risks to be covered are critical illness and long-term care, in that
order.

Q6: Which of the following statements is true about the two year contestability period?
Top of Form
A) The insurer cannot cancel the policy after two years have elapsed if it discovers any
misrepresentation after the contestability period.

B) The insurer can cancel the policy after two years have elapsed if it discovers any
material misrepresentation after the contestability period.-

C) The insurer can cancel the policy after two years have elapsed, if it discovers any
non-material misrepresentation after the contestability period.

D) The insurer can cancel the policy after two years have elapsed if it discovers any
misrepresentation concerning age or sex, after the contestability period.

Rationale:

B
Learning Objective: Explain contestability and misrepresentations.

Rationale: The contestability period is two years from the date of issue of the
policy. After two years, the policy is incontestable. But if the insurer discovers a
material misrepresentation at any time, even after the contestability period, the
insurer may cancel the policy and, instead of the death benefit, refund all the
premiums paid. Material misrepresentation is a misrepresentation that might
have resulted in the insurer having declined the policy or charging a higher
premium, had the insurer known the truth at the time the policy was issued. Age
and sex misrepresentations, though material, are treated as special
misrepresentations by law. The insurer is not allowed to cancel the policy on
account of misrepresentations concerning age or sex. However, the insurer can
adjust the death benefit to one commensurate with the premiums paid.

Q7: John Jacob owned a renewable-and-convertible (R&C) policy on his life. The policy had
been issued to him as a non-smoker, 10 years ago. Five years ago, John started smoking. He
recently closed the bank account from which the policy premiums were taken by pre-
authorized chequing (PAC). He forgot to inform the insurance company of the new account he
had opened in another bank and went off on a two-month-long vacation. The policy premium
did not get paid on the due date, and the insurance company wrote a letter to his home
address. The letter was not attended to, since John was on vacation. John returned from his
vacation and learned from his agent that his policy had lapsed. The agent informed John that
the following limitations and provisions of the policy will be affected by a reinstatement of
the policy:
Top of Form
A) Misstatement of age, suicide and incontestability, and grace period

B) Suicide and incontestability, entire-contract clause, and smoking status-

C) 10-day rescission right, smoking status, and misstatement of age

D) A& B

Rationale:
Learning objective:
Explain the impact on the client of the following standard policy limitations and
provisions: 10-day right of rescission; entire contract; suicide and
incontestability; grace period; reinstatement; smoking status; misstatement of
age or sex; settlement options; material isrepresentation.

Rationale:
If the policy is reinstated, a new suicide-exclusion clause comes into effect, the
entire-contract clause will now include the reinstatement documentation, and the
smoking status can be affected, since, in this case, the insured started smoking
five years ago.

Q8: Myra Simon wants to retire in five years. She has accumulated substantial retirement
savings and, after considering her Canada Pension Plan (CPP) and Old Age Security (OAS)
benefits, she reckons that she will need to withdraw about $40,000 per year to support her
intended lifestyle. If the interest rates for a long-term Guaranteed Investment Certificate
(GIC) are currently 5%, how much must she have in retirement savings if she does not want to
use up any of the capital in her lifetime and wants to live on only the annual interest income?
Top of Form
A) $500,000

B) $700,000

C) $800,000-

D) $1,000,000
 Rationale:
C
Learning Objective: Using a case-study approach, including client-specific
information at different ages, to develop a retirement plan for each individual.

Rationale: Her capital has to produce an interest of $40,000 per year. So she
requires a capital of $40,000 ÷ 5% = $800,000.

Q9: Fred Atkins is a management consultant earning $130,000 per year, and his wife, Brenda,
is an accountant, earning $80,000 per year. They have three children, Jack, who is seven
years old, Annie, who is four years old, and Martha, who is two years old. Annie is
developmentally challenged and is likely to require support for the rest of her life. Fred and
Brenda want to ensure that their children are well cared for in the event of their deaths,
especially Annie.

Which of the following products is the best solution for this couple to meet their needs?
Top of Form
A) Joint-second-to-die term-to-100 insurance on Fred and Brenda-

B) 20-year R&C term insurance on Fred and 20-year R&C term insurance on Brenda.

C) Joint-first-to-die universal-life (UL) insurance on Fred and Brenda

D) Long-term-care insurance on Annie

Rationale:
Learning objective:
Based on specific client information, select the most appropriate individual life-
insurance products to match a particular client's situation and needs.

Rationale:
The couple would like to leave a substantial sum for their children in the event of
their deaths. Therefore, 20-year term insurance would not meet the need, as
there may be no coverage after age 80. Long-term-care insurance may not be
available for Annie, since she is already developmentally challenged. The joint-
first–to-die insurance may not be required for this need, because they want to
leave the money only after their deaths. This option would be more expensive.

Q10: Dan Hoover was 30 years of age when his insurance advisor carried out a needs analysis
on Dan and determined that, based upon his current circumstances; he needed a permanent
insurance policy of $200,000 face amount and a term-to-65 coverage of $500,000. The agent
also determined that Dan had a family history of diabetes and hypertension. The advisor
suggested to Dan that he add a guaranteed-insurability-benefit (GIB) rider to his permanent
insurance for a sum of $200,000, so that he is guaranteed an increase in benefit, if he
requires it in the future. Dan followed the advisor's suggestion.

Today Dan is 50 years of age. He was diagnosed with diabetes and hypertension at age 35. He
had a heart attack last year and requires $200,000 of additional permanent life insurance. He
exercises his GIB option. Which of the following is the most likely action by the insurer?
Top of Form
A) Decline the policy, due to his recent heart attack

B) Issue a rated policy, due to the history of diabetes and hypertension, because the
issue is guaranteed by GIB

C) Issue a policy that excludes death due to diabetes, hypertension, and heart attack

D) Issue a standard policy for the increase, as he has exercised his GIB option.-

Rationale:
Learning objective:
Explain the guaranteed-insurability-benefit (GIB) rider, its benefits, and its
appropriate use.

Rationale:
Guaranteed Insurability Benefit (GIB) rider protects a person medically, and
guarantees the increase at a future date without a medical at standard rates.

Q11: Which of the following is true about the consequences of incorrect information being
provided by a client in the application form?
Top of Form
A) The insurer can cancel the policy whenever in the future a non-material
misrepresentation is discovered.

B) The insurer can cancel the policy only if a material misrepresentation is discovered
during the contestability period of two years from the date of issue of the policy.

C) The insurer can cancel a policy whenever in the future the insurer discovers an age
or sex misrepresentation.

D) The insurer can cancel the policy even if a material misrepresentation is discovered
at any time in the future.-

Rationale:
 D
Learning objective: Explain the agent's duty to educate the client in the
consequences of incorrect information being provided for the underwriting
process.

Rationale: An insurer can cancel a policy for any misrepresentation (material or

non-material) within two years of issue of the policy. This period is called the
contestability period. An insurer can cancel a policy at any time that a material
misrepresentation is discovered. However, misrepresentation of age or sex are
given special treatment by law. The insurer is not allowed to cancel a policy
when an age or sex misrepresentation is discovered. The insurer may, however,
adjust the death benefit to be commensurate with the premiums paid.

Q12: Which of the following is a disadvantage of whole-life insurance?

Top of Form
A) The cash surrender value (CSV) for each year of the policy is guaranteed.

B) It comes with guaranteed non-forfeiture options.

C) The premium is guaranteed for the life of the policy.

D) There is little flexibility offered by whole-life insurance in premium amount to be

paid, in adding additional life insured(s), or in death-benefit options.-

Rationale:
Learning objective:
Compare the advantages/ disadvantages of whole-life insurance.

Rationale:
Guarantees are the advantage of the whole-life policy. Cash values, non-
forfeiture, and premiums are guaranteed. However, the whole-life policy is not
flexible in providing variable planned premiums, in adding life insured(s) to the
policy later on, or in death-benefit options.

Q13: Garry and Hilda Mills are planning to retire in about five years from today. They will
both receive Canada Pension Plan (CPP) benefits, and each will receive about $900 per
month. They will also receive Old Age Security (OAS) benefits of about $500 per month. They
reckon that they will need another $40,000 after tax to lead the type of life they intend to
lead. Garry and Hilda have about equal retirement savings, and they intend to divide the
withdrawals from their Registered Retirement Savings Plan (RRSP) savings equally between
them. As a result each of them is expecting to withdraw an amount of $20,000 each year
after tax to fund their retired lifestyle. How much will each of them need to withdraw from
their RRSP (rounded to the higher thousand dollars) to meet their requirements if they are in
the 35% marginal tax rate (MTR)?
 Top of Form
A) $25,000

B) $27,000

C) $30,000

D) $31,000-

Rationale:

D
Learning Objective: Develop a plan for an individual who has decided to retire.

Rationale: They each need to withdraw $20,000 after tax. Since their marginal
tax rate is 35%, 65% of their withdrawal should equal $20,000. So the amount
they need to withdraw is $20,000 ÷ 65% = $30,769.23 or $31,000, rounding
up to the higher thousand dollars.

Q14: Jackie Fernandez, an insurance agent, visits client Alvin Santos, who has had an
accident and wants to file a claim. She finds out that the accident happened at a construction
site. She finds that his policy states that he is a storekeeper in a manufacturing unit. She
questions him and finds that, after the issue of the policy he had changed to a construction
job, since the pay was better. At this stage of the process, it is Jackie's duty to take which of
the following courses of action?
Top of Form
A) Inform the client that the company has a right to deny the claim, due to non-
disclosure of the change of occupation.

B) Inform the client that the company may decide to rescind the policy, due to non-
disclosure of the change of occupation.

C) Inform the company of the change of occupation while filing the claim.

D) All of the above-

Rationale:

D
Learning Objective: Explain the agent's duty to educate the client in the
consequences of incorrect information being provided for the underwriting
process.
 Rationale: A disability policy is issued with premiums based upon the occupation
of the life insured. It is the duty of the insured to inform the company about any
change of occupation, so that the insurer can either adjust the premium to suit
the new occupation or cancel the policy if the new occupation is not covered by
the insurer.

Q15: Which of the following is false?

Top of Form
A) Only participating policies issue dividends.

B) Dividends may be received in cash, used to reduce premiums, or left on deposit with
the insurer.

C) Dividends can be used to purchase paid-up additions (PUAs) or one-year term

additions.

D) None of the above-

Rationale:
Learning objective:
Explain the difference between a participating whole-life contract, including
dividend options available, and a non-participating whole-life contract.

Rationale:
All the statements are true.

Q16: Which of the following is an exclusion from a disability policy?

Top of Form
A) Acts of war-

B) Complications due to pregnancy

C) Elective surgeries after the policy has been in force for six months

D) A plane accident in which the policyholder is a fare-paying passenger of a

commercial airliner.

Rationale:

A
Learning Objective: Describe the limitations and exclusions that could exist
 under a disability insurance contract.

Rationale: Normal pregnancy is not considered a disability, while complications

due to pregnancy are considered a disability. Disabilities caused by elective
surgeries in the first six months of owning the policy are excluded, while after
the policy has been in force for six months, they are covered. In plane accidents
a person is covered if the insured is a fare-paying passenger of a commercial
airliner. Disability caused by acts of war are not covered.

Q17: A segregated fund normally offers two options for the sales charge. One is a front-end
load, where the sales charge is deducted up front and the net amount is invested. Assume the
front-end charge is 4%. The deferred sales charge (DSC) option is a declining charge, which
reduces every year and is eliminated after six or seven years. Assume that the DSC begins
with 7% in the first year, reduces 1% every year, and is eliminated after seven years. Which
option must an investor select who does not intend to withdraw any funds before the maturity
of the fund?
Top of Form
A) Front-end charge

B) Deferred sales charge (DSC)-

C) A fund with no charges

D) A or B

Rationale:
Learning objective:
Explain the various sales-charge options and loads available and their impact
on the investment decision.

Rationale:
Normally it is recommended that an investor who intends to keep the money
invested for the long term select the DSC option, so that all the money goes into
the investment and earns income for the investor.

Q18: Which of the following is/are true?

Top of Form
A) If a person belongs to an employer-sponsored pension plan, his RRSP contribution
room is the lesser of 18% of his previous year's RRSP eligible income or an annual
contribution limit, either one reduced by a pension adjustment (PA).

B) If a person does not belong to an employer-sponsored pension plan, his RRSP

contribution room is the lesser of 18% of his previous year's RRSP-eligible income
 or an annual contribution limit.

C) The pension adjustment for a defined-contribution plan is the sum of the employee
and employer contributions, whereas, for a defined-benefit plan, it is determined by
a formula.

D) All of the above-

Rationale:
Learning objective:
Describe what a Pension Adjustment (PA) is and what effect it will have on
RRSP contributions.

Rationale:
The pension adjustment reduces the person's current RRSP contribution room,
which is calculated as the littlest of 18% of his previous year's RRSP-eligible
income or an annual contribution limit, either reduced by an amount equal to the
pension adjustment.
For a defined-contribution plan, since the employer and employee contributions
are fixed, the pension adjustment is the sum of the employee and employer
contributions.
For a defined-benefit plan, since the employer's contribution is variable, a
formula is used to calculate the pension adjustment.

Q19: There are situations in which a person is initially totally disabled but, during the process
of recovery, is able to attend to some of his functions or all of his functions for only part of
his normal work hours. The person may suffer a loss of income, since he is not able to
perform all functions or perform them for the time required. A disability benefit that pays a
proportional benefit based upon the loss of income is called:
Top of Form
A) Partial disability.

B) Residual disability.-

C) Recurrent disability.

D) Concurrent disability.

Rationale:

B
Learning objective: Describe waiver-of-premium, presumptive disability, and
supplemental/optional benefits available with disability-income insurance
 policies, including partial-disability benefits, residual-disability benefits, future-
purchase-option benefits, and cost-of-living-adjustment (COLA) benefits, etc.

Rationale: If there is a period of partial disability that follows a period of total

disability, the insured may suffer a loss of income. The benefit that pays a
benefit proportional to the loss is called residual disability.

Q20: Which of the following is true with respect to yearly renewable term (YRT) and the
level cost of insurance (LCOI) charges of a universal-life (UL) policy?
Top of Form
A) The insurance charge is always calculated on the face amount.

B) The insurance charge is always calculated on the net amount at risk.-

C) The insurance charge using LCOI is always higher than that calculated using YRT.

D) The insurance charge using YRT is always higher than that calculated using LCOI.

Rationale:

B
Learning objective: Explain the difference between yearly renewable term (YRT)
and term-to-100 (T-100) mortality costing in a UL product and the difference
between guaranteed and adjustable mortality costs. Note: T-100 is also known
as Level Cost of Insurance (LCOI).

Rationale: The insurance charge is calculated on the net amount at risk.

Q21: Which of the following is true with respect to an absolute assignment of a life-insurance
policy?
Top of Form
A) If a policy is absolutely assigned, the life insured of the policy is changed.

B) The beneficiary designations remain the same after the policy is absolutely assigned.

C) The assignee becomes the new owner of the policy and takes over all the contractual
rights and obligations associated with the policy.-

D) The assignee will need the consent of the original owner to cancel or surrender the
policy.
 Rationale:

C
Learning Objective: Explain the consequences of an absolute assignment.

Rationale: When a policy is absolutely assigned, the assignee becomes the new
owner of the policy and takes on all the contractual rights and obligations
associated with the policy. The life insured of the policy remains the same.

Q22: While reviewing the premiums of a guaranteed-renewable policy with those of a

cancellable policy, the insured can expect:
Top of Form
A) The premium for a guaranteed-renewable policy to be more than that of a
cancellable policy.-

B) The premium for a guaranteed-renewable policy to be less than that of a cancellable

policy.

C) The premium for a guaranteed-renewable policy to be the same as that of a

cancellable policy.

D) The insured cannot conclude anything about the premiums of either policy.

Rationale:
Learning objective:
Define and explain non-cancellable and guaranteed-renewable, guaranteed-
renewable and cancellable disability contracts.

Rationale:
Premiums for a guaranteed-renewable policy are more than those for a
cancellable policy.

Q23: Karl and Jennifer have come to you to assess their insurance needs. Karl is a supervisor
in a manufacturing company and earns $70,000 per year, and Jennifer works as a assistant in
a financial firm earning $30,000 per year. Both are covered for life insurance at work for two
times their annual salaries. Both of them have disability benefits from a group policy that
would pay them a 60% disability benefit. They have around $150,000 of mortgage outstanding,
and they have investments worth $20,000. They have a car loan outstanding of $5,000. They
estimate that funeral expenses would be $15,000.
If one of them were to die, they reckon that they would require 60% of their combined
income to run their house. They have two children, aged eight years and six. They would like
to make sure $100,000 will be left to the surviving spouse to fund the children's education.
How much insurance do they need if investments earn a return of 5%, rounded to the nearest
thousand?
Top of Form
A) $190,000 on Karl, and $710,000 on Jennifer

B) $710,000 on Karl, and $190,000 on Jennifer-

C) $610,000 on Karl, and $90,000 on Jennifer

D) $90,000 on Karl, and $610,000 on Jennifer

Rationale:
Learning objective:
Given client-specific information, recommend the type(s) and amounts of
insurance required to provide for the financial needs for an individual and their
family.

Rationale:
Assets: $20,000
Final Expenses:
$5,000 (car loan) + $15,000 (funeral expense) + $150,000 (mortgage) =
$170,000
Cash shortfall = $150,000

Karl's insurance need:

Income need for Jennifer should Karl die is $60,000 (required) – $30,000
(continuing income of Jennifer) = $30,000.

$30,000
Capitalized at 5%, this works out to = ------------------ = $600,000
0.05

Add cash shortfall of $150,000 and the $100,000 for childrens' education Or
$600,000 + $150,000 + $100,000 = $850,000.
Subtract the amount of group insurance from this amount or $850,000 –
$140,000 = $710,000

Jennifer's insurance need:

Karl makes more than the $60,000 required, so Jennifer does not have to
provide for any income need. She needs to provide for the cash shortfall and the
children's education = $150,000 + $100,000 = $250,000
Subtract her group insurance of $60,000 and her insurance need is =$250,000 –
$60,000 = $190,000
Q24: Which of the following are advantages of an individual policy over a group policy for the
individual covered by the policy?
Top of Form
A) The premium for the insured is less than that under a group policy.

B) There is no need for a medical insurability check.

C) The insured can customize the policy to the suit insured's needs.-

D) A and B
Rationale:

C
Learning Objective: Compare and contrast individual and group insurance
products.

Rationale: An individual policy allows an insured to customize the policy to meet

his or her needs, whereas a group policy provides the same benefits for all
group-insureds through a schedule of benefits, and may allow for limited
customization through provisions for options.

Q25: Vince and Cindy Logan have come to you to estimate their estate taxes. They indicate the
following:

Property Ownership ACB FMV

Principal
Joint $235,000 $430,000
residence
Cottage Joint $70,000 $170,000
RRSP Vince - $300,000
RRSP Cindy - $150,000
Stocks Vince $50,000 $150,000
IVIC Vince $100,000 $200,000

Vince has named Cindy as beneficiary of all his property, and Cindy has named Vince as
beneficiary of all her properties. Assuming the properties do not appreciate in the future, and
that they want to roll over the properties to the surviving spouse on the death of the first
spouse, and that the marginal tax rate (MTR) of the last spouse to die is 50%, how much
estimated tax will be owed by the estate?
Top of Form
A) $400,000
 B) $350,000

C) $300,000-

D) $600,000

Rationale:
Learning objective:
Using client specific data, demonstrate the use of an insurance policy as a tax-
planning tool.

Rationale:
A capital gain on a principal residence is tax-exempt.
Other capital gains:

Cottage $100,000
Stocks $100,000
IVIC $100,000
-----------------
Capital gains: $300,000

Taxable capital gains $150,000

RRSP(fully taxable) $450,000
-----------------
Total taxable $600,000

Tax @ 50% = $300,000

Q26: A client deposits $100,000 into an individual variable insurance contract (IVIC) with
100%-maturity and death-benefit guarantees. The account value grows to $120,000, at which
point he resets the guarantees and proceeds to withdraw $30,000 from his account. Which of
the following is true with respect to the guarantee after the withdrawal?
Top of Form
A) The guarantee will be $120,000, because he reset the contract.

B) The guarantee will be $90,000, using the linear or proportional method.-

C) The proportional method should give a higher guarantee than the linear method.
 D) The linear method will give a higher guarantee than the proportional method.

Rationale:

B
Learning Objective: Using an example, determine what would happen with
respect to the guarantee at maturity when a client withdraws a portion of the
funds invested in an IVIC. Include such concepts as proportional and linear-
reduction methods, maturity and death-benefit guarantees, adjusted cost basis,
etc.

Rationale:
The new guarantee on reset = $120,000
The guarantee after withdrawal of $30,000 (using linear method) is:
New principal on reset = $120,000
Withdrawal amount = $30,000
Principal balance = $90,000
New Guarantee after withdrawal @100% = $90,000
The new guarantee (using proportional method or linear method ) is:
Withdrawal percentage =$30,000 ÷ $120,000
= 25%
Investment remaining = (100% — 25%) x $120,000
New guarantee after withdrawal =75% x $120,000 = $90,000
Note: The guarantees will be the same using linear or proportional methods if
withdrawal is made just after a reset.

Q27: Don Gordon works for a utilities supply company. The company provides its employees
with a generous group benefit plan, which includes group short-term disability (STD) and
group long-term disability (LTD)coverage. Which of the following features will not be offered
by the group disability plans?
Top of Form
A) Waiver of premium

B) Recurrent disability

C) Residual disability

D) Presumptive disability-

Rationale:
Learning objective:
Explain the definitions of the following: group insurance, member, group
policyholder, and waiver-of-premium benefit.
 Rationale:
Presumptive disability is not covered by group insurance disability policies.
Presumptive disability is covered only under individual disability policies.

Q28: Ready Utility Company is a large company that has over 5,000 employees. The company
provides benefits to its employees that include disability, a prescription-drug-reimbursement
plan, and a dental plan. The company has been using Your Benefits Insurance Company as its
carrier for the last 30 years. Which of the following methods is the insurance company most
likely using to determine the premiums that Ready Utility Company must pay?
Top of Form
A) Blended rating

B) Manual rating

C) Experience rating-

D) Book rating

Rationale:
Learning objective:
Explain the relationship among credibility, manual rating, experience rating, and
blended rating.

Rationale:
When a large company has credible data available, the insurer uses experience
rating to determine the premiums.

Q29: Ronald and Janice Mason have two children, Ann and Harry, aged 15 and 12
respectively. Ronald works at a prestigious accounting firm that provides him with a name-
brand prescription-drug plan. The plan has a $50 annual deductible, and no co-insurance. The
claims are limited to $3,000 annually. Janice works at a retail supermarket, and her group
plan provides her with a 80-20 generic plan with a $50 single deductible and a $100 family
deductible. The plan has an annual limit of $1,500 on claims. Both the plans have a
coordination-of-benefits clause and cover the employee and their families. During the year,
the family had the following claims in sequence:
1. Ann's required brand-name drugs — $800
2. Janice's required generic drugs — $400
3. Ronald's required generic drugs — $800
4. Harry's required brand-name drug — $300

Assuming Janice was born on March 3 and Ronald was born on August 5, How much will they
receive in reimbursement from Ronald's plan and from Janice's plan?
Top of Form
A) $2,250 from Ronald's plan, and $50 from Janice's plan.

B) $1,970 from Ronald's plan, and $280 from Janice's plan.-

C) $1,220 from Ronald's plan, and $1,080 from Janice's plan.

D) $1,300 from Ronald's plan, and $ 1,000 from Janice's plan.

Rationale:
Learning objective:
Describe a typical accident-and-sickness (A&S) plan, including coverage and
coordination of benefits.

Rationale:

$50 Single
Deductible $50
$100 Family
Coinsurance 100% 80%
Birthday Aug 5 March 3
Ronald's Janice's
Plan Plan
Submitted $800 $800
Claim 1: Ineligible $0 $800
Ann's Brand Net claim $800 $0
Drug for $800
(first payer
Deductible $50 -
Is Janice's
Plan - $750 $0
Earlier Birthday) Co-insurance 100% 80%
$750 $0

Submitted $400 $400

Claim 2: Ineligible $0 $0
Janice's Generic Net claim $400 $400
Drug for $400 Deductible $0 $50
(first payer $400 $350
Is Janice's Co-insurance 100% 80%
Plan Reimbursement
$400 $280
(calculated)
 Out-of-
pocket $120
As a second
Payer Ronald's
Plan reimburses
the lesser of
calculated
reimbursement
or the out-of-pocket
expense. So the plan
reimburses $120

Submitted $800 $800

Claim 3 Ineligible $0 $0
Ronald's Generic Net claim $800 $800
Drug for $800 Deductible $0 $50
(first payer $800 $750
Is Ronald's Co-insurance 100% 80%
Plan Reimbursement
$800 $600
(calculated)
Out-of-
pocket $0
As a second
Payer Janice's Plan
reimburses the lesser
of calculated
reimbursement or
the out-of-pocket
expense. So the
plan reimburses $0

Submitted $300 $300

Claim 4 Ineligible $0 $300
Harry's Brand Net claim $300 $0
Drug for $300
Deductible $0 -
(first payer
Is Janice's $300 $0
Plan - Co-insurance 100% 80%
Earlier Birthday) Reimbursement
$300 $0
(calculated)
Total for 4 claims $1,970 $280
Q30: John Dixon, a construction worker, owns a disability insurance policy for a benefit of
$2,000 per month. An accident occurs, and he loses the use of his legs and is confined to a
wheelchair. He quits the construction business and starts a retail business, which does very
well, and he has managed to triple his income. If he applies for disability insurance, which of
the following will be the most likely underwriting decision?
Top of Form
A) An exclusion rider

B) A rated policy

C) A decline-

D) A rating and an exclusion rider

Rationale:
Learning objective:
Describe the various provisions generally included in individual accident-and-
sickness (A&S) insurance policies and the potential impact on a disability claim,
including renewal, grace period, incontestability, pre-existing conditions, claims,
physical examination, change of occupation, and over insurance.

Rationale:
As John has lost the use of his legs and is confined to the wheelchair, the
underwriting will most likely decline the additional disability insurance.

Q31: Neal Martins, 56 years of age, is a widower and has a daughter, Anne Martins. She is
mentally challenged and will require care throughout her life. Neal owns several properties,
all of which are clear of mortgages, except for his home, on which $200,000 of mortgage is
outstanding. He has enough savings to clear all outstanding debts, such as the outstanding
mortgage, balances in his credit card, etc. His only worry is about his daughter after he is
dead. He has appointed his sister Elizabeth as her guardian through his will. He wants to
provide a fund, so that Anne's needs are provided for. Neal is healthy, and therefore his
financial advisor suggests that he buy an insurance policy for the amount required, and leave
the proceeds in a trust for Anne's care. His sister Elizabeth could be named the trustee of the
trust. Neal likes the idea and is thinking of getting the insurance policy on his life. He reckons
that he will be able to afford the premiums all his life and that, in the future, he will not
need to take a loan against the policy. As he is middle-aged, he would not like to take risks
with investment. He prefers a policy in which his premium and death benefit are guaranteed.
Given Neal's requirements, which of the following solutions is best for Neal?
Top of Form
A) Guaranteed Whole whole-life policy
 B) Adjustable whole whole-life policy

C) Universal Universal-life life policy

D) Term-to-100 (T-100) policy-

Rationale:

D
Learning Objective: Given customers' profiles, recommend the most appropriate
permanent individual life-insurance products to meet their specific needs

Rationale: A guaranteed whole-life policy meets his requirements, but will be

expensive, since it provides non-forfeiture benefits and cash values that he does
not require. The adjustable whole life policy does not guarantee the premiums or
the death benefit. The universal-life policy is subject to investment risks, which
Neal does not want at this stage of his life. The Term-to-100 policy is a no-frills
policy in which premiums and death benefit are guaranteed and does not
provide cash values and non-forfeiture benefits. Neal does not require cash
values or non-forfeiture benefits. Hence a Term-to-100 policy is best suited for
him.

Q32: Which of the following investments is expected to have the maximum volatility?
Top of Form
A) Money-market fund

B) Mortgage fund

C) Bond fund

D) Equity fund-

Rationale:
Learning objective:
Compare and contrast the investment instruments, risk, and volatility of various
types of funds, including: money-market funds, mortgage funds, bond funds,
dividend funds, equity funds, international and global funds, specialty funds,
real-estate funds, balanced funds, asset-allocation funds, index funds, and
funds of funds.

Rationale:
Volatility is a measure of fluctuations in the value of the asset. The equity fund is
 expected to have the maximum fluctuation in value.

Q33: Which of the following is true concerning group plans?

Top of Form
A) The different elements of a group plan, such as life insurance, disability benefits,
extended health care, etc., have to be provided by a single insurer.

B) In a group plan, the employee can customize the basic benefits so that the coverage
meets the employee's individual requirements.

C) In an individual plan, the insured can customize the coverage to meet the insured's
requirements.-

D) In a group plan, the employee covered by the plan is the policy owner.
Rationale:

C
Learning objective: Compare and contrast individual and group insurance
products.

Rationale: In a group plan, the base benefits are decided by the policy owner
(the employer) and are common for the entire group. There is very little scope
for customization to the extent achieved by selecting out of the offered options.
The elements of a group plan can be provided by different insurers. The owner
of the group policy is the employer. An individual plan can be customized to
meet the individual's requirements.

Q34: A client deposits $100,000 into a segregated fund with maturity and death-benefit
guarantees of 100%. The fund value grows to $120,000, at which point the client wants to
withdraw $30,000 from his account. What will be the new guarantee of the contract, using
the proportional method, and what will be the amount of taxable income to the client on
such a withdrawal?
Top of Form
A) New guarantee of $90,000, and taxable income of $30,000

B) New guarantee of $70,000, and taxable income of $20,000

C) New guarantee of $75,000, and taxable income of $20,000

D) New guarantee of $75,000, and taxable income of $5,000-

 Rationale:
ACB of the contract = $100,000

$30,000
Withdrawal percentage = -------------------------- = 25%
$120,000

Investment remaining = 75%

New guarantee = 75% × old guarantee or 75% × $100,000 = $75,000

$20,000
Percentage of growth in account prior to withdrawal
-------------------------- = 1/6
=
$120,000

Therefore, income to be reported = 1/6 × 30,000 = $5,000

Q35: Ivan and Georgia Wilson approach you for a life-insurance policy that will provide for
the family should Ivan or Georgia die prematurely. You determine the following about them:

Ivan's income: $80,000 per year

Georgia's income: $60,000 per year
Their total investment income from jointly held investments: $12,000 per year

In order to meet the family requirements, Ivan and Georgia would like the family to have 75%
of their total income should one of them die prematurely.

How much insurance is required on the lives of Ivan and Georgia for them to achieve this
objective? Assume a real interest rate of 5%.
Top of Form
A) $840,000 on Ivan's life and $440,000 on Georgia's life-

B) $440,000 on Ivan's life and $840,000 on Georgia's life

C) $1,080,000 on Ivan's life and $680,000 on Georgia's life

D) $680,000 on Ivan's life and $1,080,000 on Georgia's life

Rationale:
 A
Learning Objective: Using an effective financial-planning process, and
developing a strategy to address a client's ongoing financial needs.

Rationale:
Required income = 75% x ($80,000+$60,000+$12,000)
= 75% x 152,000
= $114,000

If Ivan should die, Georgia's continuing income =

$60,000 + $12,000 = $72,000
The income shortfall is $114,000 - — $72,000 = $42,000 per year
Capital required to provide the income @ an interest rate of 5%

Therefore, Ivan must be insured for $840,000.

If Georgia should die Ivan's continuing income =
$80,000 + $12,000 = $92,000
The income shortfall is $114,000 - — $102,000 = $22,000 per year
Capital required to provide the income @ an interest rate of 5%

Therefore Georgia should be insured for $440,000.

Q36: Which of the following is true?

Top of Form
A) An insurer may not cancel a non-cancellable policy, even for non-payment of
premium.

B) An insured cannot cancel a non-cancellable policy.

C) An insurer can cancel an insured's cancellable policy when the insurer finds that the
insured has made too many claims.

D) The insurer can increase premium for a guaranteed-renewable policy, on a class

basis.-

Rationale:

D
Learning Objective: Define and explain non-cancellable and guaranteed-
renewable, guaranteed-renewable and cancellable disability contracts.
 Rationale: A non-cancellable policy can be cancelled by an insurer for non-
payment of premium. An insured can cancel a policy at any time. An insurer can
cancel a cancellable policy on a class basis. Premiums can be increased for a
guaranteed renewable policy on a class basis.

Q37: Which of the following is true with respect to a Registered Retirement Income Fund
(RRIF) account?
Top of Form
A) Only the amount withdrawn from a RRIF that is over the minimum withdrawal
amount is taxable to the annuitant.

B) Only income earned in a RRIF account is taxable annually.

C) The entire withdrawal from a RRIF is subject to withholding tax.

D) The entire withdrawal from a RRIF is taxable, but only the amount withdrawn that is
over the minimum withdrawal amount is subject to withholding tax.-
Rationale:

D
Learning objective: Using case studies to describe the tax consequences on the
payment flow from a RRIF.

Rationale: Any withdrawal from a RRIF is taxable. Any withdrawal over the
minimum amount is subject to a withholding tax.

Q38: Which of the following are generally true as they apply to group long-term disability
(LTD) and group short-term disability (STD) policies?
I. In determining whether the group insured is totally disabled, STD plans use the "own
occupation" definition; LTD plans use the "own occupation" definition for the first two
years, and "any occupation" definition thereafter.
II. Normally the benefits from an STD plan are taxable to the group insured (unless the
premiums have been paid by the employee in full or the premiums paid by the
employer are shown as a taxable benefit to the employee); normally the benefits from
LTD are tax-exempt, if the employee pays the premium or if the premiums paid by the
employer are shown as a taxable benefit to the employee.

III. Normally, both plans cover an employee for 60% of the employee's income.

IV. In determining whether the group insured is totally disabled, both STD and LTD plans
use the "own occupation" definition of disability for the entire period of the disability.

V. The STD and LTD plans must be from the same insurer under a group plan.

Top of Form
 A) I and II only-

B) II and III only

C) III and IV only

D) IV and V only

Rationale:
Learning objective:
Compare the definitions of disability as used by short-term income- replacement
plans and long-term income-replacement plans.

Rationale:

True. Normally the STD plans use "own occupation" definition, whereas
LTD plans use the "own occupation" definition for the first two years of disability and
then use the "any occupation" definition thereafter.
True. The benefits are taxable unless the employee pays the full
premium by salary deduction or whatever is paid by the employer on behalf of the
employee is declared a taxable benefit to the employee.

False. Normally plans cover 60% of the employee's income if the benefits
are tax-exempt. If benefits are taxable, they generally cover 662/3%.

False. See I above.

False. There is no requirement that all the different benefits offered by a

group plan be supplied by the same insurer. Therefore the STD insurer can be different
than the LTD insurer.

Q39: Which of the following statements is false?

Top of Form
A) CPP benefits are taxable

B) EI benefits are taxable

C) OAS benefits are taxable

 D) Workers' Compensation payments are taxable.-

Rationale:
Learning objective:
Compare the federal government-sponsored programs to provide short-term
and long-term disability benefits, including Employment Insurance (EI) and
CPP.

Rationale:
CPP, EI, and OAS benefits are taxable incomes. Workers' Compensation
payments are tax-free to the recipient.

Q40: Timothy Carson, an insurance agent with Bestlife Insurance Company, fills out an
application for his client Rick Sanchez for a whole-life policy with a face amount of
$1,000,000. Bestlife authorizes the agent to issue a temporary insurance agreement (TIA) if
all the questions answered in the TIA section of the application have been answered "No," and
the client is under 70 years of age. The TIA further specifies that the coverage will last until
the earliest of: the policy issue, a letter declining a policy to Rick, or 90 days. The amount of
coverage by the TIA will be the lesser of the amount applied for or $500,000. Justin issues a
TIA to Rick, as the conditions for TIA were fulfilled. However, in reality, Rick had had an
earlier conviction for a driving-under-the-influence charge, and his driver's license had been
suspended and reinstated later. He had misrepresented the answer in the TIA section. If Rick
were to die during the TIA coverage, which of the following is true?
Top of Form
A) Rick's beneficiary will receive the amount, irrespective of a misrepresentation in the
application, because he died during the time the TIA was in effect.

B) Rick's beneficiary will receive the sum of $1,000,000.

C) Rick's beneficiary will receive the amount, irrespective of a misrepresentation in the

application.

D) Rick's beneficiary will receive nothing, because Rick had misrepresented his earlier
DUI conviction.-

Rationale:
Learning objective:
Explain what a temporary insurance agreement (TIA) is, how it affects the
applicant, and the limitations associated with the issuance of a TIA.

Rationale:
When an insured dies during the TIA period, his case is nevertheless
underwritten. If any misrepresentations are discovered, the claim will be denied.
Q41: Pick the answer that contains the investment instruments ranked from highest to lowest
risk.
Top of Form
A) Common share, corporate bond, guaranteed investment certificate (GIC), Treasury
bill (T-bill)-

B) Common share, guaranteed investment certificate (GIC), corporate bond, T-bill

C) Government bond, corporate bond, T-bill, commercial paper (CP)

D) commercial paper (CP), T-bill, government bond, corporate bond

Rationale:

A
Learning Objective: Compare and contrast the investment instruments, risk, and
volatility of various types of funds, including: money-market funds, mortgage
funds, bond funds, dividend funds, equity funds, international and global funds,
specialty funds, real-estate funds, balanced funds, asset-allocation funds, index
funds, and funds of funds.

Rationale: The risk of an instrument is determined by its volatility. The order of

risk, from highest to lowest, for most common investment instruments are as
follows:

 Common share;
 Preferred share;

 Corporate bond;

 Mortgage;

 GIC;

 Government bond;

 Commercial paper;

 Banker's Acceptance (BA);

 Municipal paper;

 Provincial paper;
  Treasury bill (T-bill)

Q42: Antonio Olivetti, 45 years of age, is a self-employed plumber. His business is good, and
he makes an income of about $120,000 per year after business expenses and taxes. He has
two children attending university, and he has admitted his mother to a long-term-care
facility, since she requires assisted living. He has high monthly expenses, considering the
long-term-care facility and university expenses. Antonio has been a healthy person till now,
and he has never thought of buying insurance. His wife, however, believes that they have
been facing risks so far and have been lucky that the risks have not manifested themselves.
She urges him to buy insurance, as he is the sole breadwinner in the family. What would you
recommend be the order of priority for insurance purchases by Antonio?
Top of Form
A) Life insurance, disability insurance, critical-illness (CI) insurance, and long-term-
care (LTC) insurance on himself.

B) Long-term-care insurance for his mother, life insurance, disability insurance, critical-
illness insurance, and long-term-care insurance on himself.

C) Life insurance, disability insurance, critical-illness insurance,long-term-care

insurance for his mother, and long-term-care insurance on himself.

D) Disability insurance, life insurance, critical-illness insurance, and long-term-care

insurance on himself.-

Rationale:

D
Learning Objective: Given several case studies containing specific client
information, select the most appropriate insurance products (life, health, and/or
disability) to match a particular client's situation/needs.

Rationale: Very clearly, the first priority for insurance for a self-employed person
must be disability insurance to protect his/her income. This is followed by life
insurance, and critical-illness and long-term-care insurance to protect his
dependents.

His mother may not be able to get long-term-care-insurance, because she is

already in a long-term-care facility.

Q43: Tommy and Johnny are brothers, and each inherited $500,000 from their mother's
estate. Tommy puts his $500,000 in a five-year GIC issued by his bank, whereas Johnny puts
his $500,000 into a deferred annuity contract issued by an insurer. Which of the following
statements are true?
 Top of Form
A) If Tommy names his son as the beneficiary of his GIC in his will, on Tommy's death
the GIC proceeds will be paid out to Tommy's son and will bypass Tommy's estate,
and Tommy's creditors will not have any claims on the proceeds.

B) If Johnny names his son as the beneficiary of the deferred annuity contract, on
Johnny's death the deferred annuity proceeds will be paid out to Johnny's son and
will bypass Johnny's estate, and Johnny's creditors will not have any claims on the
proceeds.-

C) Tommy earns more in the GIC than Johnny.

D) Johnny earns more in the deferred annuity contract than Tommy.

Rationale:

B
Learning Objective: Compare the differences between a deferred annuity issued
by an insurance company and a GIC issued by banks and trust companies.

Rationale: The deferred annuity is creditor-proof and bypasses probate on

death. It is a designated benefit account. Interest rates vary, and will depend
upon the time of purchase. It cannot be said whether deferred annuities pay
more interest than a corresponding GIC or vice versa.

Q44: Ganesh Dhavan owned a guaranteed whole-life policy with a face amount of $200,000,
which he had purchased over twenty years before, when he was 40 years old. His policy now
has a cash surrender value of $60,000, and his premium is $2,500 per year. He has now been
diagnosed with a very malignant form of cancer, and his doctors state that he is likely to live
for less than one year. Since he is now hospitalized every now and then, he has resigned his
job as supervisor of logistics at a manufacturing firm. Since he has no income from work,
Ganesh would like to stop paying premiums for his policy. He prefers an option that would not
reduce the death benefit to his beneficiary. Which of the following options will meet his
requirement?
Top of Form
A) Automatic premium loan

B) Reduced Paid-up Insurance (RPUI) of $150,000

C) Extended Term Insurance (ETI) for five years-

D) Accelerated death benefit rider which will access $100,000 right away
 Rationale:

C
Learning Objective: Compare the advantages/disadvantages of whole-life
insurance.

Rationale: If a person wants to stop paying premium to a guaranteed whole-life

policy, he may choose among three options, namely automatic premium loan
(APL), reduced paid-up insurance (RPUI), or extended term insurance (ETI). If
APL is selected, the death benefit will be reduced by the amount of loan
outstanding, and the RPUI option reduces the death benefit. ETI, on the other
hand, maintains the death benefit, but provides coverage for a term. In this
case, as his life expectancy is less than one year, he may choose the ETI
option.

Q45: Aaron Chaney has been contributing regularly to the spousal RRSP that names his wife,
Rhonda, as the annuitant and himself as the contributor. Aaron is in his province's highest
marginal tax rate (MTR) of 40.16%, and Rhonda is in the province's lowest MTR, 21.05%. If
Rhonda withdraws $20,000 to meet sudden unanticipated expenses, and assuming that
attribution rules do not apply to the withdrawal, which of the following is true?
Top of Form
A) Aaron will be taxed on the $20,000 withdrawal at his MTR.

B) Rhonda cannot make the withdrawals from the spousal RRSP. Aaron must make the
withdrawals, because he is the contributor.

C) Rhonda will be taxed on the $20,000 withdrawal at her MTR.-

D) A and B

Rationale:
Learning objective:
Using examples to describe the advantages of income splitting through spousal
RRSPs.

Rationale:
The annuitant of the spousal RRSP will be taxed on withdrawals, unless
attribution rules apply. Spousal attribution rules apply only if the withdrawal is
made in the year of contribution or in the following two calendar years.

Q46: Adrian and Mae Page are near retirement. They have paid off their mortgage, and their
children are well-settled. Adrian is a race car driver and still participates in some events.
They have adequate retirement savings, which continue to grow, as most of their investment
is in equity funds and the markets have been doing well. Their tax consultant has estimated
close to $400,000 in taxes upon death based upon the values of their properties and
investments. They are both healthy. What is your recommendation to mitigate the risks faced
by the Pages?
Top of Form
A) Adrian should avoid the risk of racing. The pages should consider moving
investments out of equities to less risky investments, considering their age. They can
buy life insurance to cover their final taxes.-

B) Adrian should buy disability insurance in order to mitigate the risks he faces during
racing. The Pages should continue to invest in equities as they are nearing
retirement. They should start saving for their final taxes.

C) Adrian should buy life insurance to mitigate the risks he faces during racing. The
Pages should invest in growth equity funds in order to maximize their savings at
retirement. They should transfer their properties and investments to their children to
avoid taxation at death.

D) Adrian should buy a critical illness insurance to mitigate the risks he faces during
racing. The pages must move their savings out of equities to less riskier investments,
considering their age. They should transfer their properties and investments to their
children to avoid taxation at death.

Rationale:

A
Learning objective: Design and develop a financial needs analysis for a client to
reduce the severity and frequency of risk covering the areas of retirement
planning, investment planning, tax planning and estate planning.

Rationale: The risks faced by the Adrian Page is the risk of death or disability
due to participating in car races. The solution might be to stop participating in
race car driving. The other risk faced by the Pages is the volatility of the stock
market as most of their investments are in equities. Considering their age and
that they are near retirement they should move their investments out of equities.

Q47: When must an Information Folder of a segregated fund be given to a client?

Top of Form
A) Within two business days of signing the contract

B) Within one month of signing the contract

C) Before the contract is signed-

 D) It is not an approved document, and therefore it is not mandatory that an information
folder be given to a client.

Rationale:
Learning objective:
Explain the content and purpose of the Information Folder and the benefits it
brings to a client.

Rationale:
The Information Folder of a segregated fund must be given to the client before
the contract is signed.

Q48: Matt Weiser purchased a new rental property for $3 million. He has an outstanding
mortgage of $2 million on the property, and he has amortized the mortgage over a period of
30 years. He opted for an open mortgage, so that he is free to clear up the mortgage prior to
30 years. Based upon the rental income, he believes he should be able to clear the mortgage
in about 20 years. He has come to you for insurance on his mortgage outstanding, and he
wants you to recommend a product in which he will be able to get a benefit should he pay off
his mortgage and not require the insurance. Which of the following products would you
recommend for Matt?
Top of Form
A) Term-to-100

B) 20-year renewable and convertible (R&C) term

C) 20-year R&C decreasing term

D) Whole-life insurance-

Rationale:
Learning objective:
Using various customer profiles, recommend the most appropriate term
individual life insurance products to meet their specific needs.

Rationale:
Matt is clearly looking for a policy with cash values, so that he gets the cash
surrender value (CSV) if he is able to clear off the mortgage before his death.

Q49: If an underwriter wants to check on an applicant's occupational situation or lifestyle

habits, the underwriter will most likely ask for a(n):
Top of Form
A) MIB check
 B) Attending Physician's Report

C) Inspection Report-

D) Medical check

Rationale:
Learning objective:
Describe the steps that head office undertakes in processing an application for
life insurance when it is received from the field, including a medical with a
doctor, an Attending Physician's Statement (APS), an Inspection Report, a
Medical Information Bureau (MIB) report, information about any hazardous
sports and occupations, financial underwriting, etc.

Rationale:
When the underwriter wants to check on occupational aspects or lifestyle habits
of an applicant, they request an Inspection Report, which is carried out by an
inspection agency.

Q50: Jon Jefferson is an insurance agent who is now with Wayne Arnold a potential client.
Jon is also a sales agent for a water-filter company. Jon determines during the visit that
Wayne needs a term insurance policy for a $300,000 face amount to cover the outstanding
mortgage on a rental property that Wayne had purchased recently. Jon then makes a sales
pitch on the necessity of water filters to protect one's health and offers water filters for
Wayne's residence and the rental property. Since he makes good commissions on each water
filter, he tells Wayne that he will pay three months' of Wayne's policy premium if Wayne buys
the policy and the two water filters. Wayne agrees and buys the two filters along with the
policy. What prohibited sales methods did Jon employ to make the sale of the policy?
Top of Form
A) Rebating and twisting

B) Twisting and churning

C) Twisting and tied selling

D) Rebating and tied selling-

Rationale:

D
Learning Objective: Explain the agent's duties pertaining to the client, including
disclosure, putting the client's interests first, coercion, undue influence, due
 diligence, etc.

Rationale: He is guilty of rebating and tied selling.

Q51: John, Tom, Arlene, and Jenny are equal owners of Data Mining Inc. and own 1,200
shares each. They are worried about the business continuation, should one of them die. They
make a buy-sell agreement, in which each of them agrees that the estate of the deceased
person will sell the shares of the business equally to the surviving partners, and that the
surviving partners will buy the shares of the deceased owner. For the purpose of funding their
buy-sell, they are looking for an arrangement in which they do not have to physically transfer
the shares to each of them, but would like to have their share of business ownership go up to
33.33% from the current 25%. Which of the following methods meets this need?
Top of Form
A) Cross-purchase arrangement

B) Criss-cross arrangement

C) Share-redemption arrangement-

D) Sinking-fund arrangement

Rationale:
Learning objective:
Using specific data identify business situations in which insurance can be used
as a strategy to address and resolve tax issues.

Rationale:
In a share-redemption arrangement, the company owns the buy-sell insurance
policy and the company is the beneficiary of the policy. On the death of any one
of the owners, the company uses the proceeds of the insurance to buy back the
shares of the deceased. The shares have thus been retired, and the ownership
increases on the outstanding shares.

Q52: Zhen Xue is in the process of applying for a term insurance policy to provide for her
family in the event of her premature death. Her family is comprised of Jiang Tu, her husband,
and Chang Yin and Xiang Yin, her twin daughters, aged eight years. Her agent suggests to her
that she apply for a policy which is renewable and convertible. The agent explains to her
that, if she purchases a 10-year renewable and convertible policy that is renewable until age
80, the policy term will renew every 10 years, that the premium will go up with each renewal
and that she will be covered until age 80 by the policy. The convertible option will allow her,
at her discretion any time before she reaches age 60, to convert the term policy to a
permanent insurance product offered by the insurer — namely a Term-to-100 (T-100), whole
life, or Universal Life (UL) policy at her discretion at any time before she reaches age 60. She
will have to pay the higher premium of the permanent product, based upon her age at
conversion. The agent further explains that the renewal and conversion will take place with
no medical proof required.
She asks her agent about the premium in case she is healthy, and decides to purchase a new
policy at the end of the term, rather than renewing the policy. The agent replies that, in
general, the new policy is likely to charge a premium that is:
Top of Form
A) A lower premium compared to the renewal premium.-

B) A higher premium compared to the renewal premium.

C) The same premium as the renewal premium.

D) The premium does not matter, because, if they find any medical problem with her
while processing her application for the new policy, the renewal of the current policy
will also be affected by the medical problem.

Rationale:

A
Learning Objective: Explain how term life insurance works.

Rationale: The renewal premium of a term- life policy is guaranteed, and

therefore takes into account the cost of insureds who are renewing but have
health problemssubstandard and are renewing and distributes such costs to all
insureds who are renewing the policy. If a person buys a new policy, the insured
undergoes a medical test, which assures the insurer that the insured is a
standard risk and will therefore be charged the standard premium, as opposed
to the guaranteed renewal premium charged to a person who renews a policy.

Q53: Sam Brown has the following in monthly income:

Employment salary $4,000

Employment bonus $500
Interest and other Investment income $500
Net business income $1,000
Net rental income $800
TOTAL monthly income $6,800

Assume you work for a company that states that they are willing to cover a person for the
lesser of 60% of the applicant's earned income or $4,000. How much maximum disability
insurance benefit can Sam purchase?
Top of Form
A) $2,400
 B) $2,700

C) $3,300-

D) $4,000

Rationale:
Learning objective:
Describe common methods to establish the amount of disability income benefits
that will be paid to a disabled person.

Rationale:
Sam will be able to purchase the lesser of 60% of his earned income or $4,000.

Sam's earned income consists only of his employment salary, employment

bonus, and net business income, which is $4,000 + $500 + $1,000 = $5,500

So the maximum disability benefit for Sam is:

= The lesser of 60% of earned income (60% × $5,500) or $4,000
= The lesser of $3,300 or $4,000
= $3,300

Q54: John suffered an accident when a construction company was carrying out repairs on the
roof of the building in which he works. John received benefits of $2,000 per month from his
insurer for six months, for a total of $12,000. The insurer sued the construction company for
damages, and they were asked to pay $30,000 to John in complete settlement of his claim.
John then got a letter from the insurer asking John to pay them $12,000. The insurer made
the claim under:
Top of Form
A) Right of subrogation-

B) Right of re-insurance

C) Right of constructive notice

D) Right of differential claim

Rationale:
Learning objective:
Explain the impact of coordination of benefits and subrogation on a group
disability insurance policy.
 Rationale:
Right of subrogation entitled the insurer to receive the amount paid out by the
insurer if the claim is settled with the party who caused the damage.

Q55: Which one of the following is most unlikely to qualify for long-term-care (LTC)
insurance?
Top of Form
A) Tom, whose handicap means that he is unable to drive to go to work.-

B) John, who has serious and frequent memory losses, declared to be a cognitive
impairment

C) Betsy, who had a stroke, can take care herself for the most part, but needs assistance
in bathing and feeding herself

D) Tony, who as result of aging and not due to any disability is unable to get in and out
of the tub and dress himself

Rationale:
Learning objective:
Describe and provide examples of the conditions that are generally covered
under a long-term-care policy.

Rationale:
To qualify for a long-term-care-benefit, the insured must not be able to perform
two of the activities of daily living (ADLs) independently or have a cognitive
impairment. Activities of daily living include: eating, bathing, toileting, dressing,
and transferring position.
Driving is not an activity of daily living.

Q56: There are situations in which an insured might be disabled in such a manner that he is
either able to perform some of the duties of his occupation or he can perform all the duties
of an occupation for only part of his work hours. During such periods, the insurer pays the
insured a percentage (usually 50%) of the total disability benefit. Further such periods of
payments may be restricted to three or four months. Such a provision in the policy is called:
Top of Form
A) Partial disability-

B) Residual disability

C) Recurrent disability
 D) Presumptive disability

Rationale:
Learning objective:
Describe waiver-of-premium, presumptive disability, and supplemental/optional
benefits available with disability-income insurance policies, including partial-
disability benefits, residual-disability benefits, future-purchase-option benefits,
and cost-of-living-adjustment (COLA) benefits, etc.

Rationale:
When an insured is able to perform only some of his/her functions at work or the
insured can perform all the functions but only for part of the time normally
worked, the insured is said to be partially disabled.

Q57: Which of the following provides the most comprehensive coverage?

Top of Form
A) An "own occupation" policy with a five-year benefit period

B) An "own occupation" policy with to-age-65 benefit period-

C) A "regular occupation" policy with a 10-year benefit period

D) An "any occupation" policy with a 10-year benefit period

Rationale:

B
Learning Objective: Describe the features and coverage of an individual
disability plan and how the plan functions.

Rationale: The most comprehensive coverage is provided by a to-age-65 benefit

period policy. It covers all kinds of disability whether it is short-term, long-term or
permanent. If benefit period is shorter it will not cover disabilities that last
beyond the benefit period. The "own occupation" definition is the best definition
though it may not be available to all professions.

Q58: Rick Guerrero is 35 years old and has a moderate-to-high risk profile. He earns a good
income and sees himself becoming the vice-president of the company where he is employed
in about 10 years' time. He wants to start saving for his retirement at 65, 30 years from now.
He has heard that people nearing retirement have lost money in their accounts recently due
to the economic downturn and a fall in stock prices. He has heard of segregated funds that
offer a guarantee on the downside risk. He comes to you for advice. Which of the following
portfolios will you suggest for him in a segregated fund offering 100% guarantee of principal,
after discovering his time horizon and risk profile?
 Top of Form
A) A combination of 10% money market funds, 20% fixed-income funds, and 70%
equity funds.-

B) A combination of 10% money-market funds, 40% fixed-income funds, and 50%

equity funds.

C) A combination of 10% money-market funds, 50% fixed-income funds, and 40%

equity funds.

D) A combination of 10% money-market funds, 70% fixed-income funds, and 20%

equity funds.

Rationale:
Learning objective:
Describe the decision-making process to be used when determining the
appropriate investment option to meet the risk tolerance of the client.

Rationale:
Since Rick has a 30-year time horizon, growth objective, and a moderate-to-
high risk profile, the investment must be weighted heavily on equities. 10%
money-market funds are kept in the portfolio to take care of any emergencies.

Q59: A spousal rider covers the spouse of the insured. If the insured dies before the spouse
covered by the spousal rider, which of the following is true?
Top of Form
A) The spouse can continue the spousal rider.

B) The ownership of the rider may transfer to the spouse.

C) The spousal rider terminates on the death of the insured.

D) A and B-

Rationale:
Learning objective:
Explain the purpose of term-insurance riders to permanent life insurance
policies, including additional term insurance coverage for the primary insured,
coverage for additional insureds — including spousal and children's term rider
and children's term rider.

Rationale:
A spousal rider continues to cover the surviving spouse, and normally the
 spouse becomes the owner of the coverage.

Q60: Ten years ago, when he was 30 years of age, Rodney Watts purchased a renewable and
convertible 20-year term policy. Three months ago, Rodney was laid off from work, and he
was not able to pay the premiums for his term policy. The policy lapsed. He has now managed
to get some employment, and he reinstated the policy this month. Five years ago, he started
smoking. What aspects of the policy are affected in the reinstatement?
Top of Form
A) Smoking status (his premiums will be increased to smoker premium) and the
suicide-exclusion and incontestability clauses will be affected.-

B) Only his smoking status will be affected.

C) His smoking status will not be affected, since he was a non-smoker when he applied
for the policy.

D) His smoking status and the suicide-exclusion clause will be affected. The
contestability period for the policy has been satisfied, as the policy has been in force
for ten years.

Rationale:

A
Learning objective: Explain the impact on the client of the following standard
policy limitations and provisions: the 10-day right of rescission; the entire-
contract clause; the suicide-exclusion clause and incontestability; the grace
period; reinstatement; smoking status; misstatement of age or sex; settlement
options; material misrepresentation.

Rationale: If the policy is reinstated, a new suicide-exclusion clause comes into

effect, the entire-contract clause will now include the reinstatement
documentation, and the smoking status can be affected, since, in this case, the
insured started smoking five years ago. A fresh contestability period of two years
will also apply from the date of reinstatement.

Q61: A client with a previous severe back injury is now applying for an individual disability
policy. Which of the following is most likely to occur in this case?
Top of Form
A) The applicant will be issued a rated policy.

B) The applicant will most likely be issued a policy with an exclusion of the back from
coverage.-
 C) The applicant will be issued a policy with a rating and exclusion.

D) The client will be issued a standard policy.

Rationale:
Learning objective:
Describe the various provisions generally included in individual A & S insurance
policies and the potential impact on a disability claim, including renewal, grace
period, incontestability, pre-existing conditions, claims, physical examination,
change of occupation, and over insurance.

Rationale:
The back injury was a pre-existing condition; normally, when a disability policy is
issued, pre-existing conditions are excluded from coverage. Rating is done in
disability policies automatically, based on the applicant's occupation.

Q62: What are the advantages of a deferred annuity contract, issued by an insurer, over a
GIC issued by banks and trust companies?
Top of Form
A) It is a designated beneficiary account, while the GIC is not.

B) The proceeds of a deferred annuity contract bypass the probate process on death,
whereas the proceeds of a GIC pass through the probate process.

C) The deferred annuity contract definitely earns more in interest than a corresponding
GIC

D) A and B-

Rationale:
Learning objective:
Compare the differences between a deferred annuity issued by an insurance
company and a GIC issued by banks and trust companies.

Rationale:
The deferred annuity is creditor-proof and bypasses probate on death. It is a
designated benefit account. Interest rates vary, and will depend upon the time of
purchase. It cannot be said that deferred annuities pay more interest than a
corresponding GIC.

Q63: Drew is a service agent with The Best Care Insurance Company (BESTCARE). BESTCARE
provides their agents with their customer list so that service agents can call up clients who
have purchased their products and try to see whether the client needs any other products of
theirs in order to reduce their risks. Drew makes a call to a client, Joe Smith, who had
purchased disability insurance from BESTCARE, and makes a sales pitch about their life-
insurance policies and how the client may benefit by buying life insurance. The client agrees
to meet with him. Drew arrives at his appointment with Mr Joe Smith. He assesses that Mr.
Smith is wealthy and suggests to him that they apply for $1 million of life insurance. He
completes the application, picks up the cheque for the first premium, and leaves the Smiths'
residence a happy man, knowing that he will make a good commission for this sale.

What fiduciary duties has Drew breached as an insurance agent?

Top of Form
A) Due diligence in determining the amount of insurance-

B) Rebating

C) Misrepresentation while filling in the application

D) Using undue influence to make the sale

Rationale:
Learning objective:
Explain the agent's duties pertaining to the client, including disclosure, putting
the client's interests first, coercion, undue influence, due diligence, etc.

Rationale:
Drew did not do his due diligence in arriving at the amount of insurance that Mr.
Smith actually needs.

Q64: A client falls down a staircase and files a claim. This is the client's second claim. Within
the last month, the client had returned to work after being off work for four months due to a
hip-replacement surgery. What part of the contract takes on the leastimportance for this
claim?
Top of Form
A) The waiver-of-premium provision

B) The recurrent clause-

C) The elimination period

D) The cost-of-living adjustment (COLA)

Rationale:
Learning objective:
 Describe waiver-of-premium, presumptive disability, and supplemental/optional
benefits available with disability income insurance policies, including partial
disability benefits, residual disability benefits, future-purchase-option benefits,
and cost-of-living- adjustment (COLA) benefits, etc.

Rationale:
Clearly, the second claim is not related to the earlier claim, so the case is not a
recurrent case. Therefore, the recurrent clause is the least important under the
circumstances.

Q65: Joey Floyd works at the retail branch of a leading bank as a financial advisor. Whenever
a client approaches him to get a loan, he tells them that, unless they buy a term-insurance
policy from him, the loan will not be approved. What sales practice is Joey guilty of
employing to sell the insurance policy?
Top of Form
A) Rebating

B) Twisting

C) Tied selling-

D) Coercion

Rationale:

C
Learning Objective: Analyze the responsibilities of an agent with respect to
his/her role in relation to the client and the insurance company.

Rationale: Joey is guilty of tied selling. A purchase of another product cannot be

made a precondition for the sale of another product.

Q66: Martin Joseph purchased a universal-life (UL) policy with guaranteed mortality rates for
a face amount of $500,000. He selected the level premium (T-100) cost option. The agent
showed him that the policy is well-funded, with a planned annual premium of $2,000, if the
premiums are paid for 20 years, using a rate of return of 6% annually. Which of the following
statements about the universal-life policy purchased by Martin are true? I. Martin is
guaranteed that he will have to pay premiums for only 20 years, after which the policy is
paid-up. II. If the investment returns are less than 6%, Martin may have to fund the policy
with premiums of more than $2,000, or he may also have to continue premium payments after
20 years. III. If the investment returns are more than 6%, it may be possible for Martin to fund
the policy with less than $2,000 of premiums annually. IV. The rate for mortality charges per
$1,000 of net amount at risk, increases with Martin's age every year, to reflect the risk posed
for the year. V. The rate for mortality charges per $1,000 of net amount at risk will be
adjusted periodically by the insurer, based on revised mortality data.
 Top of Form
A) I and II only

B) II and III only-

C) III and IV only

D) IV and V only

Rationale:

False. The length of time that Martin will have to pay premiums will
depend on the investment returns.
True. If the investment returns are less than 6%, Martin may have to
increase his planned premium or also continue premium payments after 20 years.

True. If the investment returns are more than 6%, Martin may be able to
pay premiums of less than $2,000 to fund the policy.

False The insurance option chosen by Martin was level cost of insurance
(LCOI), which means the rate per $1,000 of net amount at risk to the insurer is
constant.

False. The mortality rate was guaranteed by the insurer, and therefore
will not be adjusted for new mortality data.

Q67: Two years ago, Monica Haynes purchased an individual variable investment contract
(IVIC) with an investment of $50,000 and a 100% maturity and death-benefit guarantee. She
had named herself as the annuitant of the contract, and her daughter Sophie as the
beneficiary. Today the account value in the IVIC is $75,000, and she decides to reset the
contract. Which of the following statements is true?
Top of Form
A) The guaranteed amount after the reset is $75,000, and the maturity is 10 years from
date of reset.-

B) The guaranteed amount after the reset is $50,000 and the maturity is eight years
from date of reset, since two years have already elapsed.

C) The guaranteed amount after the reset is $75,000 and the maturity is eight years
from date of reset, since two years have already elapsed.
 D) The guaranteed amount after the reset is $50,000, and the maturity is 10 years from
date of reset.

Rationale:

A
Learning Objective: The impact on the client of the distinguishing features of
segregated funds, including maturity guarantee, death benefit, creditor
protection, reset options, and exemption from probate.

Rationale: On reset, the guarantee is recalculated, with the account value

becoming the principal. Hence the guaranteed amount after the reset is
$75,000. The maturity date is now 10 years from the reset.

Q68: Candice, who is 41 years old, is concerned about the lifestyle her spouse will have in the
event of her death, if she should predecease him. If her primary concern is adequate
insurance coverage and cost efficiency, what recommendation would be most appropriate?
Top of Form
A) $300,000 term-to-100 insurance-

B) $300,000 whole-life insurance

C) $300,000 20-year renewable and convertible (R&C) term insurance

D) $300,000 universal-life (UL) insurance

Rationale:
Learning objective:
Given customers' profiles, recommend the most appropriate permanent
individual life-insurance products to meet their specific needs.

Rationale:
The most cost-efficient solution is the term-to-100 insurance. The cheapest
option for starters is the R&C term insurance but the premium will go high on
renewal or conversion.

Q69: Which of the following is recommended for a client who is 45 years of age with low risk
tolerance?
Top of Form
A) Level premiums, with funds invested 70% in bonds, mortgages, and money markets,
and 30% invested in Canadian equities-
 B) Yearly renewable term (YRT) premiums with investments in a bond fund

C) Yearly renewable term (YRT) premiums, with investments in Canadian equities

D) Level premiums, with investments in Canadian equities

Rationale:

A
Learning Objective: Explain the impact of investment choices on the viability of a
universal-life (UL) contract.

Rationale: Since the client is 45 years of age with a low risk tolerance, a level-
premium option, with investments distributed 70% in bonds, mortgages, and
money markets, and 30% in Canadian equities, would be most suitable.

Q70: Guy Dennis, who works as a mechanic in an auto shop, applied for a disability-insurance
policy. The policy covers both accidents and illnesses. The policy was delivered to him by his
agent on October 2. On October 10, he was diagnosed with cancer, and he began getting
treatment for cancer. He applied for disability insurance against his policy. He was surprised
to find that his claim was denied. Why did the insurer deny this claim by Guy Dennis?
Top of Form
A) Because cancer is an excluded condition in disability policies.

B) Because of the pre-existing-condition clause that states that any illness diagnosed in
the first three months of the policy will be considered a pre-existing condition and
will not be covered by the policy.-

C) Because of the definition of total disability contained in the policy. The insurer
determined that Guy Dennis was able to perform all the duties of his occupation, in
spite of having cancer.

D) Because the insurer felt that Guy had misrepresented facts pertaining to cancer in his
application.

Rationale:

B
Learning Objective: Describe the limitations and exclusions that could exist
under a disability-insurance contract.

Rationale: A pre-existing-condition clause is always written into a disability policy

to protect insurers from pre-existing conditions for illnesses. The accident
 coverage starts with the Temporary Insurance Agreement (TIA). The filtering
period for pre-existing conditions is usually from one month to three months.

Q71: True-Accounting is a small firm consisting of five employees. True-Accounting has

decided to cover their employees through a group plan. They intend to provide group life
insurance, group short-term disability benefit, a dental plan, and a prescription-drug
reimbursement plan. Which of the following methods is the insurer likely to use to determine
premiums for the True-Accounting group plan?
Top of Form
A) Experience rating

B) Blended rating

C) Manual/book rating-

D) Standard rating

Rationale:

C
Learning Objective: Explain the relationship among credibility, manual rating,
experience rating, and blended rating.

Rationale: When the company is small, insurers use their manual or book rates
to determine the group's premiums.

Q72: Leah Edwards is a member of the company's registered pension plan. She has been
contributing 5% of her earnings to the plan, and her employer has been matching her
contributions. The company offered her a selection of investments to choose from, and her
advisor asked her to invest in a balanced fund. She was informed by her advisor that the
amount of pension would depend upon the performance of the fund. What type of pension
plan was she a member of?
Top of Form
A) Career-average plan

B) Final-years plan

C) Defined-contribution plan-

D) Best-years plan
 Rationale:

C
Learning objective: Pension-plan details

Rationale: Only in a defined-benefit plan will a member be assured of the benefit

he/she will receive from the plan. Career-average plans, final-years plans, and
best-years plans are all defined-benefit plans. In a defined-contribution plan, the
benefit will depend on the investment performance of the fund.

Q73: Which of the following may be income-splitting techniques that could be used by
spouses?
I. A self-employed person may employ his/her spouse and pay a reasonable salary,
commensurate with the work done, thereby transferring some of the income to the
spouse.
II. A person may contribute the maximum possible to a spousal RRSP where his/her
spouse is the annuitant, so that the tax on withdrawal is to the spouse.

III. A couple may split their CPP benefits once they start receiving CPP benefits.

IV. Once they are over 65 years of age, they may split their retirement incomes.

V. A person may transfer up to 50% of his/her RRSP balance to an account where the
spouse is the annuitant, provided the spouse has RRSP contribution room.

Top of Form
A) I, II, III, and IV only-

B) I, II, III, IV, and V

C) II, III, and IV only

D) II, III, IV, and V only

Rationale:
Learning objective:
Provide an example to show the advantages of how income splitting between
spouses can help to reduce taxes for both pre- and post-retirement.

Rationale:
Spouses may split income legally in the following ways:

 By employing the spouse and paying a reasonable compensation for the

services performed
  By splitting CPP credits for the duration of their marriage

 By splitting retirement incomes, such as RRIF withdrawals, RPP

payments, annuity payments, etc., after the couple are both 65 years of
age.

 By contributing out of his/her room to a RRSP account in which the

spouse is the annuitant and the person is the contributor (called a
spousal RRSP)

A person can split income only by use of a spousal RRSP and cannot transfer
funds from his/her RRSP to the spouse's RRSP.

Q74: One way to split income with a spouse is through the use of spousal Registered
Retirement Savings Plans (RRSPs), in which one spouse contributes out of his/her contribution
limit to an account that names the spouse as an annuitant. On withdrawal of funds from a
spousal RRSP, the withdrawal is taxed to the annuitant spouse, subject to certain attribution
rules. Another way to split income between spouses over age 65 is to split their RRSP
withdrawals equally between them for tax purposes. Which of the following statements
is true?
Top of Form
A) Because a couple can split their RRSP/Registered Retirement Income Fund (RRIF)
withdrawals after age 65, spousal RRSPs do not offer an advantage.

B) Spousal RRSPs enhance the retirement income split available after age 65, since the
income from a spousal RRSP is the annuitant spouse's income. Also, spousal RRSPs
help lower taxes for the couple if they have to withdraw funds before age 65 from
their RRSP.-

C) Spousal RRSP income is not eligible for pension income split after age 65.

D) If the RRSP is used to buy an annuity, the annuity income cannot be split between
spouses after age 65.

Rationale:

B
Learning Objective: Using examples, describe the advantages of income
splitting through spousal RRSPs.

Rationale: Spousal RRSPs enhance the retirement income split available after
age 65 as the income from a spousal RRSP is the annuitant spouse's income.
Also, spousal RRSPs help lower taxes for the couple if they have to withdraw
funds before age 65 from their RRSP. Spousal RRSP income whether from a
 spousal RRIF or an annuity are eligible for pension income splitting after age 65.

Q75: Ron Preston wants to know the tax implications of disposing of his farm property, and
wants to know if there are rollover provisions specific to the transfer of farm property and if
there are capital-gains exemptions that would be available to him. He wants to purchase a
policy to cover any tax that he may be liable for on the transfer of the farm property to his
nephew. As an insurance agent you must:
Top of Form
A) Research the matter, calculate the tax on the property, and provide him with the
information.

B) State to him that there are no special rollover provisions for farm properties, and
therefore the policy must be for the tax owed on the entire capital gains, just as it
would be for any other property. There are no capital-gains exemptions in Canada.

C) Inform him that there is a provision for capital-gains exemptions on the sale of farm
property and there may be rollover provisions. So you recommend him to a tax
specialist for advice.-

D) A or B

Rationale:
Learning objective:
Using client-specific data, identify individual situations in which a life agent
should recommend that a client seek independent tax advice.

Rationale:
As an insurance agent, you must be aware of the limits of your profession. For
tax issues, you must refer the case to a tax specialist, just as for legal matters
you have to refer the client to a competent lawyer.

Q76: Which of the following is true with respect to individual variable investment contracts
(IVICs)?
Top of Form
A) IVICs can be sold by persons who are licensed to only to sell mutual funds.

B) An investor in a segregated fund is part owner of the assets of a segregated fund and
has voting rights in the fund.

C) The Information Folder of a segregated fund is approved by CLHIA.

D) The Information Folder has to be given to a client before the IVIC contract is
 signed.-

Rationale:

D
Learning Objective: Differentiate between a segregated fund and a mutual fund
in terms of product approval, rules governing the product, CLHIA IVIC
Guidelines, sales-licensing requirements, taxation, valuation and ownership of
assets.

Rationale: A person must be life-licensed to sell segregated funds. Registration

as a mutual-fund salesperson does not entitle one to sell segregated funds.

The segregated-fund investor is not a part owner of the assets of a segregated

fund. The assets are owned by the insurance company, and the investor is
bound to the insurer through a contract called an individual variable insurance
contract (IVIC). The contract gives the same returns as the underlying fund.

The Information Folder of a segregated fund is not approved by any authority. It

simply must follow guidelines set by CLHIA. The Information Folder has to be
given to a client before the contract (IVIC) is signed.

Q77: Which of the following is true about riders that could be added on to life-insurance
policies?
1. The term-insurance rider can be added only to a permanent insurance policy.
2. The guaranteed insurability benefit (GIB) rider allows an insured to increase the death
benefit of the policy without having to prove medical insurability.

3. The child term rider insures children of the insured who are at least 15 days old.

4. A dread-disease rider pays a lump sum to the insured if the insured is diagnosed with a
condition listed in the rider. This lump sum is in addition to the face amount of the
policy.

5. A parent waiver is a rider that pays the premium for a policy where the parent is the
policy owner and a minor child is the life insured, while the parent is disabled.

Top of Form
A) 1, 2, 3-

B) 2, 3, 4

C) 2, 4, 5

D) 3, 4, 5
 Rationale:

A
Learning Objective: Explain the purpose of term-insurance riders to permanent
life-insurance policies, including additional term-insurance coverage for the
primary insured, coverage for additional insured(s) — including spousal and
children's riders and a children's term rider.

Rationale:

The term-insurance rider can be added on only to permanent insurance

policy.
The GIB rider allows an insured to increase the death benefit of the
policy without having to prove medical insurability.

The child term rider insures children of the insured who are at least 15
days old.

A dread-disease rider pays a lump sum to the insured if the insured is

diagnosed with a condition listed in the rider. This lump sum paid out reduces the face
amount of the policy by the amount paid.

A parent waiver is a rider that pays the premium for a policy in which the
parent is the policy owner and a minor child is the life insured, if the parent dies.

Q78: Gina Harvey wants to know about the mortality costing in a universal-life (UL) policy.
Which of the following is true with respect to mortality costing in a UL policy?
I. If the mortality rates are guaranteed, the rate per $1,000 of insurance will be from
the table in use by the insurer when the policy is purchased.
II. If the mortality rates are adjustable, the rate per $1,000 of insurance will be adjusted
periodically (say once every five years) to reflect the latest mortality statistics.

III. If the yearly-renewable-term (YRT) form of costing is selected, the rate per $1,000 of
net amount at risk to the insurer will increase every year to reflect the mortality risk
for the attained age of the life insured.

IV. If the level cost of insurance (LCOI) costing is selected the rate per $1,000 of net
amount at risk to the insurer will remain constant (except to reflect adjustments to
adjustable mortality rates) irrespective of the age of the life insured.

V. The initial mortality charges will be less under the YRT form of insurance compared to
the level cost of insurance.
 Top of Form
A) I, II, III, and IV only

B) I, III, IV, and V only

C) II, III, IV, and V only

D) All of the above-

Rationale:
Learning objective:
Explain the difference between yearly renewable term (YRT) and term-to- 100
(T-100) mortality costing in a universal-life product and the difference between
guaranteed and adjustable mortality costs. Note: T-100 is also known as Level
Cost of Insurance (LCOI).

Rationale:
All the statements are true and self explanatory.

Q79: Alex Borges purchased an Individual Variable Insurance Contract (IVIC) on July 12, 2000,
with $180,000 that he had received as a settlement when he was terminated from his job as
an accountant with a large computer manufacturer. The maturity guarantee on the contract
was 75%. Alex did not make any more deposits to the contract. On July 12, 2010, the contract
was worth $250,000. Leaving aside fees and charges that Alex must pay, how much will he
receive as the top-up maturity guarantee?
Top of Form
A) $0-

B) $135,000

C) $180,000

D) $250,000

Rationale:
Learning objective:
Explain the valuation process for IVICs.

Rationale:
As the account value is greater than the maturity guarantee amount, he will
receive the account value. The insurer puts $0 towards the top-up guarantee.
Q80: Diane and Carlo have been married for 12 years. They own a condominium in downtown
Vancouver with a fair market value (FMV) of $1,220,000 and an adjusted cost base (ACB) of
$220,000. Additionally, they own a cottage property on Vancouver Island, with a fair market
value of $1,350,000 (it is expected to continue to grow in value) and an adjusted cost base of
$350,000.

Diane and Carlo are the beneficiaries of each other's wills. They have no children, and
because they are now in their fifties, they do not expect to have children. They have made
wills in which their estate will pass to Diane's niece, Caroline, at the death of the last
survivor. The two are concerned that Caroline should be able to receive the properties free
and clear of any tax consequences, since she is not wealthy in her own right. Both Diane and
Carlo are in the top marginal tax bracket.

In addition, Diane and Carlo would like to be able to leave a $100,000 legacy to the Children's
Wish Foundation. Carlo has a life expectancy of about 20 years. Diane has lung cancer and has
only four years at most to live. Which of the following solutions would be best for them in
order to achieve their objectives?
Top of Form
A) $350,000 of 10-year renewable term insurance on Diane

B) $500,000 of whole-life participating insurance on Carlo

C) $350,000 of term-to-100 insurance on Carlo-

D) $350,000 of renewable and convertible (R&C) 10-year term insurance on Diane

Rationale:
Learning objective:
Given client-specific information, recommend the type(s) and amounts of
insurance required to provide for the financial needs for an individual and their
family.

Rationale:
The needs stated in the question are the tax on capital gains on their property
and a $100,000 legacy to the Children's Wish Foundation.
Analysis:
Capital gain on property is $1 million.
Taxable capital gain works out to $500,000.
In the absence of any marginal tax rate (MTR), we assume the MTR to be 50%.
Therefore, the estimated tax on property is $250,000.
Add the $100,000 that they want to leave as a legacy, bringing the amount of
insurance required to $350,000. The insurance needs to be permanent.

The answer is clearly $350,000 term-to-100 insurance on Carlo, as Diane is

 uninsurable.

Q81: Which of the following is Not true as it pertains to a Registered Retirement Income Fund
(RRIF)?
Top of Form
A) There are no age restrictions for opening a RRIF.

B) The minimum withdrawal from a RRIF must begin in the year after the RRIF is
established.

C) The minimum withdrawal amounts are calculated based upon the age of the
annuitant.

D) The maximum withdrawal amounts are calculated based upon the age of the
annuitant-

Rationale:

D
Learning Objective: Using case studies, describe the tax consequences on the
payment flow from a RRIF.

Rationale: There are no age restrictions to opening a RRIF. The minimum

withdrawal from a RRIF must begin the year following the year the RRIF was
established. The minimum withdrawal amounts are based upon the annuitant's
age. There is no maximum limit for the withdrawal from a RRIF. The annuitant
can close the RRIF account at any time.

Q82: Gordon Lamb is 60 years old now, and plans to retire when he turns 70. He has savings
of about $500,000, which he wants to spend in retirement. His financial advisor has asked him
to decide between a straight life annuity, which would pay him around $40,000 per year, or a
segregated-fund-based guaranteed lifetime withdrawal product that would pay him 6% of the
guaranteed amount every year. Which of the following is true about these options on his
death?
Top of Form
A) The straight life annuity would pay any balance to a beneficiary.

B) The segregated fund will pay the balance in the account to a beneficiary.-

C) As these are lifetime benefits, there would be no beneficiary for both the straight life
annuity and the guaranteed lifetime withdrawal product.
 D) A and B

Rationale:

B
Learning Objective: Given a variety of case-study examples, and using client-
specific information and various insurance-company investment products from
which a choice can be made, determine an overall investment strategy and
recommend the most appropriate products for each client.

Rationale: The straight life annuity will not have a beneficiary. However, the
segregated fund will have a beneficiary who will be paid the balance in the
account on the death of the annuitant.

Q83: Roger Bennett is 55, and can take moderate risks with investing. His agent shows him an
illustration of a universal-life (UL) policy that needs to be funded with a premium of $2,000
per year, assuming a return of 6%. He believes he can afford to pay the planned premiums of
$2,000 per year. Guaranteed investments in the universal-life policy's investment account
return just 4% annually, including bonuses. At 4% returns, he may have to fund the policy with
over $2,500 per year, which he thinks he may not be able to afford once he retires from work.
Which of the following can he select with respect to investment choices that he should make?
Top of Form
A) Invest in guaranteed investments and find a way to pay the premiums of $2,500 per
year.

B) Invest in specialty funds, which have a potential to give up to 10% gains or up to –

10% in losses.

C) Invest in equity funds that have a potential to return 3% to 10%.

D) A or C-

Rationale:
Learning objective:
Explain the impact of investment choices on the viability of a universal-life
contract.

Rationale:
Investing in specialty funds is a high-risk investment. If the fund loses over many
years, his premium requirements may go up beyond the $2,500 per year offered
by guaranteed investments.
Therefore, he must either choose A, and pay a higher premium, or D and
choose to invest in a equity fund with an expectation of making the 6%
requirement for returns.
Q84: Alicia Hogan purchased an IVIC on July 10, 2012, with a deposit of $50,000 and 75%-
maturity and death-benefit guarantees. One year later, the fund was worth only $34,000, and
Alicia decides to surrender her contract. Leaving aside any fees and surrender charges, how
much will Alicia receive?
Top of Form
A) $50,000

B) $37,500

C) $34,000-

D) $25,500

Rationale:

C
Learning objective: Understanding the impact the distinguishing features —
including maturity guarantee, death benefit, creditor protection, reset options,
and exemption from probate — of segregated funds have on the client.

Rationale: The maturity guarantee comes into effect on the maturity date or
after. The death-benefit guarantee holds on the date of death of the annuitant.
On surrender of the contract, none of the guarantees hold, and the investor will
be paid what is in the account, subject to any fees and surrender charges.

Q85: Melvin Anderson was employed by Good Logistics Inc., which provided him with group
benefits that included life insurance, disability benefits, a dental plan, and a prescription-
drug reimbursement plan. Melvin is now 45 years old and has just quit his employment to
start his own logistics business. The group plan provides a convertibility option for the life
insurance and the long-term disability coverage. Which of the following should be Melvin's
first priority for insurance?
Top of Form
A) Disability insurance-

B) Life insurance

C) Dental insurance

D) Critical-illness (CI) insurance

Rationale:
 A
Learning objective: Given several case studies, containing specific client
information, select the most appropriate products from among: disability,
accident-and-sickness (A&S), critical-illness (CI), and/or long-term-care (LTC)
insurance products to match a particular client's situation and needs.

Rationale: For self-employed persons, clearly the first priority for insurance must
be disability insurance, because, if they are under age 65, the chances of being
disabled are higher than the chances of dying.

Q86: Kate Williams is a single mother who has a group prescription-drug plan provided by her
employer. The plan has a $50 single deductible, a $100 family deductible, and a 100% co-
insurance. In February of this year, Kate submitted her first claim for herself for $200. In
June, she submitted a claim for her daughter for $100. How much will her claim reimburse
her for her daughter's claim of $100?
Top of Form
A) $0

B) $50-

C) $75

D) $100

Rationale:
Learning objective:
Explain the terms deductible and co-insurance and how they impact benefit
payments.

Rationale:
On her claim of $200, the single deductible of $ 50 was used up. When she
submits a claim of $100 for her daughter, the insurer will deduct the balance of
the family deductible or $50. As a result, she is reimbursed $50.

Q87: Which of the following is true?

Top of Form
A) Segregated funds are suitable for clients who want a lot of liquidity in their
investments.

B) A segregated fund may be expected to have a higher management charge than a

mutual fund.
 C) Segregated funds are suitable for those who want to limit the downside risk of their
investments.

D) B and C-

Rationale:
Learning objective:
Describe the advantages/disadvantages of various life insurance investment
vehicles as compared to non-insurance investment vehicles.

Rationale:
A segregated fund is not suitable for investors who want a lot of liquidity in their
investments, because there is a lock-in period of ten years.
A segregated fund can be expected to have a higher charge, due to the
guarantees provided and the insurance element added.
Segregated funds are suitable for investors who want to limit their downside risk
because of the minimum guarantee of 75% of the principal provided.

Q88: Su Shi had applied for a universal-life policy with a face amount of $400,000. She had
chosen a level-premium option and her minimum premium was $216 per month. She had
decided upon a planned premium of $416 per month, with the additional $200 invested in an
emerging-market fund. In addition, she had made an initial deposit of $10,000 into the
account, invested in the same emerging-market fund. The policy was delivered to her two
days ago. Due to a sudden downturn in the global markets, the emerging-market fund values
dropped, and the investment of $10,000 that she had made was worth only $9,000 today. She
checked her policy and found that she had a rescission right provided by the insurer. The
rescission right provided in the policy ran 10 days from the date of delivery of the policy. She
is wondering if she can exercise her rescission right and get a refund of all the money she put
into the policy. Which of the following is true?
Top of Form
A) If Su Shi exercises her rescission right, she will be refunded the premium in full and
the current market value of $9,000 in her investment account in the policy.

B) If Su Shi exercises her rescission right, she will be refunded the premium in full and
the $10,000 that she deposited into the investment account of the policy.-

C) If Su Shi exercises her rescission right, she will be refunded the premium paid, less
the number of days she was covered and the current market value of $9,000 in her
investment account in the policy.

D) If Su Shi exercises her rescission right, she will be refunded the premium paid, less
the number of days she was covered and the initial investment value of $10,000
deposited to her investment account in the policy.
 Rationale:

B
Learning Objective: Describe the agent's responsibilities in delivery of the
insurance contract, including right of rescission and proof of delivery, and when
there has been a change in health of the insured.

Rationale: The rescission right given to an insured is a right to cancel the policy
within a certain number of days of deliver of the policy and the insured is
refunded all the money paid to the insurer.

Q89: Joan Marley is 75 years of age. Her husband passed away recently, and she inherited all
his properties through a will. She rolled over his RRIF and LIF to her RRIF and LIF. She has two
daughters, Sandra and Myrna. Both are married, well-settled, and have their own children.
Joan owns a home that was purchased for $100,000 and is now worth $400,000. She owns a
cottage, which has a fair market value (FMV) of $300,000. The cottage has an adjusted cost
base (ACB) of $100,000. She has a balance in her RRIF and LIF totalling $300,000. She owns a
joint-last-to-die term-100 policy with her husband for a sum of $300,000. Her advisor has
informed her that, with her present assets, her final taxes (including probate tax) will not
exceed $180,000. Adding another $20,000 for her funeral expense, she reckons she has about
$100,000 of her insurance proceeds that she can give away. Which of the following is true?
Top of Form
A) If she names the estate as the beneficiary of the estate, the proceeds will incur
probate tax.-

B) If she names the grandchildren as beneficiaries of her RRIF and LIF, they will pass
tax-free to the children.

C) If she rolls over the cottage to her daughters while she is alive, she can avoid the tax
on the cottage.

D) Her principal residence can roll over tax-free to either of her daughters only if that
daughter is going to use it as her principal residence.

Rationale:
Learning objective:
Using specific client data, identify individual situations in which insurance can be
used as a strategy to address and resolve tax issues.

Rationale:
Life-insurance proceeds paid into the estate of the deceased become part of the
estate, and therefore incur probate tax.
A RRIF or LIF can roll over only to the surviving spouse. One may transfer the
taxes to the beneficiary if the beneficiary is the spouse, a financially dependent
child/ grandchild or a handicapped child/grandchild.
 Tax has to be paid on any property gifted away, and may be rolled over only to a
spouse.
A capital gain on a principal residence is tax-exempt. There is no stipulation that
the recipient use the home as a principal residence.

Q90: Bev and Saul were recently married. This is a second marriage for both. Bev has three
children from her previous marriage, and Saul has one. All four children live with Bev and
Saul, since Bev has been granted custody of her children, and Saul the custody of his child.
Bev is a stay-home mom, and Saul works as a lawyer in a firm that provides all group benefits.
When Bev's son requires expensive prescription drugs for Hodgkin's disease, which parent(s)
will be able to submit the claim, and in what order will the plans pay? (Assuming both the
birth father and Saul have group plans)?
Top of Form
A) Bev's son's birth father's plan first and then Saul's plan

B) Only Bev could make a claim, but she does not have a plan.

C) Bev's son's birth father's plan only

D) Saul's plan, and then Bev's son's birth father's plan-

Rationale:
Learning objective:
Using a case-study example, determine how a primary and secondary carrier
would coordinate benefits.

Rationale:
According to coordination-of-benefit rules, the plan of the custodial parents
covers the children first and then plans of non-custodial parents.

Q91: Harry Singh wants to buy life insurance. As his agent, you determine the following information
about his finances. Currently he faces the following situation:

Assets:
Investments $200,000
Cash and cash equivalents $100,000
Total Assets $300,000

Final Expenses:
Funeral cost $15,000
Loans, credit cards, etc. $60,000
Taxes on death (estimated) $100,000
Mortgage (on home and cottage) $290,000
Total Final Expenses $465,000

He would like to pass on the home and cottage to his only son, Ron, after he and his spouse
are both dead. In addition, he reckons that he would have to leave $20,000 per year for his
family to meet their ongoing income need, should he die.
Assuming his capital will earn an interest of 5%, how much insurance will Harry need to
purchase, using the capital-retention approach?
Top of Form
A) $249,244

B) $414,244

C) $465,000

D) $565,000-

Rationale:
Learning objective:
Demonstrate proficiency in performing a variety of mathematical calculations
involving addition, subtraction, multiplication, division, fractions, ratios,
percentages, etc., for a life insurance application.

Rationale:
Income need = $20,000/year
Capitalized @5%, it works out to:

$20,000
------------------- = $400,000
0.05

Cash need = Assets – Final Expenses or $300,000 – $465,000 = –$165,000.

Therefore, cash need = $165,000
Total need = Income need + cash need
= $400,000 + $165,000
= $565,000

Q92: Ray Charles, 35 years of age, is applying for a policy with a face amount of $200,000.
The rate used by the company is $6 per $1,000 of insurance for this kind of policy. The policy
fee charged by the company is $120. If Ray Charles wants to pay the premiums on a monthly
basis, and the modal factor used by the company for monthly payments is 0.09, what is the
monthly premium for the policy?
 Top of Form
A) $100.50

B) $110.30

C) $118.80-

D) $120.60

Rationale:
Learning objective:
Using typical insurance mathematical formulas and concepts, prepare reports
for insurance applications, demonstrating proficiency.

Rationale:
Calculation of monthly premium

$6 × $200,000
Base annual premium = ------------------------------- = $1,200
$1,000

Annual premium = $1,200 + policy fee

= $1,200 + $120
= $1,320

Monthly premium = Annual premium × Modal factor

= $1,320 x 0.09 = $118.80

Q93: Max and Claire Myers are planning to retire shortly at age 65. Both have contributed to
the Canada Pension Plan (CPP) and are likely to receive the maximum pension from CPP. Both
of them are also entitled to the maximum Old Age Security (OAS) payments. They have over
$500,000 each in their Registered Retirement Savings Plans (RRSPs) and over $500,000 each in
non-registered savings. They have decided to transfer their RRSP savings to Registered
Retirement Income funds (RRIFs) and withdraw the minimum amounts annually, as required
by law. They have named each other as beneficiaries of their RRSPs. They plan to travel the
world until they turn 71, after which they plan to live in their Toronto residence. What is
their best source of funds between 65 and 71 to meet their travel needs if they want to keep
their taxes at a minimum?
 Top of Form
A) Their RRSP funds

B) Their OAS and CPP payments

C) Their non-registered funds-

D) Any source will be the same

Rationale:

C
Learning Objective: Using client-specific information, design a pre- and post-
retirement plan, using the most appropriate products for each client.

Rationale: RRSP income is fully taxable. Therefore, the best approach for a
person is to first use non-registered savings to reduce the tax burden. The
money in registered accounts must be withdrawn only when it is not possible to
defer further. This means making the minimum required withdrawals from a
registered account.

Q94: Wilbur, 78, has a Registered Retirement Income Fund (RRIF), valued at $489,700 and
invested primarily in stocks and bonds. His wife, Rhonda, 71, is named as the beneficiary of
the fund. Wilbur hopes that the RRIF can fund his and Rhonda's retirement for many years to
come. To achieve this goal, Wilbur will:
Top of Form
A) Make minimum withdrawals annually

B) Base the withdrawals on Rhonda's age

C) Discuss the asset allocation of the account with his advisor

D) All of the above-

Rationale:
Learning objective:
RRIF details

Rationale:
To conserve an RRIF, the annuitant must make the minimum withdrawal based
on the younger spouse's age and also have the investments in safer
investments to avoid the value shrinking due to an investment loss.
Q95: If an agent who has gone to deliver a policy finds that insurability conditions of the
client have changed since the policy was issued, the agent must:
Top of Form
A) Not deliver the policy and inform the insurer about the changed circumstances, so
that a decision can be taken about whether to issue the policy.-

B) Deliver the policy, because the policy has been issued.

C) Deliver the policy if the agent believes the change in circumstances does not affect
the policy status significantly.

D) B or C

Rationale:
Learning objective:
Explain the agent's course of action if insurability conditions of the client have
changed between the application date and the policy delivery date.

Rationale:
In case of any change in insurability conditions (i.e., medical, lifestyle, or
financial) the agent must not deliver the policy and must return it to the insurer
with a note about the changed circumstances. The underwriter will then
determine the appropriate course of action with respect to the policy.

Q96: Tara and Carlton Flores are spouses who work for different employers, each of which
provides a group-dental and a prescription-drug plan. Tara's plan has a $25 single deductible
and $50 family deductible, and Carlton's plan has a $50 single deductible and $100 family
deductible. Both plans have a co-insurance of 80%, and both plans co-ordinate benefits. Tara
was born in January and Carlton in April. They have two children, Tamara and Seth, aged six
years and four years respectively. Which of the following is true?
Top of Form
A) If there is claim for Tamara or Seth, Carlton and Tara can decide whose plan will be
the first payor.

B) If there is a claim for Tamara or Seth, Tara's plan will be the first payor, since she is
the mother.

C) If there was claim for Tamara or Seth, Tara's plan will be the first payor since her
birthday is earlier than Carlton's.-

D) If there was claim for Tamara or Seth, Carlton's plan will be the first payor, since he
is the father.
 Rationale:

C
Learning objective: Using a case-study example, determine how a primary and
secondary carrier would coordinate benefits.

Rationale: When there is a claim for the children who are dependents in both
their parents' plans, the plan of the parent with the earlier birthday in the year is
the first payor.

Q97: Which of the following is true about segregated funds?

1. A segregated fund provides creditor protection to its owner, if the owner has named
an irrevocable beneficiary or a beneficiary of the owner's preferred class.
2. A segregated fund provides creditor protection on death, if a beneficiary has been
named to the contract.

3. A segregated fund is a special case of a deferred-annuity contract.

Top of Form
A) 1 and 2

B) 2 and 3

C) 1 and 3

D) 1, 2 and 3-

Rationale:

D
Learning Objective: Describe the advantages/disadvantages of various life-
insurance investment vehicles as compared to non-insurance investment
vehicles.

Rationale: A segregated fund is a special case of a deferred annuity contract. It

provides creditor protection when the owner is alive, provided the owner has
named an irrevocable beneficiary or a beneficiary of the owner's preferred class.
On death, it bypasses the estate process if any beneficiary has been named.

Q98: Which of the following is true?

Top of Form
A) Cash or cash equivalents (e.g., GICs or bank accounts) are protected by CIPF or the
 Investor Protection Corporation.

B) Segregated-fund investments receive protection from Assuris.-

C) Mutual-fund investments do not receive any protection.

D) Investments in stock markets are protected by CIPF in the event the company whose
stock you own goes bankrupt.

Rationale:
Bankruptcy protection is offered by the following organizations:
Assuris – If a member insurance company goes bankrupt

CIPF/Investor Protection Corporation – If a member mutual-fund company goes

bankrupt.

CDIC – If a member financial institution, such as a bank, should go bankrupt.

No protection is available for investments in a stock market.

Q99: Which of the following exclusion is usually written into a disability policy?
Top of Form
A) Normal pregnancy

B) Complications due to pregnancy

C) Elective surgeries in the first six months of owning the policy

D) A & C-

Rationale:
Learning objective:
Describe the limitations and exclusions that could exist under a disability
insurance contract.

Rationale:
Normal pregnancy is not considered a disability, while complications due to
pregnancy are considered a disability. Disabilities caused by elective surgeries
in the first six months of owning the policy are excluded.

Q100: Dan and Rita Jenkins have two children, Jeanne and Tommy, aged six and four respectively. Dan
works at a law firm that provides all employees with a brand-name prescription-drug plan. The plan has
a $50 single deductible, a family deductible of $100, and an annual claim limit of $2,000. Rita works at a
manufacturing firm that provides her with a generic drug plan. The plan has a $50 single deductible and
a $100 family deductible. Both plans coordinate benefits and have a 100% coinsurance. Dan was born in
August and Rita in March. Both plans cover employees and their families. They had the following claims
this year:

Claim 1 (Dan) $500 Brand-name drug

Claim 2 (Rita) $200 Generic drug

Claim 3 (Tommy) $200 Generic drug

How much will each plan reimburse for claim Claim 3 for Tommy?
Top of Form
A) Dan's plan reimburses $50, and Rita's plan reimburses $150-

B) Dan's plan reimburses $200, and Rita's plan reimburses $0

C) Dan's plan reimburses $100, and Rita's plan reimburses $100

D) Dan's plan reimburses $0, and Rita's plan reimburses $150

Rationale:

A
Learning Objective: Describe a typical accident-and-sickness (A&S) plan, including coverage
and coordination of benefits.

Rationale: Solution:

$50
$50 Single Single
Deductible
$100 Family $100
Family

Coinsurance 100% 100%

Birthday Aug March
Rita's
Dan's Plan
Plan
Claim 1 Submitted $500 $800
Dan's brand Ineligible $0 $800
drug for
Net claim $500 $0
$500
Deductible $50 -
(first payer is
$450 $0
Dan's plan )
Co-insurance 100% 100%
Reimbursement $450 $0

Claim 2 Submitted $200 $200

Rita's
Ineligible $0 $0
Generic
drug for
Net claim $200 $200
$200
Deductible $50 $50
(first payer is
$150 $150
Rita's Plan)
Co-insurance 100% 100%
Reimbursement $150 $150
(calculated)
As a second payer, Dan's
plan reimburses the lesser Out-of-
of calculated
reimbursement or the out- pocket
of-pocket expense. So the $50
plan reimburses $50

Claim 3 Submitted $200 $200

Tommy's
Ineligible $0 $0
generic
drug for
Net claim $200 $200
$200
(first payer is Deductible $0 $50
Rita's plan – $200 $150
earlier
birthday) Co-insurance 100% 100%
 Reimbursement $200 $150
(calculated)
As a second payer, Dan's
plan reimburses the lesser
Out-of-
of calculated
pocket
reimbursement or the out-
$50
of-pocket expense. So the
plan reimburses $50

Q101: An agent defrauds his company by making misrepresentations about clients'

circumstances in many applications, forging the clients' signatures, and submitting the
applications. The agent does this regularly to ensure that he gets commissions. When the
company discovers the agent's activities, they are most likely to:
Top of Form
A) File criminal charges for fraud and forgery against the agent.-

B) Try the charges under the Insurance Act.

C) File a case under the law of torts to obtain compensation from the agent.

D) All of the above

Rationale:
Learning objective:
Describe the implications of the regulations governing the distribution of
insurance products as they relate to the criminal code in regard to
misrepresentation, theft, and forgery.

Rationale:
Fraud and forgery are both criminal offences and, since the agent has
repeatedly committed such acts, the insurer will file criminal charges against the
agent.

Q102: Which of the following are exclusions in both individual and group accident-and-
sickness (A&S) policies?
Top of Form
A) Illness caused by pregnancies

B) Mental or nervous disorders

 C) Acts of war-

D) None of the above

Rationale:
Learning objective:
Discuss the limitations and exclusions that are usually included in employer-
sponsored group A&S plans. 3

Rationale:
"Acts of war" is exclusion in all accident-and-sickness policies.

Q103: Which of the following are true as they apply to Temporary Insurance Agreements
(TIA)?
I. A TIA is issued to an applicant only if the initial premium has been collected from the
applicant as part of the application process.
II. A TIA covers a person until the earliest of: the policy being issued and accepted, a
letter declining insurance being sent to the insured, refunding any premium collected,
or 90 days since the issuing of the TIA.

III. A TIA covers a person for the lesser of: the amount applied for or a dollar limit set by
each insurer (called the TIA amount).

IV. A TIA is generally issued to a person if he is below an age specified by the insurer and
the insured has answered "No" to all the questions in the TIA section of the application
and the policy applied for is not on a cash-on-delivery (COD) basis.

V. The TIA coverage for a disability policy begins both the accident and the sickness
coverage immediately.

Top of Form
A) I, II, III, and IV only-

B) I, III, IV, and V only

C) II, III, IV, and V only

D) All of the above

Rationale:
Learning objective:
Explain what a TIA is, how it affects the applicant, and the limitations associated
with the issuance of a TIA.
 Rationale:

True. A TIA is issued only when the initial premium has been collected
from the insured as part of the application process.
True. The TIA coverage extends for 90 days maximum, and is cancelled
automatically after 90 days elapse, or a policy is issued and accepted, or if the insurer
writes a letter declining the insurance and refunding any premiums collected.

True. The TIA coverage is for an amount that is the lesser of the amount
applied for or a TIA amount set by each insurer.

True. A TIA is issued if the life insured is below a specified age and the
answers to questions in the TIA section are all "No." When a policy is issued on a cash-
on-delivery (COD) basis, no premium is collected with an application, and therefore no
TIA is issued.

False. The TIA for a disability policy begins the accident coverage
immediately, but does not begin the sickness coverage. Sickness coverage starts only
after the policy is issued and generally after a certain period specified in the policy to
eliminate any pre-existing conditions.

Q104: An agent always faces question of whose interest he/she must place first. The agent
has to decide between placing the insurer's interest first or the client's interest first. As the
agent offers professional advice to the client, he/she has a fiduciary responsibility towards
the client. Which of the following agents have acted improperly with respect to protecting
the client's and/or the insurer's interest?
Top of Form
A) John, who carried out a complete needs analysis, interviewed the client in detail, and
then recommended a whole-life policy with a face amount of $300,000 to his client.

B) Mary, who informed the insurer, through the agent's backend report, that her client
had admitted to being an occasional smoker and that the client had insisted on
applying as a non-smoker.

C) Darcy, who informed his client that any question in the application must be
answered honestly, with full disclosure, since any misrepresentation discovered later
might lead the insurer to rescind the policy.

D) Lorie, who sold a universal-life (UL) policy to a client for $1-million face amount
without considering other options, as his insurer (in the interest of selling more
 universal-life policies) paid the highest commissions for universal-life policies.-

Rationale:
Learning objective:
Explain the responsibilities and obligations of the agent in an agent-client
relationship, including agency law.

Rationale:
For aspects of the application on which the agent gives professional advice,
such as the amount of insurance or the type of insurance policy, the agent has a
fiduciary responsibility to place the client's interest first.
A. John did the right thing by placing the interest of the client first.

B. Mary did the right thing in the interest of full disclosure, as well as meeting
the principle of constructive notice by which anything admitted to the agent is
the same as informing the insurer. She has also protected the client, because if
it is later discovered that the client was a smoker at the time of the application,
the policy could be rescinded by the insurer.

C. Darcy did the right thing by Informing the client about the consequences of
misrepresentation.

D. Lorie did not place the client's interest first, and sold a universal-life policy
because she received a higher commission.

Q105: Mervin Osborne is applying for a whole-life policy for a face amount of $300,000. His
agent, Tim Brown, is assisting him in the process. When they arrive at questions relating to
smoking, Mervin informs Tim that he does smoke about two cigarettes a week and considers
himself to be a non-smoker, and he wants to apply as a non-smoker only. At this stage, it is
Tim's duty to:
Top of Form
A) Inform Mervin about the consequences of misrepresentation, and tell him that the
insurer might cancel the policy on discovery of the misrepresentation.

B) Report the admission by Mervin in his backend report to the company, so that Tim's
the smoking, of which he is now aware, is reported to the insurer confidentially.

C) Ignore Tim's smoking, as he smokes only two cigarettes a week.

D) A & B-

Rationale:

D
 Learning Objective: Explain the agent's duty to educate the client in the
consequences of incorrect information being provided for the underwriting
process. Use examples to support your explanation.

Rationale: As an agent, Tim is bound to disclose everything about the client that
he has learned under the principle of constructive notice. It is also his duty to
advise the client about the consequences of misrepresentation.

Q106: Which of the following policies is recommended to meet the final tax liability for a
person who has named their spouse as a beneficiary of all their properties and the spouse has
named them as the beneficiary of all their property through a mirror wills? (They intend the
property of the first dying spouse to rollover to the surviving spouse and pay the tax bill only
on death of the second spouse)
Top of Form
A) Two permanent policies, one each on the life of each spouse.

B) Two term policies, one each on the life of each spouse.

C) A joint last-to-die permanent policy on the lives of the spouses.-

D) A joint first-to-die policy on the lives of the spouses.

Rationale:

C
Learning Objective: Using client-specific data, to demonstrate the use of an
insurance policy as a tax-planning tool.

Rationale: As the spouses have named each other as beneficiaries of their

properties, the properties of the deceased spouse can be rolled over to the
surviving spouse. The tax will have to be paid on the death of the second
spouse. Therefore a joint-last-to-die policy is the recommended option.

Q107: Mario Martins owns 50% of the shares of a corporation. The other 50% is owned by
Candice Lee. Mario looks after all sales and logistics of the business, while Candice looks after
the production and administration. Both are very important to the business. They draw up a
buy-sell agreement, in which the surviving partner will buy the shares of the deceased
partner from the deceased's estate. Mario has a young family, and has no insurance at the
moment. What type of insurance must Mario put in place?
Top of Form
A) Personal disability insurance, personal life insurance, buy-sell life insurance on
himself and Candice, key-person life insurance on himself and Candice-
 B) Buy-sell life insurance on himself and Candice, key-person life insurance on himself
and Candice

C) Key-person life insurance on himself and Candice

D) Personal disability insurance, personal life insurance.

Rationale:

A
Learning Objective: Given several case studies containing specific client
information, select the most appropriate products from among: disability,
accident-and-sickness (A&S), critical-illness (CI), and/or long-term-care (LTC)
insurance products to match a particular client's situation and needs.

Rationale: He needs personal disability insurance and life insurance. He also

needs buy-sell life insurance and key-person insurance.

Q108: Viola Brewer is the annuitant of a spousal Registered Retirement Savings Plan (RRSP), which
receives contributions from her spouse, Edward Brewer. Edward had contributed the following amounts
to the spousal RRSP:

Year of Contribution Contribution Amount

2009 $5,000

2010 $4,000

2011 $8,000

2012 -

2013 -

The investments do well, and in 2014 she holds $25,000 in the spousal account. In 2014, Viola
withdraws $20,000 from the spousal account. How much of the withdrawal was taxable to
Edward?
Top of Form
A) $0-

B) $8,000

C) $12,000
 D) $20,000

A
Learning Objective: Using examples, describe the advantages/disadvantages of
income splitting through spousal RRSPs.

Rationale: Withdrawals from a spousal RRSP will attribute the contributions in

the year of withdrawal or the prior two years to the contributing spouse. Since
Edward had contributed $0 in each of the prior two years, and $0 in the year of
withdrawal, Edward will be taxed on $0 of the withdrawal, and Viola on the entire
withdrawal of $20,000.

Q109: Which of the following will not be a covered condition under a critical illness (CI)
policy?
Top of Form
A) Heart attack

B) Cancer

C) Pneumonia-

D) Severe burns

Rationale:

C
Learning Objective: Describe and provide examples of the conditions that are
generally covered under a critical-illness policy.

Rationale: Pneumonia is not a condition normally covered by critical-illness (CI)

policies.

Q110: Eric and Jodi Nelson are close to retirement. Their children are well settled and they
have paid off all mortgages and other debts. They have adequate savings for their retirement.
They now have to worry only about taxes that the estate will need to pay when the last of
them dies. Each has named the other as the beneficiary of all their properties. Their advisor
estimates that they will have a tax bill of about $400,000, for which he suggests that they get
an insurance policy. Which of the following policies would you recommend for them?
Top of Form
A) A first-to-die universal life (UL) policy
 B) A last-to-die whole-life policy

C) A last-to-die term-to-100 (T-100) policy-

D) A first-to-die whole-life policy

Rationale:

C
Learning objective: Using various customer profiles, recommend the most
appropriate individual life-insurance products to meet their specific needs.

Rationale: As they wish to cover themselves for estate taxes, they do not need
the bells-and-whistles in a permanent policy. The T-100 policy would have the
cheapest premium, and they need a last-to-die policy, since tax needs to be paid
only on the second death.

Q111: Which of the following are true with respect to pension adjustments (PA)?
1. PA is the amounts contributed to a registered pension plan (RPP) or a Deferred Profit
Sharing Plan (DPSP) that reduce the contribution limit to an individual's Registered
Retirement Savings Plan (RRSP).
2. PA is the amount added to your registered pension funds because your income went up
later but retroactively.

3. PA is the amount that a pension plan holder can deduct from his total income to arrive
at his/her taxable income.

4. 4. PA is the excess money earned by pension funds that are distributed to the
members.

Top of Form
A) 1 only-

B) 1 and 2 only

C) 1, 2, and 3 only

D) 1, 2, and 4 only

Rationale:

A
Learning Objective: Describe what a pension adjustment (PA) is and what effect
 it will have on RRSP contributions.

Rationale: Pension adjustments are the amounts contributed to a registered

pension plan or a Deferred Profit-Sharing Plan (DPSP) that reduce the
contribution limit to an individual's RRSPRRSP contribution limit =
Lesser of (18% of the previous year's eligible income or a limit) — Pension
Adjustment.

Q112: Debra Dunn, an insurance agent, is in the process of filling out an application for her
friend Anita Munoz. Anita is an experienced scuba diver and goes scuba diving every year
during her annual three-week vacation. Debra Dunn is aware of this. When the application
asks whether she participates in any hazardous sports or occupations, Anita replies "No." She
feels that, since she only scuba dives during her vacations, she does not need to disclose the
fact. What is the course of action that Debra must take at this stage?
Top of Form
A) Inform Anita about the consequences of misrepresentation and in case Debra does
not heed to the advice, inform the insurer about her scuba diving activities through
the Agent's Report section of the application-

B) Just ignore the fact because Debra will sign the application anyway and therefore is
responsible for any statement that she makes on the application

C) Just ignore the fact, because a friend is making a small misrepresentation

D) B and C

Rationale:

A
Learning Objective: Analyze the responsibilities of an agent with respect to
his/her role in relation to the client and the insurance company.

Rationale: An agent must inform the client about the consequences of

misrepresentation. In the event the agent knows some fact that has been
misrepresented, in the interest of full disclosure of facts, the agent must make a
mention of it in the Agent's Report section.

Q113: Abraham Dyson and Johnathan Zavier operate an accounting practice as equal
partners. Their business is now worth $2 million, and they started their business with almost
no investment of their own. They are worried about the implications to their business should
one of them die or get permanently disabled. They would like the surviving partner or the
partner who is not disabled to have full control of the business. Hence they have entered into
a buy-sell agreement, in which the surviving partner will buy out the share of the deceased
partner's business or the permanently disabled partner will sell his share of the business to
the other partner. Which of the following is recommended for them?
 Top of Form
A) $1,000,000 of buy-sell insurance and $1,000,000 of disability buy-out insurance-

B) $2,000,000 of buy-sell insurance and $2,000,000 of disability buy-out insurance

C) $1,000,000 of buy-sell insurance and $1,000,000 of key-person disability insurance

D) $1,000,000 of key-person life insurance and $ 1,000,000 of disability buy-out

insurance

Rationale:

A
Learning Objective: Distinguish among specialized types of disability coverage,
including key-person disability coverage, disability buy-out coverage, and
business- overhead -expense coverage.

Rationale: They would need $1,000,000 of buy-sell insurance and $1,000,000 of

disability buy-out insurance.

Q114: Which of the following is true with respect to definitions of total disability normally
used in short-term and long-term disability plans?
Top of Form
A) Long-term disability plans generally use the "own occupation" definition to
determine total disability for the entire benefit period.

B) Long-term disability plans use the "own occupation" definition to determine total
disability for the first two years of disability and use the "any occupation" definition
after two years.-

C) Short-term disability plans use the "any occupation" definition throughout the
benefit period.

D) Short-term plans use the "own occupation" definition for the first three months of
disability and use the "any occupation" definition after three months.

Rationale:

B
Learning Objective: Compare the definitions of disability as used by short-term
income-replacement plans and long-term income-replacement plans.

Rationale: Normally the short-term disability (STD) plans use "own occupation"
 definition, whereas LTD plans use the "own occupation" definition for the first
two years of disability and then use the "any occupation" definition thereafter.

Q115: Tara West is planning to save for her retirement. Currently two alternatives have been
recommended to her. The first alternative is a mutual fund offered by a well-known mutual-
fund company. This alternative is recommended because of the consistent good returns shown
by the fund and because it is a medium-risk product that meets her risk profile. The second
alternative is a segregated fund (IVIC) offered by an insurer, which has given slightly lower
returns than the mutual fund. The fund offers a 100% guarantee of principal and a 100%
death-benefit guarantee. Tara is impressed with the 100% guarantee of principal offered by
the fund. If she invests in the segregated fund, she has no downside risk. Which of the
following statements is true?
Top of Form
A) In case of the death of the owner, if the owner has named a beneficiary, both the
mutual-fund investment and the segregated-fund investment bypass the probate
process and the estate of the deceased.

B) On withdrawal from a segregated fund, using the proportional method to recalculate

the guarantee always result in a higher guarantee than using the linear method.

C) The mutual fund is more liquid than the segregated fund.-

D) The maturity period of a mutual fund is five years, whereas that of a segregated fund
is ten years.

Rationale:

C
Learning Objective: Using client-specific information and various insurance-
company investment products from which choices can be made, determine an
overall investment strategy and recommend the most appropriate products for
each client.

Rationale: The segregated fund (IVIC) is an insurance product, and therefore

offers all the benefits of a life-insurance product such as:

 Bypass of probate;
 Bypass of the estate.

The segregated fund has a maturity period of ten years, and comes with a reset
option. On reset, the maturity date is shifted to ten years from the date of
maturity and the guarantees are recalculated. On withdrawal from a segregated
fund, one of the two methods is used to recalculate the guarantee. The
 proportional method results in a higher guarantee after the withdrawal than the
linear method, if the value of the account has gone up since the calculation of
guarantees. If the account has declined, the linear method will result in a higher
guarantee than the proportional method.
The mutual fund has no maturity period, and therefore is more liquid than a
segregated fund.

Q116: Ruth Bailey is employed in the design section of a garment designing firm. The firm
provides her with various benefits, which include Employment Insurance (EI), Canada Pension
Plan (CPP) contributions, an employer-sponsored pension plan, and a membership in the
group plan that provides life insurance, disability insurance, and dental and prescription-drug
reimbursement plans. Her group disability benefits are offset for CPP and Workers'
Compensation payments. Which of the following are true?
Top of Form
A) If Ruth were to be disabled due to a workplace injury, she will be paid first by the
group policy. If she qualifies for Workers' Compensation payment, the Worker's
Compensation benefits will be reduced by the amount she receives from her group
policy

B) If Ruth were to be disabled due to an offsite injury, since she is covered by EI, EI
will pay her from the 15th day of her disability. The group plan will reduce its
benefits by the amounts received from EI.

C) If Ruth were to be disabled due to a workplace injury, Workers' Compensation and

EI will pay her benefits and the Workers' Compensation payment will be reduced by
the amount received from EI.

D) If Ruth were to be disabled due to an offsite injury, she will be paid first by her
group policy. If she qualifies for CPP coverage, when CPP disability payments
begin, the group plan will reduce its benefits by the amount received from CPP.-

Rationale:

D
Learning Objective: Compare the federal-government-sponsored programs to
provide short-term and long-term disability benefits, including Employment
Insurance (EI) and CPP.Rationale: The Government provides disability coverage
through the following plans:

 EI (Short-term coverage — benefits paid from 15th day for 15 weeks'

maximum). EI offsets payments received from Workers' Compensation,
group benefits, any wages or commissions received.
 CPP (long-term coverage — benefits begin after elimination period of
 four months —pays a disability pension to age 65 maximum)

 Workers' Compensation — Covers for workplace injuries.

If a person is covered through a group plan at work and it has a an offset clause
for CPP and Workers' Compensation payments, then the group plan reduces its
benefits by the amounts received from CPP or Workers' Compensation.

Q117: Rita and Mita are twin sisters aged 30. Rita and Mita both purchase whole-life
insurance policies with face amounts of $300,000 each. Rita purchases a non-participating
policy, while Mita purchases a participating whole-life policy and selects the paid-up additions
(PUA) dividend option. Which of the following statements is true?
Top of Form
A) Rita pays a higher premium than Mita, as her policy is non-participating.

B) Mita pays a higher premium than Rita, and Mita's face amount will increase every
time a dividend is paid by the participating policy.-

C) Any dividend paid to Mita in the form of increase in face amount, will be taxable to
Mita in the year the dividend is received by Mita.

D) The dividend is taxable to Mita, only if she takes it in the form of cash.

Rationale:

B
Learning Objective: Explain the difference between a participating whole-life
contract, including dividend options available, and a non-participating whole-life
contract.

Rationale: Dividends are received only in participating polices. Dividends are

considered a refund of excess premium and are tax-free. Dividends are paid
whenever there is an excess in a reserve.

Generally the premium for a participating policy is higher than for a

corresponding non-participating policy.
There are five dividend options, namely:

 Cash
 Premium reduction
  Deposit with insurer

 Paid-up additions (PUAs)

 One-year term additions

Q118: Ginger Clark owns an individual variable investment contract (IVIC) with a 100%
maturity and death-benefit guarantee based on a deposit of $50,000. The insurance company
is now bankrupt, and the account value on the day the insurer went bankrupt was $70,000.
How much does Assuris provide to Ginger as a guarantee for this account?
Top of Form
A) $41,650

B) $42,500

C) $50,000-

D) $70,000

Rationale:

C
Learning Objective: Compare the consumer-protection compensation funds
available for IVICs, securities, and investments offered by banks (including
Assuris, Canada Deposit Insurance Corporation (CDIC), and Canadian
Investors Protection Fund (CIPF).

Rationale: Assuris provides the same guarantee as provided by the fund if the
guaranteed amount is $60,000 or less. For guarantee amounts that are greater
than $60,000, Assuris provides a guarantee of the greater of $60,000 or 85% of
the original guarantee.

In this case, since the guaranteed amount was $50,000, Assuris provides
Ginger with a guarantee of $50,000, as the guaranteed amount was less than
$60,000.

Q119: Bob Sutton is married with two children, aged six and four. He works as a manager of
an auto-parts retail-store unit, which provides him with group life insurance benefit of two
times his salary of $80,000 per year and disability insurance that provides him with 60% of his
monthly income, in the event he is disabled. His wife, Carla, 30 years of age, works at a local
bakery and makes $30,000 per year. The bakery does not provide any benefits. Bob and Carla
purchased a home and they have an outstanding mortgage of $250,000.
Carla and Bob have recently witnessed the death of their friend Danny in a car accident. He
had no insurance and his young wife was left to support herself and their only child. Carla and
Bob have started to think of the risks they face, and approach an insurance advisor.

After interviewing Bob and Carla, the advisor establishes the following:

Monthly household expenses: $4,000 (bills, utilities, car, property insurance, etc.)
Monthly after-tax income (Bob and Carla): $6,000
Monthly expenses that will continue whether Bob or Carla die.

Health Conditions:
Carla: Good
Bob: Good, but family history of diabetes after age 35.
Disability insurance on Bob: Good
No disability insurance on Carla

The family can get by without Carla's income. The family cannot get by without Bob's income.

Carla's parents are healthy, as are her grandparents.

Bob's father had a heart attack and a mild stroke and is confined to a wheelchair. His mother
has hypertension. His grandparents died, generally after being invalids for about six months
each.

Which of the following recommendations appear in the order of importance for products to be
purchased by Bob and Carla?
Top of Form
A) Disability insurance on Carla, life insurance on Bob, life insurance on Carla, critical
illness (CI) on Bob, long-term care for Bob.

B) Life insurance on Bob, critical illness (CI) on Bob, disability insurance on Carla, life
insurance on Carla, long-term care on Bob and Carla.-

C) Critical illness on Bob, disability insurance on Carla, life insurance on Bob, life
insurance on Carla, long-term-care insurance on Bob and Carla.

D) Long-term-care insurance on Bob and Carla, disability insurance on Carla, life

insurance on Bob, critical illness on Bob, life insurance on Carla.

Rationale:
Learning objective:
Given a case study containing specific client information, select the most
appropriate insurance-product category, such as life, disability, critical illness
(CI), accident-and-sickness (A&S), etc.
 Rationale:
Bob is the main income provider for the family. They cannot manage their
lifestyle without Bob's income.

 Bob is covered adequately for disability.

 Bob should be covered immediately for life insurance, so that the life-
insurance proceeds can be invested to provide income to the family in
the event of Bob's death.

 As Bob's family has a history of diabetes, and he too is very likely to get
diabetes within the next few years, Bob must get a critical illness policy
as early as possible.

 As Carla does not have disability insurance, Carla must get disability
insurance.

 As Bob's family has a history of needing care when old, a long-term-care

policy must be purchased on Bob. It would also be wise to cover Carla
with some long-term-care insurance.

Q120: Hamilton is a member of the group disability plan provided by his employer, Zeta
Systems, which includes a dental plan, a prescription-drug plan, life insurance, and short-
term and long-term disability plans. Which of the following statements is false?
Top of Form
A) Hamilton is the group insured and Zeta Systems is the policy owner.

B) Any contributory premiums to be paid by the employees are deducted from salary
and paid to the insurer by Zeta Systems.

C) All the group plan benefits, namely dental benefits, prescription-drug

reimbursements, life insurance, and disability benefits have to be provided by the
same insurer.-

D) The benefits of the dental plan and prescription-drug plans are tax-free to the
employee.

Rationale:
Learning objective:
Explain the definitions of the following: group insurance, member, group
policyholder, and waiver-of-premium benefit.
 Rationale:
In a group plan, the employer owns the policy and the employee is the group
insured of the plan. Any contribution towards the premium has to be salary that
is deducted by the employer, who then pays the entire premium to the insurer.
Different benefits provided by a group plan may be purchased from different
insurers by the employer.
Dental and prescription-plan benefits are reimbursements to the employee and
not income, and are therefore tax-free.

Q121: Which of the following are true about mutual funds and segregated funds?
I. A salesperson has to be licensed as a life-insurance agent to sell segregated funds.
However, if a person is registered as a mutual-funds salesperson with the securities
commission, the person may also sell segregated funds.
II. The segregated-funds information folder must be given to the client before a sale of
segregated funds.

III. A mutual fund distributes income made in the fund in an equal amount per share,
irrespective of the time the shares were held, and the investor may opt for
reinvestment of such distributions, whereas a segregated fund allocates the income
for tax purposes on a time-weighted basis, and the income is always reinvested.

IV. The segregated fund must provide a minimum guarantee of 75% of the principal,
whereas the mutual funds need not provide any guarantees of principal.

V. The prospectus of a mutual fund is approved by the securities commission, whereas

the information folder of a segregated fund is approved by the Canadian Life and
Health Insurance Association (CLHIA).

Top of Form
A) I, II, and III only

B) I, IV, and V only

C) II, III, and IV only-

D) III, IV, and V only

Rationale:
Learning objective:
Differentiate between a segregated fund and a mutual fund in terms of product
approval, rules governing the product, CLHIA IVIC guidelines, sales licensing
requirements, taxation, valuation, and ownership of assets.
 Rationale:

False. A mutual fund registered salesperson cannot sell segregated

funds unless the person is dual licensed and also has a life insurance license.
True. The segregated information folder must be given to the client
before a sale is made.

True. A mutual fund distributes the same amount per share to anyone
who is a shareholder on the date of distribution. A segregated fund allocates on a time-
weighted basis.

True. By law, segregated funds need to provide a guarantee of 75% of

the principal invested whereas mutual funds do not have to provide any guarantees on
the principal.

False. The prospectus of a mutual fund needs to be approved by the

securities commission before it can be distributed to public. The information folder of a
segregated fund is not approved by any authority and just need to follow guidelines set
by CLHIA.

Q122: Which of the following is true about accidental-death-and-dismemberment (AD&D)

coverage provided by a group insurance policy?
Top of Form
A) Accidental death benefits are paid, even if the insured dies two years after the
accident.

B) Accidental dismemberment benefit is paid if an insured's organ such as a kidney

needs to be removed.

C) Accidental death benefits are paid if the insured dies within 365 days of the
accident.-

D) A loss of any one limb will be considered a complete dismemberment.

Rationale:

C
Learning Objective: Compare basic accidental-death-and-dismemberment
(AD&D) and voluntary AD&D plans and how employees qualify for each.

Rationale: Death must occur within 365 days of an accident for an accidental-
 death benefit to be paid. Complete dismemberment is loss of any two limbs or
sight, speech, or hearing.

Q123: Which of the following are duties of the agent with respect to the application process?
I. Ensure that the application is complete, with all information required, including any
questionnaires that are applicable to the case, such as a travel questionnaire, a back-
pain questionnaire, a drug-usage questionnaire, etc.
II. Witness the legal signatures of the insured and life insured.

III. Inform the client about the consequences of any misrepresentation.

IV. Explain about the Medical Information Bureau (MIB) and leave the MIB notice with the
insured.

V. Issue the Temporary Insurance Agreement (TIA), if applicable, and collect the first
month's premium.

Top of Form
A) I, II, III, and IV only

B) I, III, IV, and V only

C) II, III, IV, and V only

D) All of the above-

Rationale:
Learning objective:
Describe the key components of the life-insurance application as they affect the
underwriting process, including the agent's comment section, accurate
completion of medical questions, financial information, and product selection.

Rationale:
All the listed functions are duties of the agent.

Q124: Rohan Sharma and Dave Chun are operating a law practice as equal partners. The
business is worth $4 million, and the annual expenses of the business add up to $96,000 per
year, considering rent, salaries of the staff, utilities, etc. They draw up a buy-sell agreement
in which the surviving partner agrees to buy the interest of the deceased partner. Which of
the following is recommended for them?
Top of Form
A) $2,000,000 of buy-sell insurance, and $4,000 of business-overhead insurance-
 B) $2,000,000 of buy-sell insurance, and $8,000 of business-overhead insurance

C) $4,000,000 of buy-sell insurance, and $4,000 of business-overhead insurance

D) $4,000,000 of buy-sell insurance, and $8,000 of business- overhead insurance

Rationale:
Learning objective:
Distinguish among specialized types of disability coverage, including key-person
disability coverage, disability buyout coverage, and business- overhead
expense coverage.

Rationale:
Since they are equal partners, the share of the business belonging to each of
them is $2,000,000, and the share of the monthly expense to be met by each of
them is $4,000.

Q125: Stan Ross, an insurance agent, has learned that a client of his is going to take him to
court for having sold him the wrong amount and type of insurance policy. It is Stan's duty to
discuss the matter first with his:
Top of Form
A) Boss at the insurance company.

B) Client, and try and justify his advice.

C) Colleagues, to find the way out, based on their experience.

D) Errors-and-omissions (E&O) insurer, who will offer him advice on the way forward
and defend any lawsuits that may be filed against him.-

Rationale:
Learning objective: :
Using a client–specific situation, explain how errors-and–omissions (E&O)
insurance could respond to a consumer loss.

Rationale:
If an agent is aware of an impending court case against him, the first agency, he
must discuss the matter with is the errors-and–omissions (E&O) insurer.

Q126: Liang Xu works for an employer who provides him with group coverage that includes
group life insurance for two times his salary. The group coverage also includes a disability
coverage that pays him 60% disability benefit in case he is disabled as per the "regular
occupation" definition for a period of six months maximum. Liang's current annual salary is
$60,000.The employer pays the premiums, but treats only the premiums for the life insurance
as a taxable benefit to the employee. Which of the following is true?
I. Liang is a group-insured under the policy; the employer is the policy owner.
II. Assuming Liang is disabled, any disability benefit he receives from the group policy
will be taxable income to him.

III. As Liang pays an Employment Insurance (EI) premium, he will also receive EI benefits,
to top up his disability benefits.

IV. If Liang were to die from a heart attack, the group policy would pay a tax-free benefit
of $120,000.

V. If Liang were to die from falling off the roof, the policy will pay a taxable benefit of
$240,000.

Top of Form
A) I, II, and III only

B) I, II, and IV only.-

C) I, II, III, and IV only

D) I, II, III, IV, and V only

Rationale:
Learning objective:
Describe the features and coverage of a group disability plan, and how the plan
functions.

Rationale:

True. The employer is the policy owner, and Liang is the group insured.
True. As the employer pays the premium and the premium paid for
disability insurance is not shown as a taxable benefit to the employee, the benefits
received from the policy will be taxable.

False. EI benefits are offset for benefits from a group policy.

True. The policy will pay 2 times his salary of $60,000 or $120,000 and
the benefit would be tax free.

False. It is not stated that the group policy has accidental-death

coverage. Even if it does have accidental-death coverage, the benefit received would
 be tax-free.

Q127: Which of the following is considered a passive income and will not be covered by
disability insurance?
Top of Form
A) Salary

B) Net business income

C) Net rental income-

D) Commissions

Rationale:

C
Learning Objective: To describe the various provisions generally included in
individual accident-and-sickness (A&S) insurance policies and the potential
impact on a disability claim, including renewal, grace period, incontestability,
pre-existing conditions, claims, physical examination, change of occupation, and
overinsurance.

Rationale: The following incomes are considered active incomes and will be
considered for disability insurance:

 Salary and bonus

 Commissions

 Net business income

 Net research grants

Q128: At work, Joe Adams has a group life insurance policy that covers him for two times his
salary should he die prematurely. The employer pays the premium and shows it as a taxable
benefit to Joe Adams. The group plan also includes a short-term disability plan, which will
pay 60% of his salary should he be disabled, to a maximum of six months. The employer pays
the premium and does not show it as a taxable benefit. Which of the following statements
is true?
 Top of Form
A) If Joe were to die, life-insurance benefits would be taxable; if Joe were to be
disabled, the disability benefits would be received tax-free.

B) If Joe were to die, life-insurance benefits would be taxable; if Joe were to be

disabled, the disability benefits would be taxable.

C) If Joe were to die, life-insurance benefits would be tax-free; if Joe were to be

disabled, the disability benefits would be taxable.-

D) If Joe were to die, life-insurance benefits would be tax-free; if Joe were to be

disabled, the disability benefits would be tax-free.

Rationale:
Learning objective:
Describe the tax implications of various types of individual disability insurance
policies.

Rationale:
The principal of taxation is that, if the premium is paid with after-tax dollars, the
benefit will be tax-free when received. In the case of life insurance, the employer
has to show any premiums paid on behalf of the employee as a taxable benefit
to the employee. Therefore, the employee ends up paying tax on the premiums
paid by the employer.
In the case of disability insurance, however, it is optional for the employer to
declare the premium as a taxable benefit to the employee. If the employer has
indeed declared the disability insurance premium as a taxable benefit to the
employee, benefits received from the disability policy are tax-free to the group
insured. If the benefit has not been shown as a taxable benefit to the employee,
the benefits are taxable in the hands of the group insured.

Q129: Avery Arnold runs two businesses. One of the businesses is a retail sport shop, which
sells sporting goods and sportswear. The other business is coaching young players in hockey.
As he is a very renowned hockey player, he spends most of his time in coaching young players.
He therefore employs a person to take care of the retail business on a day-to-day basis, and
he visits the business in his spare time from coaching to supervise the business and make any
necessary decisions. As he is dependent on the employee, he wants to buy a key-person
insurance policy that would pay him a lump sum in the event of the death of the employee.
The funds received from the policy would help tide him over the reduced cash flow and help
him find a replacement. He also knows that he gets a new employee every three years, since
retaining an employee in this kind of business is difficult. Which of these polices would you
recommend to him so that he will be able to substitute the new employee as the life insured
and cancel the insurance on the old employee?
Top of Form
 A) A five-year renewable term policy

B) A Term-to-100 (T-100) policy

C) A whole-life policy

D) A universal life (UL) policy-

Rationale:

D
Learning Objective: Compare the advantages/disadvantages of universal life
(UL) insurance.

Rationale: Only a universal life policy provides the flexibility of adding and
deleting particular life insureds from a policy.

Q130: Nicole Gibbs had set up an individual variable investment contract (IVIC) with a deposit
of $50,000. The IVIC provides a 75% maturity and death-benefit guarantee. She had named
herself as the annuitant and her son Rick as the beneficiary. The account value was $65,000
when she died. How much will Rick receive?
Top of Form
A) $37,500

B) $48,750

C) $50,000

D) $65,000-

Rationale:

D
Learning Objective: Explain the valuation process for IVICs.

Rationale: An IVIC pays out on maturity of the contract or on the death of the
annuitant. The IVIC pays out the higher of the guaranteed amount or the
account value. In this case the guaranteed amount is $37,500 and the account
value is $65,000. So the beneficiary is paid $65,000.

Q131: Which of the following is true with respect to the life-insurance-application process?
Top of Form
 A) It is the responsibility of the agent to ensure that all the answers provided by the
insured are true.

B) The agent is responsible for the issue of the Temporary Insurance Agreement (TIA)
to the insured, if the insured meets certain conditions.-

C) The agent checks the Medical Information Bureau (MIB) database to check on the
insured's past history of life-insurance applications.

D) The insured is responsible entirely for the product selected, and the agent has no
responsibility for the product purchased by the insured.

Rationale:

B
Learning Objective: Describe the key components of the life-insurance
application as they affect the underwriting process, including the Agent's
Comment section, accurate completion of medical questions, financial
information, and product selection.

Rationale: The agent is responsible for the issue of the Temporary Insurance
Agreement (TIA) to the insured, if the insured meets certain conditions. The
agent is not responsible for the correctness of the answers provided by the
client. The agent must ensure that the answers as given by the client are
recorded accurately on the application. The underwriter checks the MIB
information. The agent is responsible for the product selection, because as an
expert he must suggest and recommend the most appropriate product for the
insured.

Q132: Gladys Newman is a single mother who is a member of her company's dental plan. The
plan has a $50 single deductible, a $100 family deductible, and 100% co-insurance. She
submitted her first claim of the year in February for $237 for her annual checkup. She then
submitted a claim for a filling for $143 for her daughter Kate. How much will she get as a
reimbursement for the two claims in total?
Top of Form
A) $210

B) $280-

C) $330

D) $380
 Rationale:

B
Learning Objective: Explain the terms deductible and co-insurance and how
they affect benefit payments.

Rationale: Her total claims were $237 + $143 = $380. The deductible applicable
on the two claims is $100. So she is reimbursed $280.

Q133: To check on the past history of life-insurance applications, the underwriter will most
likely order a(n):
Top of Form
A) Attending Physician's Report

B) Medical Information Bureau (MIB) check-

C) Inspection Report

D) All of the above

Rationale:
Learning objective:
Analyze the responsibilities of an agent with respect to his/her role in relation to
the client and the insurance company.

Rationale:
The underwriter asks for a MIB check when he wants the past history of
insurance applications by the insured.

Q134: ] Five years ago, Melissa Gilbert purchased a twenty-year term annuity. Based on the
interest rates prevailing at the time of purchase, the interest rate for a twenty-year term
annuity was 5%, and that of a five-year term annuity was 2%. Today, Melissa wants to cash out
her annuity contract. Her contract states that there will be a market-value adjustment and a
penalty charge of 3% of the balance returned. Which of the following is true?
Top of Form
A) She will be paid the 97% of the balance in the account as calculated with an interest
rate of 5%.

B) She will be paid the 97% of the balance in the account as calculated with an interest
rate of 2%.-

C) She will be paid 100% of the balance in the account, calculated with an interest rate
 of 2%.

D) She will be paid 100% of the balance in the account, calculated with an interest rate
of 5%.

Rationale:

B
Learning Objective: Explain the withdrawal rights and the impact of market-
value adjustment (MVA) on withdrawals.

Rationale: Had she purchased a five-year annuity, she would have received an
interest rate of 2%. So her annuity will be recalculated using an interest rate of
2% to arrive at the balance in her account. This is called market-value
adjustment. They will then apply the penalty of 3% on this balance, and
therefore she receives 97% of the calculated balance.

Q135: Tommy and Johnny are brothers. Tommy works as a supervisor in a manufacturing
concern and earned a salary of $60,000 last year. Johnny is self-employed, and he also made
a net business income of $60,000 last year. Tommy is a member of the employer-sponsored
defined-contribution plan. The employee and the employer each contribute 5% of the
employee's earnings. Which of the following is true?
Top of Form
A) Tommy will have a pension adjustment (PA) of $6,000 this year, which will reduce
his Registered Retirement Savings Plan (RRSP) contribution limit.-

B) Johnny's Registered Retirement Savings Plan (RRSP) contribution limit will be

reduced by his contribution to the Canada Pension Plan (CPP).

C) Both Tommy and Johnny will be able to contribute the same amount to a Registered
Retirement Savings Plan (RRSP), because they made the same income last year.

D) Tommy's contribution limit will be reduced by a Pension Adjustment(PA) that will

consist of the amount he contributed to his employer-sponsored pension plan and
Canada Pension Plan (CPP).

Rationale:

A
Learning Objective: Describe what a Pension Adjustment (PA) is and what effect
it will have on RRSP contributions.

Rationale: The pension adjustment reduces the person's current RRSP

contribution room, which is calculated as the lowest of 18% of his previous
 year's RRSP-eligible income or an annual contribution limit, either reduced by
an amount equal to the pension adjustment.

For a defined-contribution plan, since the employer and employee contributions

are fixed, the pension adjustment is the sum of the employee and employer
contributions.

For a defined-benefit plan, since the employer's contribution is variable, a

formula is used to calculate the pension adjustment.

Q136: John and Stella Hinchey, a husband and wife, have just purchased a new home. They
have a mortgage of $200,000 on the home. Both John and Stella work for employers who do
not offer any employee group benefits. John works as a fee-for-service consultant in
environmental engineering. Stella works as an executive assistant. They are expecting their
first child in six months. John has an annual income of $60,000, and Stella has an annual
income of $30,000. Stella is planning on returning to work six months after having the child.
They want to look at an insurance program that will address both their short-term and long-
term needs. From the information provided above, which of the following is the best solution
to John's disability insurance needs?
Top of Form
A) John does not require disability insurance

B) An accident-only disability policy

C) An individual disability policy that covers both total and partial disability

D) An individual disability policy that covers both total and residual disability, with a
cost-of-living-adjustment (COLA) rider-

Rationale:
Learning objective:
Describe the implications of various types of individual disability insurance
policies.

Rationale:
They are looking for an insurance solution that would cover their long-term
needs. Long-term coverage is provided by a residual disability clause, as well as
by the cost-of-living-adjustment rider.

Q137: Nino Boris has just entered into a mortgage agreement with a bank for the rental
property that he is purchasing. Nino is certain that he will be able to pay off the mortgage in
20 years. He wants an insurance policy to cover his mortgage outstanding, so that the
mortgage will be paid off with the insurance proceeds, should he die prematurely. He is
 looking for a policy for which he will pay the least amount for premiums through the life of
the policy. Which of the following policies should he buy?
Top of Form
A) 10-year renewable-and-convertible (R&C) term policy

B) 20-year term policy

C) 20-year decreasing-term policy-

D) 20-year renewable-and-convertible term policy

Rationale:
Learning objective:
Explain how term life insurance works.

Rationale:
Over the 20 years, he would pay the least in premiums for the 20-year
decreasing-term policy.

Question # 138: Raindrops Inc., a large distilled water company employing over a
thousand employees, wants to start a group plan for its employees. The group plan will
provide life insurance, disability insurance, and dental- and prescription-drug reimbursement
plans. Which of the following premium-funding methods is most likely to be used for the new
group plan?

A. Non-refund accounting system

B. Refund accounting system

C. Administrative accounting system

D. None of the above

Rationale:

B
Learning Objective: Compare and contrast the following funding methods: non-refund
accounting, refund accounting, and administrative services only (ASO).

Rationale: For large companies, the refund accounting system is recommended.

Q139: Which of the following would receive benefits from a critical-illness (CI) policy?
 Top of Form
A) Randy, who was diagnosed with cancer within 30 days of issue of the policy, and has
survived 30 days thereafter

B) Ron, who had a heart attack and died on the spot

C) Rudy, who had a heart attack and survived 30 days after the attack-

D) All of the above

Rationale:

C
Learning Objective: Describe and provide examples of the conditions that are
generally covered under a critical-illness (CI) policy.

Rationale: For conditions such as cancer, most policies stipulate that, in the
event cancer is diagnosed within 30 days of issue of the policy, the cancer
would be considered a pre-existing condition and the policy would not cover the
condition. The survival period required for a critical-illness policy is 30 days in
most policies.

Q140: Natalie Freeman, 75 years of age, wants to invest $100,000 in a segregated fund
(Individual Variable Insurance Contract, or IVIC) with a 100% maturity- and death-benefit
guarantee. She names her son Brian the beneficiary. Which of the following is truewith
respect to sales charges and market-value adjustments/penalties?
Top of Form
A) If she selects the front-end option for the sales charge, and she dies before the 10-
year maturity period of the IVIC, there will be market-value adjustments (MVA)
and/or penalties charged. There will be no sales charge imposed on the contract.

B) If she selects the deferred sales charge (DSC) option for the sales charge, and she
dies before the 10-year maturity period of the IVIC, there will be market-value
adjustments and/or penalties charged. There will a sales charge imposed as per the
contract, depending upon the timing of her demise.

C) If she selects the front-end option for the sales charge, and she dies before the 10-
year maturity period of the IVIC, the IVIC will pay out as per contract, without any
deductions or sales charges.-

D) If she selects the deferred sales charge option for the sales charge, and she dies
before the 10-year maturity period of the IVIC, there will be no sales charge
imposed whenever death occurs, and the IVIC will pay out as per contract, without
any deductions.

Rationale:
Learning objective:
Explain the various sales-charge options and loads available and their impact
on the investment decision.

Rationale:
If the front–end sales-charge option is selected, no sales charge will be levied
on termination of the contract. If death occurs, no penalties or market value
adjustments will be charged.

If the deferred-sales-charge (DSC) option is selected, a sales charge will be

imposed, depending upon the time the contract is terminated. Normally, the
DSC is a declining charge and becomes nil after the contract has been in force
for a few years. Therefore, depending upon the timing of the death, there may
be a sales charge imposed. No penalties or market value adjustments are
charged on the death of the annuitant.