You are on page 1of 9

Q: Luis, age 33, is a self-employed lawyer who opened up his own practice two years ago.

Although his
billings have averaged under $100,000 per year, he expects his revenue to grow substantially as he
becomes more widely known. Luis recently married Elaine, his common law partner, and they are now
expecting their first child. Luis feels that the time is right for him to acquire a personal disability policy.
Which of the following riders would be most appropriate to add to the policy?
Term insurance rider
Cost of living adjustment
Parent waiver
Lifetime injury
You are correct!!!
The answer is Cost of living adjustment
Rationale: The correct answer is "Cost of living adjustment."
Luis is only 33 years old. If he buys a disability policy today, the benefit amount will have very little
purchasing power should he be disable after a long period of time say 20 years later. To maintain the
purchasing power of the benefit amount, a cost of living adjustment rider is recommended.
Q: Aaron has a private disability insurance policy with a limited payment amendment related to chronic
back problems. Aaron has now injured his back while carrying heavy groceries and expects to be off work
for several months. What is the impact of this amendment on Aarons claim?
The benefit period will be shorter.
Aaron will receive a reduced monthly amount.
Aarons claim will be denied.
The elimination period will be longer.
Oops, You are wrong :(
Your answer was : Aaron will receive a reduced monthly amount.
The correct answer is : The benefit period will be shorter.
Rationale: The correct answer is "The benefit period will be shorter."
When an applicant to a disability policy has a pre-existing condition such as a back injury, the
underwriter usually excludes the condition from coverage. In some instances the underwriter may
issue one of thefollowing for pre-existing conditions:

A limited payment amendment which reduces the benefit period, if the claim stems from the
pre-existing condition.

A extended elimination period amendment The elimination period is extended if the claim
stems from the pre-existing condition.

Q: Which of the following factors does not play a role in determining the amount of disability benefit a
claimant could receive?
Salary and commission income
The claimants tax bracket

Other sources of disability benefits


Investment income
You are correct!!!
The answer is Investment income
Rationale: The correct answer is "Investment income"
Disability benefits are paid only on actively earned income namely: employment income (salary and
bonus), commissions, net research grants and net business income. The other sources of disability
benefits may reduce her disability benefits entitlement. The claimants tax bracket reduces the amount
of disability benefits if the benefits are taxable.

Q: Claire, age 35, is a self-employed dentist earning $100,000 per year. She expects
that her income will grow over the next several years as she develops her practice.
She currently employs one hygienist and a receptionist, but may need to expand
her staff in future. Claire is concerned about the impact on both her personal and
business finances if she were to suffer a sudden accident or illness. What type of
insurance best meets Claires needs?

Critical illness insurance

insurance

A business disability buy-out policy

An individual disability policy plus business overhead

Key person disability insurance plus business overhead insurance

You are correct!!!


The answer is An individual disability policy plus business overhead insurance
Rationale: The correct answer is "An individual disability policy plus business overhead insurance"
A business overhead expense insurance policy covers the business overhead should the owner be
disabled and the business cannot generate income when the owner is disabled.

Q: Amanda, a chartered accountant, has a personal disability policy with a residual disability definition.
What does this mean?
Amanda will receive full benefits for life if she suffers the loss of sight or hearing.
Amanda will receive full benefits if she earns up to 50% of her salary by working.
Amanda need not be totally disabled for any period of time before being eligible for partial benefits.
Amanda can receive partial benefits if she can work part-time.
You are correct!!!
The answer is Amanda can receive partial benefits if she can work part-time.
Rationale: The correct answer is "Amanda can receive partial benefits if she can work part-time."
A residual benefit pays a proportional benefit based upon the percentage loss of income if the insured

is able to return to work on a part time basis. The insured needs to be totally disabled for a period of
time (called the qualification period, usually 90 days) after which the insured will be eligible to claim
residual benefits.
Q: Daniel has a group extended health policy at work that covers his wife Opal as well as their son Johnny.
Their policy has a single deductible of $25 and a family deductible of $50. Which of the following scenarios
is accurate?
Opal makes the first claim of the year in the amount of $100. She is entitled to receive $100.
Johnny makes the first claim of the year in the amount of $300. He is entitled to receive $275. Opal
then makes a claim for $100. She is entitled to receive $75.
Johnny makes the first claim of the year in the amount of $150. He is entitled to receive $100.
Opal makes the first claim of the year in the amount of $75. She is entitled to receive $50. Johnny
then makes a claim for $200. He is entitled to receive $150.
You are correct!!!
The answer is Johnny makes the first claim of the year in the amount of $300. He is entitled to receive
$275. Opal then makes a claim for $100. She is entitled to receive $75.
Rationale: The correct answer is "Johnny makes the first claim of the year in the amount of $300. He
is entitled to receive $225. Opal then makes a claim for $100. She is entitled to receive $75."
If opal makes the first claim of $100, she will be entitled to $75 as the single deductible will apply.
If Johnny makes the first claim of $150, he will be entitled to $125 as single deductible will apply.
If Opal makes first claim of $75, she will be entitled to $50 as single deductible will apply. If Johnny
then makes a claim for $200, he will be entitled to the entire $175 as single deductible will apply.
If Johnny makes the first claim of $300, he will be entitled to receive $275 as single deductible will
apply. If Opal then makes a claim for $100, she is entitled to the entire$75 as single deductible will
apply.

Q: Suzanne has operated her own imported tile business, Creative Tiles Inc., for
many years. She travels frequently to Europe to source new tiles for residential and
commercial applications, and has developed strong relationships with many artisans
and tile manufacturers. Suzannes brother Ron is an employee of the business with
responsibility for day-to-day operations. Recently, Suzanne made Ron a 30%
shareholder of the business. Suzanne is wondering what type of insurance she
needs for herself and Ron in order to protect the business against the loss of either
one of them. Which of the following options would be most appropriate? (business,
disability, life

Key person life and disability on Ron, Business overhead and

personal life insurance on Suzanne

Business overhead, key person life on

Suzanne, key person life and disability on Ron

and Ron

Key person life only on Suzanne

Key person life and disability on Suzanne and Ron

Oops, You are wrong :(


Your answer was : Key person life and disability on Ron, Business overhead and personal life insurance
on Suzanne
The correct answer is : Key person life and disability on Suzanne and Ron
Rationale: The correct answer is "Key person life and disability on Suzanne and Ron."
As Suzanne and Ron are key persons of the business, key person disability and key person life should
be purchased on their lives by the business. Business overhead expense insurance is usually available
to single owner operated businesses where the income stops if the owner is disabled. The tiles
business is likely to have business in the absence of Suzanne and hence they may not be entitled to
get business overhead insurance.

Q: Which of the following statements regarding key person disability insurance is


true?

insured.

Premiums are paid by the insured and therefore the benefit is paid to the

A lump sum benefit is paid to the business on the loss of a key

employee due to disability.

paid to the key employee.

Premiums are paid by the business, but the benefit is

Premiums are paid by the business, and the monthly

benefit is paid to the business.


You are correct!!!
The answer is Premiums are paid by the business, and the monthly benefit is paid to the business.
Rationale: The correct answer is "Premiums are paid by the business, and the monthly benefit is paid
to the business."
A key person insurance is owned by the business and the benefit is paid always to the business. The
business buys key person insurance to protect the business from losses it might suffer if the key
person dies (Key person life insurance) or is disabled (Key person disability insurance)

Q: Delores was recently referred to you by her father, a retirement-planning client of yours. Delores
is 36 and the single parent of a 13-year-old daughter (her husband was killed in an auto accident
four years ago). Unfortunately, Delores's husband had little in the way of insurance (just enough for
final expenses), so Delores has had to support herself and her daughter almost exclusively through

her own efforts (with a little help from her parents).


Delores works alone as a computer systems analyst (she worked in the systems department of a
large retail business previously). Her business has been operating for only two years, and Delores
expects to earn about $32,000 this year. This is barely enough for Delores and her daughter to live
on, but she has been getting some great reviews (and referrals) from her clients, and she expects
that she will acquire some major corporate contracts in the near future. If so, her business will take
off, and she hopes her income will increase as a result.
At present, Delores is focused primarily on the need to send her daughter to university in the next
few years. Living in a rented apartment (she had to sell the house after her husband died), Delores
has no equity, and has been able to make little headway in setting aside funds for her daughter's
education. She currently has about $2,000 set aside in savings.
Personal retirement planning is a subject she has not even considered over the past couple of years
(she will have a small pension from her former employer). She worries that her whole life could fall
apart, financially, if she became ill and was unable to work.
Which of the following strategies would best meet Delores's needs?
Dental coverage and business overhead insurance (up to $1,600 month).
Disability insurance (up to $1,600 a month), with a 30-day waiting period, a five-year
benefit period, an "any occupation" definition of disability, and a cost-of-living-adjustment
(COLA) rider.
Disability insurance (up to $2,000 a month), with a 30-day waiting period, a five-year
benefit period, an "any occupation" definition of disability, and a future-purchase-option
rider (FPO).
Business-overhead insurance, disability insurance (up to $3,000 a month), with a 30-day
waiting period, a two-year benefit period, and an "own occupation" definition of disability.
Oops, You are wrong :(
Your answer was : Disability insurance (up to $2,000 a month), with a 30-day waiting period, a fiveyear benefit period, an "any occupation" definition of disability, and a future-purchase-option rider
(FPO).
The correct answer is : Disability insurance (up to $1,600 a month), with a 30-day waiting period, a
five-year benefit period, an "any occupation" definition of disability, and a cost-of-living-adjustment
(COLA) rider.
Rationale:
Rationale for Correct Answer:
With no equity and no other source of income in addition to her work, Delores needs disability
insurance. First, calculate the amount of insurance to which she would be entitled: $32,000 60%
12 = $1,600. However, an additional reason to choose this answer include her need to keep premiums
low (her ability to pay is modest). Therefore, Delores should employ the "cheapest" definition of
disability (any occupation) and a modest (five-year) benefit period. The COLA rider will protect her
benefit over five years of payments.
Reasons the other answers are incorrect:

The amount of insurance is incorrect. Also the FPO rider would not be as good a choice for Delores as
the COLA, as there is no firm evidence that her income is going to significantly increase.
Delores needs disability coverage over dental coverage, and business-overhead insurance is
inappropriate, because she does not appear to operate other than as a consultant, so she does not
have overhead costs.
The amount of insurance is incorrect. As explained for Answer C, business-overhead insurance is not
required.

Q: Monica has a private disability policy with a regular occupation definition. This means that: (disability)
Full benefits will be paid to Monica if she is working at another occupation, but cannot work at her
regular occupation.
Monicas claim will be turned down if she is able to work at another job.
Monicas disability benefits will be reduced by any earnings from other employment.
Monicas disability benefits will be reduced by income from her trust fund.
You are correct!!!
The answer is Monicas disability benefits will be reduced by any earnings from other employment.
Rationale: The correct answer is "Monicas disability benefits will be reduced by any earnings from
other employment."
A regular occupation policy pays total disability benefit when the insured is not able to perform th
important duties of his/her occupation and is not employed elsewhere. To encourage people to go
work elsewhere most regular occupation policies offset any wages that the insured may earn from the
disability benefit.

Q: Violet has a private disability policy with a future purchase option rider. This
means that:

Violet can increase her coverage with no evidence of insurability,

and no proof of income.

Violet can increase her coverage at any age with no

evidence of insurability. She must provide proof that her income has increased.
Violet can increase her coverage at any age with no evidence of insurability, and no
proof of income.

Violet can increase her coverage before she attains an age

stipulated in the policy, with no evidence of insurability. She must provide proof that
her income has increased.
You are correct!!!
The answer is Violet can increase her coverage before she attains an age stipulated in the policy, with
no evidence of insurability. She must provide proof that her income has increased.

Rationale: The correct answer is "Violet can increase her coverage before she attains an age
stipulated in the policy, with no evidence of insurability. She must provide proof that her income has
increased."
A future purchase option allows the insured to increase the benefit of his/her policy without any
medical evidence of insurability. The insured will however have to prove financial insurability. Normally
most policies stipulate an age before which the insured will have to exercise his/her future income
option.
Q: Salvatore D'Iorio emigrated to Canada from Italy in 1956. He started a wine import business, Italia Fine
Wines Incorporated, that has grown in leaps and bounds over the years. In 1994, he brought his son-inlaw, Anthony, into the business as an employee and 35% shareholder. Italia Fine Wines now employs 12.
Salvatore makes all sales and buys wines on twice-yearly trips to Italy. Anthony supervises the operations
for the business, including accounting, shipping, and distributing. Which set of insurance options best suits
the requirements of Italia Fine Wines?
Key-person disability on Salvatore, key-person life on Salvatore, travel insurance for Salvatore.
A buy-sell agreement between Salvatore and Anthony, business-overhead insurance, key-person
life on Salvatore and Anthony.
Business-overhead insurance, key-person life on Anthony, key-person disability on Anthony,
personal life on Salvatore.
Key-person life on Salvatore, key-person life on Anthony, key-person disability on Anthony,
business-overhead insurance.
You are correct!!!
The answer is Key-person disability on Salvatore, key-person life on Salvatore, travel insurance for
Salvatore.
Rationale:
Rationale for Correct Answer:
The question asks what set of options is best for the business. If we consider the business as an entity
that must be sustained in its own right, then the revenue stream of the business must be protected
and expenses of the business covered if revenues should decline. Thus, a key-person disability policy
on Salvatore is essential to pay benefits to the business if Salvatore becomes disabled. The chances of
disability are always greater than the chance of premature death, and this is why disability insurance
is a higher priority than life insurance.
Key-person life will be important to pay costs to replace Salvatore if he dies. Finally, travel insurance is
a good idea to cover any medical costs that Salvatore may incur on his many trips.
Anthony may be a shareholder, but he is not a revenue-producer, hence he is not as key to the
survival of the business as Salvatore.
Reasons the other answers are incorrect:
Since he is a revenue producer for the business, insurance emphasis must be placed on Salvatore.
Since Salvatore's disability may disrupt the business more than his death, it is essential to provide a
set of options that include disability coverage for him.
Again, disability coverage for Salvatore has not been provided by this answer and it is therefore
incorrect.
A buy-sell agreement would be beneficial for the two shareholders, but not necessarily the business.
Therefore, this answer is incorrect.

Q: Which of the following statements regarding disability buy-out insurance is false?


Disability buy-out insurance can help ensure a smooth transition between business owners.
Policies contain a trigger date which is usually six months after disability has been confirmed.
If a business owner is disabled, disability buy-out insurance is used to purchase his or her share of
the business.
The disability buy-out must not exceed the amount of life insurance on the lives of the principals.
Oops, You are wrong :(
Your answer was : If a business owner is disabled, disability buy-out insurance is used to purchase his
or her share of the business.
The correct answer is : Policies contain a trigger date which is usually six months after disability has
been confirmed.
Rationale: The correct answer is "Policies contain a trigger date which is usually six months after
disability has been confirmed."
The trigger date in a disability buyout policy is usually set to one year or two years from the onset of
disability

You are correct!!!


The answer is A policy owner must be physically impaired in order to be eligible to make a claim.
Rationale: The correct answer is "A policy owner must be physically impaired in order to be eligible to
make a claim."
Long-term care insurance provides for the following:

Facility care, home care, adult day care etc.

Long-term care may be added as a rider to a life insurance policy.

The benefit period of a long-term care policy can be lifelong.

The insured must not be able to perform two activities of daily living independently or must have a
cognitive impairment to be eligible for benefits. The insured need not be physically impaired.

Q: Which one of the following statements regarding critical illness insurance is false?
Children may be added as a rider to a parents critical illness policy.
Critical illness insurance pays a monthly benefit to the claimant.
Critical illness insurance can be used as an alternative to disability insurance when the applicant has
no earned income.

Critical illness policies can provide coverage for life.


You are correct!!!
The answer is Critical illness insurance pays a monthly benefit to the claimant.
Rationale: The correct answer is "Critical illness insurance pays a monthly benefit to the claimant."
Critical illness pays a lump sum benefit and not a monthly benefit.

You might also like