Q:Salvatore D'Iorio emigrated to Canada from Italy in 1956. He started a wine import business, which has grown in leaps and bounds over the years and in 1994 brought his son-in-law Anthony into the business as a partner. Salvatore's wife, Maria, has never worked, and their five children, Salvatore, Maria, Theresa, Joseph, and Antonia are all grown, with children of their own. Salvatore had always owned 100% of his business, until Anthony came along. Anthony started with 10%, and has now worked his way up to 35% ownership. Salvatore would want Anthony to own the business if he died, but he has to think of the interests of Maria and all the children. Salvatore and Anthony enter into a buy-sell agreement. The criss-cross policy ensures both of their lives. Who will Salvatore name as beneficiary of his policy to ensure that Maria is provided for, and who will receive his shares on his death?The beneficiary of Salvatore's policy will be Anthony, and the shares will be received by Anthony from the estate after he pays the price as per the buy-sell agreement to Salvatore's estate.The beneficiary of Salvatore's policy will be Anthony, and the shares will be received by Maria.The beneficiary of Salvatore's policy will be Maria, and the shares will be received by Maria.The beneficiary of Salvatore's policy will be Maria, and the shares will be received by Anthony.You are correct!!!The answer isThe beneficiary of Salvatore's policy will be Anthony, and the shares will be received by Anthony from the estate after he pays the price as per the buy-sell agreement to Salvatore's estate.Rationale:Rationale for Correct Answer:The beneficiary of the policy must be Anthony, who will receive the funds tax-free and use the funds according to the buy-sell agreement to buy the shares from Salvatore's estate. Because there is a buy-sell agreement in place, no person can be named the beneficiary of the shares. The shares will pass to Salvatore's estate.

Reasons the other answers are incorrect:The existence of a buy-sell agreement make the other choices impossible. (buy sell agreemet-bussiness)Q:If a life insurance contract has a non-forfeiture option, which of the following benefits will not be lost if premium payments are discontinued?Option 1: Receipt of the cash surrender valueOption 2: Purchase of term coverage with the cash surrender valueOption 3: Loan using the cash surrender value as collateral

Options 1 and 3 only

Options 1, 2 and 3

Options 1 and 2 only

Options 2 and 3 only

You are correct!!!The answer isOptions 1, 2 and 3Rationale:Answer is "Options 1,2 and 3"Non-Forfeiture benefits include:

Automatic Premium Loan Cash Surrender Value Reduced Paid-up Insurance Extended Term InsuranceQ:Andr is a 53-year-old professor of philosophy at an independent college in a mid-sized city in western Canada. The college is small and flexible in its approach to teaching features that appeal to Andr. The downside is that the college doesn't pay as well as the large universities and does not offer either a pension plan or group benefits.

Andr has no children (he is divorced), and his 89-year-old father has lived with Andr since his mother passed away last year age 90. Andr is very committed to the college, and to his two nieces and his nephew.

At present, Andr works seven months of the year teaching at the college, and spends the other five months reading and writing, usually at his cabin retreat. This year he plans a field trip to Greece, to see the ancient Greek temples first-hand.

It is Andr's retirement dream to quit teaching in about seven years and spend his time travelling in Europe to research the philosophers of the first millennium. He hopes to have sufficient funds by retirement to be able to afford such a venture. His only fears are that illness could intervene to sidetrack his savings plans, or that a medical condition (such as a stroke or a heart condition) could impair him to a degree that would make his extended field trip impractical.

Andr has not accumulated a lot in the way of worldly goods over his lifetime. When he divorced, he was required to make a substantial settlement payment to his wife, and he did this in a lump sum. He rents an apartment near the university and (other than the cabin) owns only a car, about $25,000 in savings bonds, and $200,000 in RRSPs for his retirement. The cabin, which he purchased in 1992, has an adjusted cost base of $60,000 and a current fair market value of $150,000.

Andr has very specific estate-planning objectives: His cabin is to go to his nephew, George, free and clear of taxes or any encumbrances. He wishes to leave $100,000 to each of his nieces. He wants to endow a chair in medieval philosophy at the college. Today this would cost about $200,000, but the expense is growing each year.

Andr realizes that he will lose a portion of his estate to taxes at his death (at an assumed marginal tax rate of 45%), and there is also a risk that he will deplete his assets in retirement to a degree that could make some of his plans impractical.

Which of the following combinations of A&S insurance products would you recommend to Andre tobestresolve his non-tax-related financial-planning problems?

Long-term-disability insurance, long-term-care insurance, and a $200,000 Term-to-100 policy to deal with final expenses.

Disability insurance, critical illness (CI) insurance, and an AD&D rider to the disability policy.

Travel insurance, long-term-disability insurance, long-term-care insurance, and a $100,000 life insurance policy with return of account value.

Travel insurance, long-term-disability insurance, and long-term-care insurance.

Oops, You are wrong :(Your answer was :Long-term-disability insurance, long-term-care insurance, and a $200,000 Term-to-100 policy to deal with final expenses.The correct answer is :Travel insurance, long-term-disability insurance, and long-term-care insurance.Rationale:Rationale for Correct Answer:Andr needs travel insurance to protect him against unexpected health costs when he goes to Greece this summer. He also needs long-term-disability coverage to protect against the risk that his income could be interrupted due to illness or injury prior to his retirement (he has no group benefits). Given the advanced age of his father and of his mother when she died, long-term-care would be a good choice, because Andr is single and does not have significant assets with which he could pay for such care.

Reasons the other answers are incorrect:The question specifies A&S insurance.

Critical illness insurance would provide him with the capital required to modify his retirement travel/research plans, should his health be affected by an event like a stroke or a heart attack (or to accelerate the trip, should he contract cancer), but the other options in this question are not as good an answer choice as the correct answer.Q:Alana and Alison, in their early thirties, are equal shareholders in their incorporated business, an organic food shop and cooking school. Alana is responsible for the operations of the shop, while Alison organizes, promotes and teaches the cooking classes. The business is currently valued at $300,000. Although it provides a good income for the owners, cash flow is tight. Both Alana and Alison have wills that leave their shares of the business to their husbands, Neil and Clint. The husbands, however, have no interest in being actively involved in the business in the event of the death of one of the owners. The survivor would likely want to hire a new employee with experience in the food business to keep things going. Which of the following is the best insurance solution to address their concerns? (life, business, needs)

A whole life insurance policy on Alana and Alison with the business named as beneficiary

A whole life insurance policy on Alana and Alison with the surviving owner named as beneficiary

A renewable and convertible term insurance policy on Alana and Alison with their respective spouses as beneficiaries

A renewable and convertible term insurance policy on Alana and Alison with the business named as beneficiary

Oops, You are wrong :(Your answer was :A whole life insurance policy on Alana and Alison with the business named as beneficiaryThe correct answer is :A renewable and convertible term insurance policy on Alana and Alison with the business named as beneficiary

Q:Which of the following features applies both to whole life and universal life insurance?Option 1: Loan against cash valueOption 2: cash surrender valueOption 3: death benefit optionsOption 4: variable premiumsOption 5: paid-up insurance

Options 1, 2 and 4

Options 4 and 5

Options 2, 3 and 5

Options 1 and 2

Rationale:The correct answer is "A renewable and convertible term insurance policy on Alana and Alison with the business named as beneficiary"A renewable and convertible term insurance policy on Alana and Alison with the business named as the beneficiary would be most appropriate, because it gives the survivor funds with which to hire a replacement employee.Q:Ken has a $500,000 life insurance policy that names his daughter Tara as beneficiary. Tara, 45, is single and teaches part-time at a nursery school. Due to some emotional difficulties, she has not been able to advance in her career or even work on a full-time basis. Because her income has always been low, Tara has not been able to set aside any money for her future. Ken wants Tara to be able to use her inheritance to provide a more comfortable lifestyle. Which of the following settlement options would be most appropriate for Tara's needs?

Lump sum payment

Life annuity

Interest only

Instalment

Oops, You are wrong :(Your answer was :Lump sum paymentThe correct answer is :Life annuityRationale:The correct answer is "Indexed death benefit."As the Fair market value of the property might be increasing (under normal circumstances), the death benefit may be indexed to reflect the increase in the capital gains tax that will be due on Ryan's death.

Q:Abdul (age 49) and Jasmine (age 48) have grown children (a son and a daughter). The couple have lived and worked in Canada for the past 22 years. Abdul owns and operates his own taxi, while Jasmine works in the accounting department of a large general insurance company.

In addition to their home and Abdul's taxi licence, the couple has acquired a rental property and have fully funded their RRSPs.

Currently, their statement of assets and liabilities appears as follows:

ASSETSABDULJASMINE

ItemFMVCostFMVCost

House$245,000$60,000$245,000$60,000

Rental property400,00090,00000

Furnishings, etc.8,00017,50012,00017,500

Automobile21,00032,00000

Taxi licence190,00040,00000

Savings bonds18,00010,00010,00010,000

RRSPs140,00091,000120,00055,000

Life insurance25,0002,00010,0005,500

$1,047,000$407,000

LIABILITIES

Home mortgage$0$0

Credit cards2,0001,000

Car loan7,0000

$9,000$1,000

NET WORTH$1,038,000$406,000

The couple's long-term estate-planning objective is to pass along a substantial estate to their children.Abdul and Jasmine have their mortgage paid off and their children educated. Which of the following combination of options would you recommend to the couple?

Term-to-100 coverage on each of Abdul and Jasmine.

life non-par policies on each of Abdul and Jasmine.

Term-to-100 insurance on Jasmine, 10-year renewable term coverage on Abdul.

Universal life insurance coverage on the couple (with a term rider on Abdul).

You are correct!!!The answer isUniversal life insurance coverage on the couple (with a term rider on Abdul).Rationale:Rationale for Correct Answer:With their liabilities paid off and their RRSP contributions maxed out, the couple will be looking for a tax-deferral vehicle in which to invest their excess capital. Universal life can provide the flexibility required for these additional deposits with diverse investment opportunities available.

The term rider on Adbul's life could assist with capital-gains-tax liability on the taxi licence and rental property if he should predecease Jasmine.

Reasons the other answers are incorrect:are incorrect because Term-to-100 and whole life do not offer investment opportunities combined with life insurance.:Fernando is buying life insurance and is considering who he should name as beneficiary. Which one of the following would be considered a preferred beneficiary?

Fernando's sister Rosa

Fernando's father Pedro

Fernando's grandmother Isabella

Fernando's estate

You are correct!!!The answer isFernando's father PedroRationale:The correct answer is "Fernando's father Pedro"Preferred beneficiary is one amongst Spouse, child, grandchild or parent.

Q:Which of the following statements describe how dividends from a whole life participating policy can always be used?Option 1: Dividends can be used to reduce the following year's premium.Option 2: Dividends can accumulate in cash.Option 3: Dividends can be used to purchase paid-up additions.Option 4: Dividends can be paid out to the policy owner tax-free.

Options 2, 3 and 4

Options 1, 3 and 4

Options 1, 2 and 4

Options 1, 2 ,3 and 4

You are correct!!!The answer isOptions 1, 2 ,3 and 4Rationale:Answer is "Options 1,2, 3 and 4"Dividend options of a participating whole life policy are:

Cash Premium Reduction Accumulation Paid-up additions One year term insuranceQ:Herb and Tony are a same-sex couple, and they have been living common-law for the past twelve years. They own a condominium in downtown Toronto with a fair market value (FMV) of $370,000 and an adjusted cost base (ACB) of $220,000. Additionally, they own a cottage property in the Muskokas, with a fair market value of $350,000 and an adjusted cost base of $150,000 (it is expected to continue to grow in value).

Herb and Tony are the beneficiaries of each other's wills, with the residue of the estate passing to Tony's nephew, Robin, at the death of the last survivor. The two are concerned that Robin should be able to receive the properties free and clear of any tax consequences, since he is not wealthy in his own right. Both Herb and Tony are in the top marginal tax bracket.

As well, Herb and Tony would like to be able to leave a $100,000 legacy to the Anglican Church. They don't have the liquid cash available right now, but hope to be able to save enough to meet this commitment by the time the last of the two of them dies. They obviously don't know exactly when that will be, but Herb has a life expectancy of about twenty years. Tony has hepatitis (contracted from a transfusion of tainted blood), and has only five to ten years to live.

Which of the following solutions would bemost appropriateto ensure that a $100,000 legacy would be left to the church?

$100,000 of renewable and convertible (R&C) 10-year term insurance on Tony.

$500,000 of whole life participating insurance on Herb.

$100,000 of Term-to-100 insurance on Herb.

$100,000 of 10-year renewable term insurance on Tony.

Oops, You are wrong :(Your answer was :$100,000 of 10-year renewable term insurance on Tony.The correct answer is :$100,000 of Term-to-100 insurance on Herb.Rationale:Rationale for Correct Answer:The $100,000 legacy should be funded with permanent life insurance (to guarantee payment whenever death occurs), and only Herb is insurable. The death benefit can be level (not indexed or increasing), since the legacy is a fixed-dollar amount.

Reasons the other answers are incorrect:There is no need to overfund the death benefit when the question clearly asks only about paying the legacy.

Tony is uninsurable.

Tony is uninsurable.Q:Roxie, a single mother with a one-year-old daughter, Emilia, lives in a small rental apartment. With the help of her parents, she is hoping to buy a townhouse around the time that Emilia starts school. Roxie is meeting with her insurance agent, Darryl, to discuss the purchase of term life insurance. Roxie's budget is tight, but she recognizes the importance of having something in place to provide for Emilia. Which of the following riders should Darryl recommend for Roxie?

Guaranteed insurability benefit

Parent waiver

Accidental death benefit

Accelerated death benefit

You are correct!!!The answer isGuaranteed insurability benefitRationale:The answer is "Guaranteed insurability benefit (GIB)"Adding this rider will enable Roxie to increase the benefit of the policy without evidence of insurability. As her budget is tight, she may not be able to afford the premiums for higher amounts of benefit currently. She would do good to add on a GIB rider, so that she can increase the benefit later when she can afford the higher premiums, even if she is uninsurable.Q:How is a preferred beneficiary different from other beneficiaries?Preferred beneficiaries control the insurance contract.Preferred beneficiaries must agree in writing to a change in beneficiary designation.Preferred beneficiaries are always protected from the claims of creditors of the insured.Preferred beneficiaries must be related by blood to the policy owner.Oops, You are wrong :(Your answer was :Preferred beneficiaries must be related by blood to the policy owner.The correct answer is :Preferred beneficiaries are always protected from the claims of creditors of the insured.Rationale:The correct answer is "Preferred beneficiaries are always protected from claims of creditors of the insured."Preferred beneficiary is one amongst Spouse, child, grandchild or parent. If a preferred beneficiary has been named, the cash values of the policy are protected from the insured's creditor, while the insured is alive. On death the proceeds are protected as the proceed bypasses the probate process.

Q:Ryan has been asked to choose a death benefit for his universal life insurance policy. The main purpose of Ryan's life insurance is to provide funds to pay for the capital gains tax on his weekend property in Muskoka. Which of the following death benefits should Ryan choose?

Indexed death benefit

Level death benefit plus cumulative gross deposits

Level death benefit

Level death benefit plus total account value

You are correct!!!The answer isIndexed death benefitRationale:The correct answer is "Indexed death benefit."As the Fair market value of the property might be increasing (under normal circumstances), the death benefit may be indexed to reflect the increase in the capital gains tax that will be due on Ryan's death.

Q:Ted (age 52) and Bob (age 47) are co-owners of an incorporated company that manufactures garden elves. They bought the business for $100,000 in the 1990s (when garden elves were falling out of favour), but have since experienced a resurgence of sales (with the recent boom in suburban residential construction, due to low mortgage rates), and have expanded into gnomes, wishing wells, and birdbaths. The business was recently valued at $1,000,000, and is expected to grow about 5% per annum, compounded, for at least the next 10 years.

Bob owns 60% of the common shares of the company, and Ted owns the other 40%. In addition to themselves, and five workers who actually make the elves, the company employs Lisa, the sales representative. Lisa is personally responsible for 75% of the company's annual sales, and the company would suffer significant losses for at least a year if she had an accident, became sick, or died.

Bob and Ted recently executed a buy-sell agreement (with the aid of the corporation's lawyer), in which each will have to buy out the other's interest in the business in the event of the death or permanent disability of the other. Bob and Ted both expect to retire between 60 and 65, and will sell the business on the open market (assuming there is still a market for garden elves and other knick-knacks).

Which of the following life-insurance products on Lisa's life would you recommend?

A five-year renewable term, with an indexed death benefit, owned by the company.

Whole life participating, with the PUA dividend option, owned by Lisa.

A Term-to-100 policy owned by the two shareholders.

A 10-year renewable term, with a guaranteed-insurability option, owned by the shareholders.

You are correct!!!The answer isA five-year renewable term, with an indexed death benefit, owned by the company.Rationale:Rationale for Correct Answer:Since Lisa is an employee of the company (and could leave at any time), and the coverage is required only while she is working for the company, term insurance makes the most sense. The question then becomes: who should own the policy? Key-person insurance is always owned by the business, so that a death benefit ensures the business continues to function. Therefore, Lisa's policy should be owned by the company (to protect against the company's losses), and should have an indexed death benefit, since sales are expected to grow by 5% annually.

Reasons the other answers are incorrect:A permanent insurance policy is not required.

The shareholders should not own the policy.

A permanent insurance policy is not required.

Q:Which of the following statements about universal life insurance policies are true?Option 1: Universal life policies provide flexibility in the amount and timing of premium payments.Option 2: Policy owners have the option of investing the cash portion of the account in fixed income investments, mutual funds, or a combination of the two.Option 3: Policy owners can increase or decrease the face amount of coverage.Option 4: There is a choice of death benefit options.

Options 1, 2, 3 and 4

Options 2 and 4 only

Options 1 and 3 only

Options 1, 2 and 3 only

You are correct!!!The answer isOptions 1, 2, 3 and 4Rationale:Answer is Options 1,2,3 and 4. Universal life insurance offers the following flexibilities:

Flexibility in amount and timing of premiums Flexibility of investment options in the investment account Flexibility to increase or decrease the amount of insurance coverage Flexibility in choice of death benefits.Q:Abdul (age 39) and Jasmine (age 38) have two teenage children (a son and a daughter). The couple have lived and worked in Canada for the past 12 years. Abdul owns and operates his own taxi, while Jasmine works for the provincial government.

In addition to their home and Abdul's taxi licence, the couple has acquired a rental property and invests regularly in RRSPs.

Currently, their statement of assets and liabilities appears as follows:ASSETSABDULJASMINE

ItemFMVCostFMVCost

House$115,000$60,000$115,000$60,000

Rental property120,00090,00000

Furnishings, etc.12,00017,50012,00017,500

Automobile15,00022,00000

Taxi licence140,00040,00000

Savings bonds10,00010,00010,00010,000

RRSPs40,00031,00020,00025,000

Life insurance25,0002,00010,0005,500

$477,000$167,000

LIABILITIES

Home mortgage$35,000$35,000

Credit cards8,0001,000

Car loan7,0000

$50,000$36,000

NET WORTH$427,000$131,000

Abdul has been doing some reading about financial and estate-planning (and tax-planning, in particular), and has approached you for advice. As an entrepreneur, he is open to new ideas and is willing to accept some risk and uncertainty regarding results in exchange for flexibility and more promising investment returns. At present, most of the couple's excess capital is being directed to their RRSPs and to paying off their mortgage (which they hope to discharge in the next 10 years).

The couple expects to retire by age 60. If Abdul died first, the rental property and the taxi licence would be sold to generate capital to support Jasmine. If Abdul lives to retirement age, he would sell both the rental property and the taxi licence at that time.

Which of the following life-insurance product combinations do you feel would be best just to deal with Abdul and Jasmine's tax problems at death? Assume current valuations (i.e., no growth in value of assets), regardless of when death might occur, and a 50% marginal tax rate for each of them.

$32,500 of renewable and convertible 10-year term on Abdul, and $85,000 of whole life insurance on Jasmine, each policy with a waiver-of-premium rider.

$32,500 of renewable and convertible (R&C) 10-year term on Abdul's life, with $30,000 of whole life coverage on both Abdul and Jasmine. Both policies should carry a guaranteed insurability benefit (GIB) rider.

$32,500 of Term-to-100 on Abdul and $30,000 of whole life insurance on Jasmine, with an accidental death benefit (ADB) rider on both policies.

$80,000 of Term-to-100 on both Abdul and Jasmine, with a guaranteed insurability rider.

Oops, You are wrong :(Your answer was :$32,500 of Term-to-100 on Abdul and $30,000 of whole life insurance on Jasmine, with an accidental death benefit (ADB) rider on both policies.The correct answer is :$32,500 of renewable and convertible (R&C) 10-year term on Abdul's life, with $30,000 of whole life coverage on both Abdul and Jasmine. Both policies should carry a guaranteed insurability benefit (GIB) rider.Rationale:Rationale for Correct Answer:At Abdul's death the rental property and the taxi licence will be sold. This will result in total capital gains of $130,000 (or a taxable capital gain of $65,000). This would result in a tax liability of about $32,500 (at a 50% marginal tax rate). Since Abdul does not plan to hold the asset past retirement, permanent insurance is not required.

The RRSPs are likely to trigger tax liability ($60,000 times the marginal tax rate of 50% = $30,000) only at the last death (there would be a rollover at the first death). This need is permanent, so a whole life contract would be appropriate. The GIB rider would help the couple to counter increases in tax liability in the future. There is no tax liability on the gain in the house value, because it is likely their principal residence.

Reasons the other answers are incorrect:Abdul does not need permanent insurance for coverage of the rental property and taxi licence.

Jasmine does not need $85,000 of whole life coverage.

Abdul does not need permanent insurance for coverage of the rental property and taxi licence. Neither of them require $80,000 in coverage.

Q:Jenny Marsden is 87 years old, and increasingly suffers from senile dementia. It is possible she has Alzheimer's disease. Her husband, Norm, helped Jenny take out a whole life policy with a $250,000 death benefit 27 years ago. Norm died six years ago. Jenny is the policy owner and, in the last two years, she has changed the beneficiary on the policy sixteen times. The last time, she threatened to overlook her children as beneficiaries and name the Furry Feline Society as beneficiary until her oldest son learned of Jenny's intention and stepped in. What should happen to Jenny's policy to maintain its integrity?

An absolute assignment should be made of the policy, ideally to one of her children or to her lawyer or power of attorney.

A collateral assignment should be made of the policy to a financial institution that would maintain the children as beneficiaries.

The policy should be allowed to lapse, since Norm and Jenny would never originally have intended the Furry Felines to receive the death benefit.

The policy should be rescinded by Jenny's power of attorney.

You are correct!!!The answer isAn absolute assignment should be made of the policy, ideally to one of her children or to her lawyer or power of attorney.Rationale:Rationale for Correct Answer:An absolute assignment transfers all rights of the policy owner, including the right to appoint a beneficiary, to another party.

Reasons the other answers are incorrect:Lapsing the policy means no death benefit; obviously this was not an intention of Norm or Jenny.

A policy can only be rescinded in the 10-day rescission period.

Collateral assignment is made as security for a loan.

Q:Lance and Sofia are a young couple in their late twenties with one child, Aaron. Lance is a computer service technician with a small company that does not offer a benefits plan. He earns $40,000 annually. Sofia is currently at home with Aaron and doesn't plan to go back to work until Aaron reaches school age in three years' time. They rent a small townhouse and have limited financial assets, since most of their income is used to cover day-to-day expenses. Lance has been speaking with Claude, an insurance agent, about his need for life insurance. What would be the most appropriate type of insurance for Claude to recommend for Lance?A universal life policyTerm-to-100 insuranceWhole life insuranceRenewable and convertible term insuranceOops, You are wrong :(Your answer was :Term-to-100 insuranceThe correct answer is :Renewable and convertible term insuranceRationale:The correct answer is "Renewable and convertible term insurance."As the couple are young and they have limited income and they may also not have a clear picture of their permanent needs, the most appropriate insurance for Lance would be renewable and convertible term insurance. The other three types of insurance are permanent and are more expensive.

Q:Glen (age 40) and Glenda (age 39) are a married couple with two children, aged 16 and 12. The family lives in rural Saskatchewan in a house worth $120,000, with a $70,000 mortgage. The mortgage has 20 years to run, and Glen sees little likelihood that it will be paid off early, given the couple's limited financial resources.

Glen works for a local co-operative, earning $40,000 a year. Glenda works part-time for the same organization, earning $12,000 a year as a clerk. With two growing boys to clothe and feed, and with the necessity of saving for their education, the family doesn't have a lot of cash left over at the end of the month.

Glen has contacted you for insurance advice: he is concerned that Glenda would not be able to keep the house if he were to die, and that there is not yet enough saved to pay for the three years of post-secondary education that both boys are planning.

Which of the following products would you recommend tobestprotect Glen and Glenda's mortgage?

Term-to-100

20-year reducing death benefit term.

5-year renewable term with increasing death benefit term.

Whole life participating.

You are correct!!!The answer is20-year reducing death benefit term.Rationale:Rationale for Correct Answer:The coverage is expected to be needed for only 20 years, and the family has limited resources for at least the next 10 years, so term insurance would be most appropriate. The need will be decreasing (as the mortgage principal is paid off over time), so a reducing-death-benefit policy would best fit the need and would be least expensive.

Reasons the other answers are incorrect:Permanent coverage is not required.

The coverage term should match the mortgage term

Q:Jamie and Edwina are business owners in their early fifties. Their electronics store has done very well over the years, and now employs five people including Jamie, Edwina, and their son Jerry, who is being groomed to take over the business when his parents retire. The business is valued at $2,000,000 today. Jerry currently runs the day-to-day operations of the store, while Jamie and Edwina look after the accounting and administration. Their second son, Kurt, is not involved in the business and has never taken any interest in it.Although the business will eventually pass to Jerry, Jamie and Edwina want to make sure that Kurt receives an equal share of their estate. In addition to the business, they have a principal residence worth $600,000, a cottage worth $500,000, and RRSPs worth $800,000 in total. Which of the following insurance solutions would best protect the value of the business and provide an equal share of their estate to Kurt? (life, business, needs)Corporate-owned life and disability insurance on Jerry; a first-to-die whole life insurance policy on Jamie and Edwina, with Kurt and Jerry as equal beneficiariesCorporate-owned life and disability insurance on Jerry; a participating last-to-die whole life insurance policy on Jamie and Edwina, with Kurt as beneficiaryPersonal life and disability insurance on Jerry; a non-par last-to-die whole life insurance policy on Jamie and Edwina, with Kurt as beneficiaryCorporate-owned life and disability insurance on Jamie and Edwina; a non-par last-to-die whole life insurance policy on Jamie and Edwina, with Kurt as beneficiary

You are correct!!!The answer isCorporate-owned life and disability insurance on Jerry; a participating last-to-die whole life insurance policy on Jamie and Edwina, with Kurt as beneficiaryRationale:The correct answer is "Corporate-owned life and disability insurance on Jerry; a participating last-to-die whole life insurance policy on Jamie and Edwina, with Kurt as beneficiary"As Jamie and Edwina want both sons to get an equal share of their estate, they may give the business worth $2,000,000 to their son Jerry and possibly give the other assets they own t Kurt. Kurt will still receive less by way of distribution. To make up the shortfall, Jamie and Edwina should insure themselves for the shortfall and the taxes to be paid on the cottage and RRSP balance and they will probably be better off with a participating policy with dividends being put to paid up additions. This increasing death benefit option is preferred because the value of the business might be appreciating. Since Jerry is an employee of the business a corporate owned life and disability insurance on Jerry would be the most appropriate solution.

Q:Hank and Catherine Plante have been married since their last year of university eighteen years ago. They are both employed full-time at a local office of an international hair-transplant clinic (based in Moncton, N.B.), make modest incomes, and expect to continue working at least until age 60. They are currently both aged 40.

The Plantes own their home, worth $220,000, and have a $60,000 open mortgage with 14 years to run on the amortization schedule. They hope to pay off the mortgage in no more than 10 years, although this is not a certainty at this time. Much depends on how much the couple have to spend on their children's education, and if and when their girls get married.

The Plantes have 16-year-old twin daughters, Elizabeth and Mary, who are both currently in Grade 11 and will be going to university for four-year kinesiology courses in the next year or two. Although the Plantes have saved for the girls' education in RESPs, they still have five more years of education funding to set aside. Even then, both girls will probably have to take out substantial student loans, since they wish to attend universities several hundred miles away from the Plantes' hometown.

The Plantes have a modest pension plan where they work, and have also accumulated several thousand dollars each in RRSPs. They hope to be able to build on these RRSPs once the girls are out of school.

The Plantes are both in good health, although Hank has a sporadic history of late-onset diabetes in his family (his father and one aunt both started exhibiting diabetic symptoms in their late fifties, and the aunt eventually died of diabetic shock).

You have completed a preliminary review with the Plantes, and they have agreed that, in addition to their other needs, they will also require a $25,000 final-expense fund (money that they do not currently have available in current dollars). This is one of the couple's high-priority, short-term savings goals, along with the education fund for their daughters. Given their immediate savings requirements, the Plantes wish to minimize the amount of income to be allocated to premiums for life insurance, at least for the next five to ten years.

Which of the following is thebest policyand package of features and/or riders that the Plantes should opt for as part of their term policy coverage?

A joint-second-to-die policy, with an increasing death benefit and an AD&D rider.

A joint-first-to-die policy, with a level death benefit, and the policy should be convertible.

A joint-second-to-die policy, with a decreasing death benefit, and there should be a waiver-of-premium rider added.

A joint-first-to-die policy, with an increasing death benefit, and the policy should be renewable and convertible.

You are correct!!!The answer isA joint-first-to-die policy, with an increasing death benefit, and the policy should be renewable and convertible.Rationale:Rationale for Correct Answer:Their priority is a final-expense fund. With that goal in mind, they need the assurance of receiving an amount on the death of the first of them that will be equal to $25,000 in today's dollars. The increasing death benefit will provide this coverage. Having a renewable and convertible policy will offer the Plantes the option to convert to permanent coverage (whole life) at some point in the future when more premium dollars are available to cover final expenses, and for which neither Hal nor Catherine will have to provide evidence of insurability.

Reasons the other answers are incorrect:The level death benefit will not provide the coverage they will need for last expenses, because inflation is going to increase the amount of coverage needed for last expenses over time.

A joint-second-to-die policy will not provide a survivor with funds needed for last expenses.Q:Margot has an adjustable premium whole life insurance policy. Which of the following statements is true with regard to this type of policy?The premium can be reduced if the investment yield has decreased.The death benefit can be adjusted from time to time.The premiums can fluctuate at any time.These policies are most popular when interest rates are falling.The answer is "The death benefit can be adjusted from time to time"In an adjustable whole life policy the premiums are reduced in the following year if the investment yield is better than anticipated. If the investment yield is worse than anticipated, the premiums are maintained for the following year, but the death benefit reduced. The premiums do not fluctuate time to time, but generally on an annual basis. These policies are most popular when intrst rats are rising.

Q:Marcel, age 66, has a whole life policy with an ACB of $40,000, a cash value of $100,000, and a death benefit of $500,000. He acquired this policy in 1985. Marcel has determined that he no longer needs the policy and has decided to transfer ownership to the Canadian Cancer Society as a charitable donation. What are the tax implications for Marcel? (life, donation, tax)Marcel's estate will receive a tax credit of $100,000 at the time of his death.Marcel's estate will receive a tax credit of $500,000 at the time of his death.Marcel will receive a tax credit of $500,000 at the time the ownership is transferred.Marcel will receive a tax credit amount of $100,000 at the time the ownership is transferred.

Q:Mallory has had a 20-pay whole life policy with a $300,000 face amount for several years. However, with the economic downturn, Mallory lost her job and can't afford to pay the premiums now. Which of the following options are available to Mallory?Option 1: Use an automatic premium loan to keep coverage in force.Option 2: Use the cash surrender value of the policy to buy term insurance with a $300,000 death benefit.Option 3: Use the cash surrender value of the policy to buy term insurance with a lower death benefit.Option 4: Accept a lower death benefit in return for lower premiums on the whole life policy.

Options 1 and 2

Options 1, 3 and 4

Options 2, 3 and 4

Options 1 and 3

Rationale:Answer is "Options 1 and 2"The following non-forfeiture benefits are part of a whole life policy Automatic Premium Loan (APL), Cash Surrender Value (CSV), Reduced Paid-up Insurance (RPUI) and Extended Term Insurance (ETI)If the extended term insurance (ETI) is used, the policy converts to a term insurance with the same face amount as the whole life policy. The length of the term depends upon the cash surrender value and the age of the insured upon exercising the option.

Q:Barb, age 33, is a single mother with one daughter, Liz, age 4. When Barb was pregnant with Liz, she bought a $500,000 whole life policy with a guaranteed insurability benefit rider. The premiums were expensive, but Barb felt they were affordable at the time. Now, however, her circumstances have changed. She lost her job as a human resources manager when her firm went out of business, and is now working for a competitor in a lower level position at a much-reduced salary. However, she expects to be promoted into an acting manager position in about six months' time, with a corresponding increase in salary. Which of the following options would be best for Barb under her current circumstances? (life, conversion, riders)Barb should use an automatic premium loan to cover her payments until her financial situation improves.Barb should pay lower monthly premiums to reduce the amount of her whole life coverage and keep the guaranteed insurability rider in place.Barb should convert her policy to term insurance, keeping the guaranteed insurability rider in place.Barb should cancel her policy and apply for a new one with lower premiums.

You are correct!!!The answer isBarb should use an automatic premium loan to cover her payments until her financial situation improves.Rationale:The correct answer is "Barb should use an automatic premium loan to cover her payments until her financial situation improves."As the setback in finances is temporary, Barb should use the automatic premium loan to cover her payments, until her financial situation improves.

Q:Allan and Eleanor are a wealthy couple in their early sixties with three grown children. Their assets are sufficient to meet both short-term and long-term needs on their death. Allan's mother, Lily, lives in a self-contained suite in Allan and Eleanor's home. Lily is 83 and in good health, although she is beginning to have some difficulty moving around due to worsening arthritis. Lily receives OAS and GIS payments, but has no other income or assets. Allan and Eleanor have provided for her financial support for many years since Allan's father died. Their oldest daughter, Marlene, is very close to Lily and has said that she would look after Lily if anything happened to Allan and Eleanor.Allan and Eleanor have a joint last-to-die term policy in the amount of $200,000 naming their estate as beneficiary. They have left their considerable estates first to each other, and then in equal shares to their three children. However, they are concerned about providing for Lily in the event that they predecease her and providing some additional compensation for Marlene. What would be the most appropriate solution to meet their needs?

Purchase an additional term life policy with Marlene as the beneficiary. Structure the death benefit payout as a lump sum.

Purchase a long-term care insurance policy for Lily.

Purchase an indexed life annuity for Lily, with payments to begin immediately.

Designate Lily as the beneficiary on the current term life policy. Structure the death benefit payout as income payable to Lily with any residual going to the children as contingent beneficiaries.

Oops, You are wrong :(Your answer was :Purchase a long-term care insurance policy for Lily.The correct answer is :Designate Lily as the beneficiary on the current term life policy. Structure the death benefit payout as income payable to Lily with any residual going to the children as contingent beneficiaries.Rationale:The correct answer is "Designate Lily as the beneficiary on the current term life policy. Structure the death benefit payout as income payable to Lily with any residual going to the children as contingent beneficiaries."As the couple have enough estate for the children and the immediate requirement is to take care financially of Lilly, should anything happen to Allan and Eleanor, the solution would be to name Lilly as the primary beneficiary of the policy choosing an annuity settlement option with any residual going to the children as contingent beneficiaries.Q:Ted (age 52) and Bob (age 47) are co-owners of an incorporated company that manufactures garden elves. They bought the business for $100,000 in the 1990s (when garden elves were falling out of favour), but have since experienced a resurgence of sales (with the recent boom in suburban residential construction, due to low mortgage rates), and have expanded into gnomes, wishing wells, and birdbaths. The business was recently valued at $1,000,000, and is expected to grow about 5% per annum, compounded, for at least the next 10 years.

Bob owns 60% of the common shares of the company, and Ted owns the other 40%. In addition to themselves, and five workers who actually make the elves, the company employs Lisa, the sales representative. Lisa is personally responsible for 75% of the company's annual sales, and the company would suffer significant losses for at least a year if she had an accident, became sick, or died.

Bob and Ted recently executed a buy-sell agreement (with the aid of the corporation's lawyer), in which each will have to buy out the other's interest in the business in the event of the death or permanent disability of the other. Bob and Ted both expect to retire between 60 and 65, and will sell the business on the open market (assuming there is still a market for garden elves and other knick-knacks).

Which of the following life-insurance products is the best and most cost-effective to fund the buy-sell agreement?

Ted should own $600,000 of Term-to-100 insurance on himself, and Bob should own $400,000 of term-to-100 insurance on himself.

Bob should own $40,000 of five-year renewable term insurance on Ted, and Ted should own $60,000 of five-year renewable term insurance on Bob.

The company should own $500,000 worth of 10-year renewable term insurance on each of Bob and Ted. Each policy should have an indexed death benefit.

Ted should own $600,000 of five-year renewable term insurance on Bob, and Bob should own $400,000 of five-year renewable term insurance on Ted. Each policy should have an indexed death benefit.

You are correct!!!The answer isTed should own $600,000 of five-year renewable term insurance on Bob, and Bob should own $400,000 of five-year renewable term insurance on Ted. Each policy should have an indexed death benefit.Rationale:Rationale for Correct Answer:Bob and Ted must own policies on the lives of each other, since each has an obligation to buy the other's shares. The insurance in place on each of the shareholders should be commensurate with their ownership (60% for Bob and 40% for Ted) of the company. The value of the insurance must be based on the current market value of the company. Given the ages of the partners, five-year renewable term would be most appropriate (and cost-effective), since the coverage will not be needed for much more than fifteen years (at the most) and the two expect to sell the business when they reach their early to mid 60s. The policies should have an indexed death benefit, to keep pace with the anticipated increase in the value of the company's shares.

Reasons the other answers are incorrect:The partners both expect to retire between ages 60 and 65. Term-to-100 does not suit their needs. Also, they must have insurance in place on each other's lives.

The $40,000 and $60,000 worth of insurance does not cover the value of the business.

$500,000 does not cover the value of the business, and the company should not be the owner of the policy.