Q:Amanda, a chartered accountant, has a personal disability policy with a residual disability definition. What does this mean?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.Amanda will receive full benefits for life if she suffers the loss of sight or hearing.You are correct!!!The answer isAmanda 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: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-in-law, 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 life on Salvatore, key-person life on Anthony, key-person disability on Anthony, business-overhead insurance.

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.

You are correct!!!The answer isKey-person disability on Salvatore, key-person life on Salvatore, travel insurance for Salvatore.Rationale:Rationale for Correct Answer:The question asks whatsetof 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: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 $75. She is entitled to receive $50. Johnny then makes a claim for $200. He is entitled to receive $150.

Johnny makes the first claim of the year in the amount of $150. He 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.

Opal makes the first claim of the year in the amount of $100. She is entitled to receive $100.

You are correct!!!The answer isMonicas 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: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?

Aaron will receive a reduced monthly amount.

Aarons claim will be denied.

The benefit period will be shorter.

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 statements regarding disability buy-out insurance is false?

Policies contain a trigger date which is usually six months after disability has been confirmed.

The disability buy-out must not exceed the amount of life insurance on the lives of the principals.

Disability buy-out insurance can help ensure a smooth transition between business owners.

If a business owner is disabled, disability buy-out insurance is used to purchase his or her share of the business.

Oops, You are wrong :(Your answer was :The disability buy-out must not exceed the amount of life insurance on the lives of the principals.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.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, lifeKey person life and disability on Suzanne and RonBusiness overhead, key person life on Suzanne, key person life and disability on RonKey person life only on Suzanne and RonKey person life and disability on Ron, Business overhead and personal life insurance on SuzanneYou are correct!!!The answer isKey person life and disability on Suzanne and RonRationale: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.

You are correct!!!The answer isAn individual disability policy that covers both total and residual disability with a cost of living riderRationale:The correct answer is "An individual disability policy that covers both total and residual disability with a cost of living rider."

A policy that covers short and long term needs must have residual disability and not partial disability. Partial disability covers for a very short period of time say 3 or 4 months at most. Also a cost of living rider takes care of the long term affect of inflation.

:Paul McMaster has always loved to cook, and was enrolled in a restaurant-management program in a local college when he received a $25,000 inheritance from his uncle. Paul quickly found a small restaurant in which to invest as majority owner. He is living his dream and has turned the restaurant into one of the most desirable eating destinations in his city. It is not uncommon for Paul to greet visiting celebrities at the door, help them choose wines, and personally serve them. He is typically rewarded with large tips, especially from his repeat customers.

Paul and a sous-chef at the restaurant became romantically involved, and last year she gave birth to Paul's daughter, Soo. Paul takes his responsibility to his partner and his daughter very seriously. He has a $250,000 life insurance policy naming them as co-beneficiaries. However, Paul recognizes that 16 hours a day on his feet, seven days a week, is likely to take a toll on his health, so he inquires about disability insurance.

What type of disability insurance would be most suitable for Paul?A guaranteed-renewable policy, with an "own occupation" definitionA guaranteed-renewable policy, with a "regular occupation" definitionA non-cancellable and guaranteed-renewable policy, with an "any occupation" definitionA cancellable policy, with an "own occupation" definitionYou are correct!!!The answer isA guaranteed-renewable policy, with a "regular occupation" definitionRationale:Rationale for Correct Answer:Let's address the definition of disability first. "Own occupation" is not going to be available to Paul, because his occupational classification does not qualify. Paul wants to be insured to continue in his occupation: thus the "regular occupation" definition is the right answer. The type of policy is almost secondary to the definition of disability.

Reasons the other answers are incorrect:Paul wants protection to work in his regular occupation: working at any job is not suitable, given his background and experience.

Paul does not qualify for an "own occupation" definition.Q:Which of the following statements regarding long-term care insurance is false?Long-term care is available as a rider to a life policy.A policy owner must be physically impaired in order to be eligible to make a claim.Benefits for long-term care may be paid for life.A long-term care policy can provide benefits for home care as well as adult day care.You are correct!!!The answer isA 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 of the following statements regarding disability buy-out insurance is false?

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.

Policies contain a trigger date which is usually six months after disability has been confirmed.

Disability buy-out insurance can help ensure a smooth transition between business owners.

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?

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.

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.

Dental coverage and business overhead insurance (up to $1,600 month).

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).

You are correct!!!The answer isDisability 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:Jenny and Sal Gonsalves are a very successful couple in their mid-thirties. Jenny is a dentist, who specializes in orthodontic treatment, and Sal is the senior vice-president of marketing for an oil company. They have three children, ages five, seven, and eight, and call you to discuss making changes to their current insurance policies based on their current level of income.

Their financial statement is:Jenny's income (last calendar year)$214,000

Sal's income (last calendar year)$763,000

Investments (relevant rate of interest 4.3%)$608,000

Investment income (last calendar year)$53,504

RRSPs$341,000

Real estate$1.23 million

Cash$14,700

Mortgage$287,000

Line of credit (loan)$225,000

Credit cards$0

Personal loans (cars, etc.)$113,000

If Jenny were to acquire a disability policy with a 60% benefit, what would be her disability-income benefit?

$10,700

$128,400

$13,375.20

$267,504

You are correct!!!The answer is$10,700Rationale:Rationale for Correct Answer:The disability-income benefit is paid on a monthly basis. Therefore, the formula is earned income 60% 12, or $214,000 60% 12 = $10,700.

Q:Which of the following statements regarding key person disability insurance is true?A lump sum benefit is paid to the business on the loss of a key employee due to disability.Premiums are paid by the business, but the benefit is paid to the key employee.Premiums are paid by the insured and therefore the benefit is paid to the insured.Premiums are paid by the business, and the monthly benefit is paid to the business.You are correct!!!The answer isPremiums 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:Jane Gross has a personal disability policy that provides a residual disability benefit. Jane's salary as a therapist is $102,000, and her disability benefit is $5,100. Jane had a nervous breakdown, during which time she was completely unable to work. She has slowly recovered, and is now working at about 85% capacity. How much will Jane receive as a residual disability benefit during this period when she is still unable to work at the same level she did prior to her illness?

$5,100

$4,335

$765

$0

You are correct!!!The answer is$0Rationale:Rationale for All Answers:DWhen the insured is earning 80% or more of his or her salary, no residual disability benefit is receivedQ:Kevin, age 55, is a self-employed contractor billing about $250,000 per year. He and his wife Sarah have managed their finances carefully over the years, and currently have no debt. However, they have three children in university and also provide support to Kevins elderly mother, who may soon have to move into a long-term care facility. Kevin and Sarah have no insurance of any kind but have become concerned about meeting their expenses if something happened to Kevin. Which of the following policies would best meet Kevins needs?Key person disability insuranceA disability policy with a regular occupation definitionA term life insurance policyA disability policy with an own occupation definitionYou are correct!!!The answer isA disability policy with a regular occupation definitionRationale:The correct answer is "A disability policy with a regular occupation definition."

For a self-employed person, the first priority for insurance is disability insurance. As in the case above, they talk of heavy expenses that Kevin and his family have, the regular occupation policy is the best choice.