Professional Documents
Culture Documents
for any period of time before being eligible for partial benefits.
Amanda can
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-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 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 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: 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 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: 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.
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: 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
Business
overhead, key person life on Suzanne, key person life and disability on Ron
Key
: Paul McMaster has always loved to cook, and was enrolled in a restaurantmanagement 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 non-
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.
The 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: 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:
$214,000
$763,000
$608,000
$53,504
$341,000
$1.23 million
$14,700
$287,000
$225,000
$0
$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 $10,700
Rationale:
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.
A lump sum benefit is paid to the business on the loss of a key employee
due to disability.
Rationale:
Rationale for All Answers:
D When the insured is earning 80% or more of his or her salary, no residual disability benefit is
received
Q: 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 longterm 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?
insurance
insurance policy
A term life