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12 – ONGOING SERVICE

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12.1 Monitoring changing client needs

🔄 Insurance needs change over time.
A good life insurance plan is reviewed regularly to make sure it still fits the client’s life.

📅 Agents should schedule periodic reviews to adjust coverage when major life events occur.

Common life events that affect insurance needs:

  • 👶 New dependants
  • 💍 Marriage
  • 💔 Divorce
  • 💼 Employment changes
  • 🏠 New mortgage
  • 🏢 Acquiring a business
  • 🌍 Leaving Canada
  • 📊 Updated needs analysis

12.1.1 New dependants

👶 When a baby or dependant joins the family:

  • Coverage usually needs to increase
  • Goal: ensure financial support if the life insured dies

Options:

  • Increase existing coverage
  • Buy a new policy on the dependant
  • Add a family rider

📌 Many family riders automatically cover a newborn 14–15 days after birth

12.1.2 Marriage

💍 Marriage often triggers updates:

  • Change beneficiary to spouse
  • Add more coverage if spouse is financially dependent

✔ Ensures continued financial support

12.1.3 Divorce

💔 Divorce requires careful review:

Important notes:

  • In most places, divorce does NOT cancel life insurance beneficiaries
  • In Québec, divorce does cancel pre-divorce beneficiary designations

📌 After divorce, review:

  • Beneficiaries
  • Coverage amounts
  • Support obligations

If spousal/child support exists:

  • Insurance may be required
  • Beneficiary may need to be irrevocable
  • Policy cannot lapse or be changed without consent

12.1.4 Employment changes

💼 A job change can affect insurance:

Possible impacts:

  • New employer may offer less group coverage
  • Option to convert old group coverage (usually within 30 days)
  • Higher income → may need more coverage
  • Safer job → may qualify for lower premiums

12.1.5 New mortgage

🏠 Buying or refinancing a home:

  • Many families insure the mortgage amount
  • Reduces financial burden on survivors
  • Sometimes required by lenders

✔ Purpose: debt-free home for family

12.1.6 Acquiring a business

🏢 Business owners often need insurance to:

  • Fund buy-sell agreements
  • Protect key employees
  • Secure loans
  • Protect assets from creditors

12.1.7 Leaving Canada

🌍 Moving abroad?
Policy must be reviewed because:

  • Some policies require Canadian residency
  • Some exclude deaths in certain countries

✔ Always confirm policy validity

12.1.8 Updated needs analysis and recommendations

📊 When needs change:

  • Review previous analysis
  • Update financial details
  • Carry forward important issues

Possible updates:

  • Modify coverage amounts
  • Convert term to permanent insurance
  • Change beneficiaries
  • Add insured persons or riders

12.2 Amending a policy

✏️ Life insurance policies are not locked in forever. Many changes can be made after a policy is issued to keep it aligned with a client’s life and goals.

There are two main categories of policy amendments:

  1. ✅ Changes that do NOT require underwriting (administrative)
  2. 🩺 Changes that DO require underwriting (risk-related)

12.2.1 Changes not requiring underwriting

🗂️ These are mostly administrative updates and do not affect the insurer’s risk.

Common examples:

  • 📛 Legal name change
    (e.g., after marriage or divorce, without changing the actual person)
  • 📬 Mailing address change
  • 👨‍👩‍👧‍👦 Beneficiary updates
  • 💲 Premium amount changes (for UL policies)
  • 📅 Payment frequency changes
  • 📈 Fund choice changes

📌 How to request:

  • Written request to the insurer
  • Completing the insurer’s prescribed form
  • Often available on the insurer’s website

💡 These requests can also be a good opportunity for a policy review meeting.

12.2.2 Changes requiring underwriting

🩺 These changes affect the insurer’s risk and usually require new underwriting.

Examples:

  • ➕ Adding a life insured
  • 🧩 Adding a rider or supplementary benefit
  • 📊 Increasing coverage amount
  • 🚭 Changing smoking status
  • 🏥 Changes in health or lifestyle category
  • 💰 Switching dividend option on a participating policy to paid-up additions
  • 🔄 Changing the type of death benefit
    (e.g., from level to level + account value)

📌 Because risk may increase, the insurer reassesses eligibility before approving.

✨ Key idea:
Simple updates are easy and administrative.
Risk-related improvements usually require underwriting review.

12.3 Renewing a policy

🔄 Renewable life insurance policies are designed to continue coverage at the end of each term without requiring new medical evidence.

This feature protects clients who may no longer qualify for new coverage due to health changes.

📌 How renewal works

  • A renewable policy automatically renews at the end of its term
  • No new medical exam or proof of insurability is required
  • The renewal term is usually the same length as the original term

✅ Example pattern:

  • Issued at age 35 with a 10-year term
  • Renews at 45, then 55, then 65
  • Continues until the policy’s maximum renewal age

💲 Premiums at renewal

⚠️ Renewal premiums are based on the insured’s age at renewal, not their age at original purchase.

  • Insurers provide a guaranteed renewal rate schedule when the policy is issued
  • These rates can be much higher than the initial premium

Why higher?

  • Insurers cannot predict future health at issue
  • People with declining health are more likely to renew
  • This creates adverse selection
  • Renewal pricing reflects the average risk level, not individual health

🛒 Shopping before renewal

Because renewal rates rise with age:

✅ Healthy policyholders often compare:

  • New policy rates
    vs
  • Guaranteed renewal rates

Sometimes a new policy costs less than renewing.

⚠️ Important consideration:
A new policy restarts:

  • ⏳ Contestability period
  • ⏳ Suicide clause period
    (typically two years)

✨ Practical takeaway

✔️ Renewal guarantees continued coverage
✔️ Premiums increase with age
✔️ Healthy clients may benefit from comparing new coverage before renewal
✔️ Always consider clause reset periods before replacing a policy

12.4 Replacing a policy

🔄 Replacing a life insurance policy is a serious financial decision. It must always serve the client’s best interest — not just create new sales.

Because new policies generate commissions, strict ethical and disclosure standards exist to protect clients.

12.4.1 Churning and twisting

⚠️ A life agent violates fiduciary duty if they use misleading or incomplete information to persuade a client to replace a policy without valid reason.

This includes convincing a client to:

  • Replace an existing policy unnecessarily
  • Withdraw cash value to fund a new policy

🚫 These practices have specific names:

Churning

  • Old and new policies are with the same insurer

Twisting

  • Old and new policies are with different insurers

Both practices are unethical and harmful to clients.

12.4.2 Disclosure requirements

📝 To protect clients, most jurisdictions require a Life Insurance Replacement Declaration (LIRD) when replacing a policy.

Key purpose:
✔️ Ensure the client understands pros and cons
✔️ Prevent unethical replacements
✔️ Encourage informed decisions

The declaration asks questions such as:

  • Why replace the policy?
  • Is buying additional coverage better?
  • Are there tax consequences?
  • Will benefits differ?
  • Are guarantees the same?
  • Will premiums increase?

📌 The client must receive:

  • The LIRD form
  • A written explanation of advantages and disadvantages
  • Time to review before proceeding

The written explanation must clarify:

  • Why replacement is happening
  • How the new policy helps
  • Situations where benefits may not be paid

The Canadian Life and Health Insurance Association (CLHIA) provides guidance and sample explanations for proper replacements.

📍 In Québec, a similar form called Notice of Replacement of Insurance of Persons Contract is required.

12.4.3 Cancelling the contract being replaced

🚨 Never cancel an existing policy before the new one is active.

Best practice:

  1. Apply for the new policy
  2. Get it approved
  3. Receive and accept it
  4. THEN cancel the old policy

❗ Risk otherwise:

  • New policy could be declined
  • Client could be left without coverage

✔️ Safe replacement ensures continuous protection.

✨ Core idea:
Policy replacement should only occur when it clearly improves the client’s situation — financially and contractually.

12.5 Cancelling a policy

Ending a life insurance policy is a significant decision. It should be done carefully to avoid losing protection unintentionally or missing available value.

📌 When might a policyholder cancel?

A policy may be cancelled if:

  • 🚫 Protection is no longer needed
  • 🔄 A different type of policy is required (e.g., switching from term to whole life)
  • 💰 Better rates are available with a new policy
  • 📉 Premiums are no longer affordable

🧾 How cancellation works

Term policies

  • Can lapse if premiums stop
  • Coverage ends once lapse occurs

Whole life / Universal life

  • May continue if cash value or investment funds exist
  • Insurer can deduct premiums from policy value
  • To fully stop coverage, a cancellation request is needed

✍️ Best practice: cancel in writing

It is always safer to cancel formally.

A written request should include:

  • Policy number
  • Policyholder’s name
  • Life insured’s name (if different)
  • Desired cancellation date

This prevents confusion and ensures records are clear.

💵 Premium refunds

If cancellation occurs between policy anniversaries:

  • The insurer usually refunds the prorated premium
  • Refund amount depends on timing within the policy year

✅ Practical tip

Before cancelling:

  • Confirm replacement coverage (if any) is active
  • Check for cash values or surrender implications
  • Ensure dependants remain protected if needed

Cancelling should align with the client’s current financial goals and protection needs.

12.6 Surrendering a policy

Surrendering applies mainly to whole life and universal life policies that build cash value. It is an important decision because it affects both protection and finances.

🔍 What does surrendering mean?

Full surrender

  • 🚫 Policyholder cancels the policy completely
  • 📄 All contractual rights are given up
  • 💀 No death benefit will ever be paid after surrender
  • 💰 Policyholder receives the available cash value (if any), minus charges

💡 Partial surrender (withdrawal)

Instead of cancelling fully, a policyholder may:

  • 💵 Withdraw part of the cash value
  • ✅ Keep the policy active
  • 🛡️ Maintain a death benefit (though it may be reduced)

This allows access to funds while keeping some protection in place.

⚠️ Tax considerations

  • 💲 Full or partial surrender can create taxable income
  • 📊 Taxes depend on how much is withdrawn compared to the policy’s cost basis

Because of this, surrender decisions should be made carefully and with proper financial understanding.

✅ Practical reminders

Before surrendering:

  • Check surrender charges
  • Understand tax impact
  • Consider future protection needs
  • Compare with alternatives (policy loans, reduced coverage, etc.)

Surrendering a policy can be useful in some situations, but it should always align with long-term financial and protection goals.

12.7 Policy assignments

Policy assignment allows a policyholder to transfer some or all rights under a life insurance policy to another party. It is commonly used for ownership transfer or as loan security.

12.7.1 Absolute policy assignment

📌 Definition
An absolute assignment transfers full legal ownership of the policy to another person (assignee).

After assignment:

  • ✅ Assignee becomes the new owner
  • ❌ Original owner loses all control and benefits
  • 💰 Original owner no longer has financial interest

📌 Common uses

  • When original owner loses mental capacity
  • Gifting a policy to another person
  • Estate or financial planning strategies

📌 Administrative requirements
Policies often require:

  • Signed assignment form filed with insurer
  • Insurer not responsible for legal validity
  • Assignment subject to any policy loans

⚠️ Tax note
An absolute assignment is treated as a deemed disposition and may trigger taxable income.

12.7.2 Partial policy assignment

📌 Definition
Only certain rights are assigned—usually as loan collateral. Ownership stays with the policyholder.

In Canada (outside Québec):

  • Called a collateral assignment
  • Lender gets limited rights as security
  • Policyholder still owns the policy

📌 Lender protections
The lender can:

  • Prevent withdrawals that reduce collateral
  • Require premium payments to continue
  • Claim death benefit first (up to loan balance)
  • Force surrender if loan defaults

Québec-specific rule

Instead of collateral assignment, Québec uses a:

📄 Moveable hypothec

  • Provides lender security without ownership transfer
  • Applies to business-related debt
  • Available to corporations and business owners
  • Requires filing a formal notice with insurer

✅ Practical insights

Policy assignments are powerful tools for:

  • Business planning
  • Loan security
  • Estate strategies
  • Wealth transfers

But they also:

  • Affect control and benefits
  • May have tax consequences
  • Require proper documentation

Careful structuring ensures the assignment supports the policyholder’s financial goals while protecting all parties involved.

12.8 Claims process

When the life insured dies, the beneficiary (or the estate if no beneficiary is named) becomes the claimant. The insurer will only pay the death benefit after required steps and verification are completed.

This section outlines how the process works and what to expect.

12.8.1 Agent’s role

🤝 The agent supports the claimant in a timely and sensitive manner by:

  • Providing claim forms
  • Helping complete paperwork
  • Explaining settlement options
  • Submitting documents to the insurer

⚠️ Important
The agent does not decide:

  • Whether a claim is paid
  • When it is paid
  • If payment is guaranteed

Only the insurer makes these decisions.

12.8.2 Completed claim form

📝 The claimant must complete insurer-required forms.

The agent:

  • Helps gather documents
  • Submits forms to the insurer’s claims examiner

Incomplete forms can delay payment.

12.8.3 Policy status

🔍 The insurer first confirms the policy was in force at death.

A policy may NOT be in force if:

  • Premiums were not paid (policy lapsed)
  • Policy was surrendered
  • Term policy expired

12.8.4 Proof of death

📄 Official proof is required, usually:

  • Provincial death certificate
  • Funeral director’s certificate
  • Coroner’s report

This confirms the identity of the life insured.

12.8.5 Probate

💼 Probate is essentially a provincial tax on estate assets after death.

In Canada, probate exists in all provinces except:

  • Manitoba
  • Québec

✅ Life insurance advantage
If a named beneficiary (not the estate) exists:

  • Death benefit bypasses probate
  • Faster payout
  • Full value preserved

⚠️ Probate applies when:

  • No beneficiary named
  • Beneficiaries deceased
  • Estate is beneficiary
  • Minor is beneficiary

If estate is beneficiary

The insurer may require:

  • Probated will
  • Court-issued authority for executor

Without a will (intestate):

  • Court involvement
  • Higher costs
  • Longer delays

Québec rules

  • Notarial wills are accepted as authentic
  • Handwritten/witnessed wills require probate
  • Intestate deaths require heirship declarations

12.8.6 Attending physician’s statement (APS)

🏥 For larger claims, insurers may request an APS to confirm:

  • Cause of death
  • Accuracy of medical history

❌ Claim denial may occur if:

  • Death is suicide within 2 years
  • Death falls under a policy exclusion

12.8.7 Proof of age and gender

📑 Insurers verify age and gender using documents like:

  • Birth certificate

If recorded details were incorrect:

  • Death benefit may be adjusted

12.8.8 Confirmation of beneficiary

👤 The insurer confirms the rightful beneficiary.

If primary beneficiary has died:

  • Proof of their death required
  • Payment goes to contingent beneficiary or estate

📌 Class designations (e.g., “my children”) can delay payment while all eligible individuals are verified.

✅ Best practice
Be specific when naming beneficiaries to avoid delays.

Example clarity:

  • Naming specific children
  • Including future children where intended

🔑 Practical insights

✔️ Keep beneficiary designations updated
✔️ Maintain premium payments to avoid lapse
✔️ Use specific beneficiary wording
✔️ Understand exclusions and waiting periods

A well-structured policy ensures smooth and timely payment when it matters most.

12.9 Group life insurance claims

Group life insurance claims follow a process similar to individual life insurance claims, but the plan sponsor (such as an employer or association) plays a key role in facilitating the claim instead of a life agent.

🧩 How group life claims work

📌 Who facilitates the claim?

  • The plan sponsor (e.g., employer or association) assists with the claim process
  • They help provide forms and confirm coverage details

📌 What the insurer verifies
The claims examiner will confirm that the deceased:

  • Was actively covered under the group plan
  • Completed any required waiting period
  • Had not terminated employment or membership before death

If these conditions are not met, coverage may not apply.

⚠️ Special note on creditor group insurance

Some group creditor insurance policies use post-claim underwriting, meaning:

  • Eligibility and insurability may be reviewed after a claim is made
  • If requirements were not met, the claim can be denied

✅ Practical tips

✔️ Keep enrollment details updated
✔️ Understand waiting periods in group plans
✔️ Verify coverage status after job or membership changes
✔️ Inform beneficiaries about existing group coverage

Group coverage can be valuable, but it works best when members clearly understand eligibility rules and limitations.

12.10 Factors that could vary the payment upon death

The amount paid at death is not always exactly the face amount of the policy. Several factors can increase or reduce the final payout. Understanding these helps ensure accurate planning and fewer surprises.

12.10.1 Participating whole life policies

💡 Dividends can change the death benefit depending on the option chosen:

✅ Paid-Up Additions (PUA)

  • Permanently increases the death benefit as dividends buy extra coverage.

✅ Accumulation option

  • May increase the death benefit if funds remain in the account.

✅ Term insurance option

  • Temporarily increases the death benefit for one-year terms.

⚠️ Reductions can occur if:

  • Automatic Premium Loan (APL) is used
  • Cash Surrender Value (CSV) is accessed
  • Policy is collaterally assigned

12.10.2 Adjustable whole life policies

🔄 Death benefit and premiums are guaranteed only for a set period (often 5 years).
After that, the insurer may:

  • Increase
  • Decrease
  • Maintain

the death benefit based on experience.

12.10.3 Universal life policies

UL policies offer flexible death benefit structures:

📌 Level death benefit
📌 Death benefit + account value
📌 Death benefit + cumulative premiums
📌 Indexed death benefit

👉 Strong investment performance and higher deposits can make payouts exceed the original face amount.

12.10.4 Misstatement of age

🧾 If age was misstated:

❌ Fraudulent misstatement
→ Claim can be denied.

✅ Honest mistake
→ Benefit is adjusted to match what paid premiums would have purchased at the correct age.

📍 In Québec

  • Policy is not void
  • Benefit is simply adjusted proportionally.

✔️ Always verify date of birth at policy delivery.

12.10.5 Misstatement of gender

Similar to age misstatement:

❌ Fraud
→ Policy may be void.

✅ Honest error
→ Benefit adjusted to match correct premium pricing.

📍 In Québec

  • Adjustment for gender is not permitted.

✔️ Always verify gender details at delivery.

12.10.6 Policy assigned as collateral

🏦 If used as loan security:

1️⃣ Creditor is paid first
2️⃣ Beneficiary receives remaining balance

Example concept:
If a $500,000 policy secures a loan with $230,000 outstanding →
Beneficiary receives $270,000.

12.10.7 Outstanding policy loan

💳 Policy loans + interest are deducted from the payout.

📌 Compound interest can significantly reduce benefits if unpaid.

✔️ Regular monitoring prevents erosion of the death benefit.

12.10.8 Unpaid premiums

⏳ If death occurs during the grace period:

✅ Claim is still paid
➖ Unpaid premium is deducted

Example concept:
$250,000 policy − $3,300 unpaid premium
→ $246,700 paid.

🔑 Practical reminders

✔️ Keep personal information accurate
✔️ Track loans and withdrawals
✔️ Understand dividend options
✔️ Monitor premium payments
✔️ Review collateral assignments

Small details can make a big difference in the final benefit received.

12.11 Settlement options

When a death benefit becomes payable, many people assume it must be taken as a single lump sum. However, there are other settlement options that can better match a beneficiary’s financial needs and goals.

Understanding these options helps ensure the money is used wisely and provides long-term support where needed.

💰 Lump-sum payment (most common)

✅ Entire death benefit paid at once
✅ Provides full flexibility and immediate access
✅ Useful for paying debts, taxes, or major expenses

⚠️ Requires strong money management to ensure funds last.

📅 Term certain annuity

A term certain annuity converts the proceeds into:

✔️ Regular monthly or annual payments
✔️ Paid for a fixed number of years (e.g., 10, 15, 20 years)

👍 Helpful when beneficiaries need steady income for a known period (such as supporting children until adulthood).

♾️ Life annuity

A life annuity provides:

✔️ Payments for the rest of the beneficiary’s life
✔️ Protection against outliving the funds

👍 Suitable for long-term income security.

👤 Role of the life agent

The life agent can assist beneficiaries by:

✅ Explaining available settlement choices
✅ Helping match options to financial needs
✅ Providing annuity quotes when required

🔑 Practical insight

Choosing how to receive the death benefit can be just as important as the amount itself.

✔️ Lump sum → flexibility
✔️ Term certain → predictable support
✔️ Life annuity → lifetime income security

The best option depends on the beneficiary’s situation, responsibilities, and comfort managing money.

12.12 Time requirements

Understanding timelines in the claims process helps set clear expectations and reduces stress for beneficiaries.

⏳ No deadline to file a claim

✔️ There is no strict time limit for filing a life insurance claim
✔️ Some policies are discovered years after death
✔️ If the policy was valid at the time of death, the benefit is still payable
✔️ Interest is typically added to late-paid claims

👉 Key point: Valid policy at date of death = benefit payable.

⚙️ How long processing can take

Processing time varies based on the situation:

✅ Simple claims → may be processed within days
⚠️ Complex claims → can take months

Delays may occur if:

  • Cause of death requires investigation
  • The claim falls within the suicide exclusion period
  • Documents are missing or incomplete

📄 After documents are complete

Once:

✔️ Investigation is finished
✔️ All required documents are received

➡️ The insurer must pay the benefit within 30 days

🔑 Practical insight

Faster claims happen when:

✔️ Policy details are known
✔️ Documents are organized
✔️ Beneficiaries act promptly

Good record-keeping and clear communication make a big difference in smooth claim settlement.

12.13 Tax treatment of death benefits

Understanding how death benefits are taxed is essential for proper planning and setting clear expectations for beneficiaries.

💰 Personal life insurance

✔️ Death benefits from a personally-held life insurance policy are tax-free to the beneficiary
✔️ This applies regardless of:

  • How long the policy existed
  • How much premium was paid

👉 The full payout is tax-free.

➕ What counts as the death benefit?

The death benefit is the total amount paid at death, not just the face amount.

Examples:

✔️ If a universal life (UL) policy provides:

  • Level death benefit plus account value
    ➡️ The beneficiary receives both amounts tax-free

👥 Group life insurance

✔️ Group life insurance death benefits are also paid tax-free
✔️ It does not matter whether:

  • The employee paid premiums
  • The employer paid premiums

🏢 Corporate-owned life insurance

✔️ Death benefits received by a corporation are tax-free to the corporation

If the business is a private corporation:

  • All or part of the death benefit is credited to the Capital Dividend Account (CDA)
  • The corporation can distribute this as a tax-free capital dividend to shareholders
  • This helps preserve the tax-free nature of the payout

🔑 Practical insight

Life insurance is a powerful financial tool because:

✔️ Proceeds generally pass tax-free
✔️ Beneficiaries receive the full value
✔️ It supports estate and business planning efficiency

This tax advantage is one of the key reasons life insurance plays a major role in long-term financial planning.

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