2 – INSURANCE POLICY PROVISIONS

Table of Contents

2.1 Parties to an individual policy

📘 An individual life insurance policy is a legal contract between:

  • 🏢 The insurer
  • 👤 The policyholder

Depending on the policy, other parties may also have rights or responsibilities, such as:

  • The life insured
  • Beneficiaries
  • Contingent beneficiaries
  • Successor owners
  • Assignees

💡 Understanding the role of each party is essential for proper insurance planning and policy management.

2.1.1 Insurer

🏢 The insurer is the insurance company that:

  • Accepts the risk
  • Issues the policy
  • Pays benefits according to policy terms

📌 Important Facts

  • Insurers may merge, amalgamate, or transfer business over time.
  • Policy obligations transfer to the new insurer.
  • Policyholders receive certificates of assumption when obligations move to another insurer.

✅ The original policy terms continue to remain legally binding.

2.1.2 Policyholder

👤 The policyholder is the legal owner of the policy.

📋 Rights of the Policyholder

  • Pay premiums
  • Change beneficiaries (if allowed)
  • Access policy values
  • Exercise contractual rights

📌 Important Notes

  • The policyholder may also be the life insured.
  • A policyholder may insure:
    • A spouse
    • A child
    • A parent
    • Another person with insurable interest

👥 Co-Ownership

Policies may have multiple owners.

Co-owners can create private agreements covering:

  • Rights and responsibilities
  • Ownership transfer rules
  • Death of a co-owner

2.1.2.1 Successor policyholder

🔄 A successor policyholder becomes the new owner if the original policyholder dies before the life insured.

📌 Other Names

  • Contingent policyholder
  • Successor owner
  • Subrogated owner

⚠️ Important Consideration

If no successor policyholder is named:
➡️ Ownership passes to the deceased policyholder’s estate.

💡 Naming a successor owner helps avoid unintended ownership outcomes.

2.1.3 Life insured

🧑 The life insured is the person whose life is covered under the policy.

📌 Key Features

  • The death benefit is paid upon the death of the life insured.
  • Multiple lives may be insured under one policy.

⚖️ Insurable Interest

For the policy to be valid:
✅ The policyholder must have an insurable interest in the life insured at policy issue.

2.1.4 Beneficiary

💰 A beneficiary is the person entitled to receive insurance proceeds.

📋 Beneficiary Designations

Beneficiaries may be designated:

  • In the application
  • Through insurer forms
  • In a will or other written document

📌 Many insurers now allow electronic beneficiary designations.

⚠️ Important Rule

Beneficiaries have rights under the policy but are not parties to the contract itself.

🛡️ Protected (Family Class) Beneficiaries

Certain beneficiaries may provide creditor protection.

👨‍👩‍👧 Protected Beneficiaries Include:

  • Spouse (including common law spouse)
  • Child
  • Grandchild
  • Parent of the life insured

💡 These designations may protect:

  • Death benefits
  • Policy cash values
  • Policy ownership interests

from creditors and legal seizure.

🔄 Revocable Beneficiary

A revocable beneficiary can usually be changed without the beneficiary’s permission.

⚠️ However:

Restrictions may still arise from:

  • Separation agreements
  • Court orders
  • Legal settlements

2.1.4.1 Irrevocable beneficiary designations

🔒 An irrevocable beneficiary designation gives stronger rights to the beneficiary.

📌 Key Effects

The policyholder generally cannot:

  • Change the beneficiary
  • Withdraw cash values
  • Assign the policy
  • Surrender the policy
  • Take policy loans

without the irrevocable beneficiary’s consent.

🛡️ Additional Protection

Irrevocable designations may also:

  • Protect policies from creditors
  • Prevent seizure of policy values

💡 Insurers require strict documentation for irrevocable designations.

2.1.4.2 Restriction in legislative definition of beneficiary

⚖️ Insurance legislation gives a specific legal meaning to the term “beneficiary.”

📌 Important Distinction

A beneficiary generally does NOT include:

  • The policyholder
  • The policyholder’s estate representative

🏛️ Estate Designation

If proceeds are payable to the estate:

  • The executor collects the proceeds
  • Distribution follows the will or intestacy laws

💡 Creditor Protection Importance

Creditor protection often depends on:

  • The relationship between the life insured and beneficiary
  • Whether the proceeds bypass the estate

2.1.4.3 Loss of protection

⚠️ Creditor protection may be lost if beneficiary designations are made to:

  • Delay creditors
  • Defeat creditors
  • Hide assets fraudulently

📌 Fraudulent transfers may be challenged under bankruptcy and insolvency laws.

2.1.4.4 Contingent beneficiary

👥 A contingent beneficiary receives the proceeds if the primary beneficiary dies before the life insured.

📋 Also Called:

  • Secondary beneficiary

📌 If No Beneficiary Exists

Insurance proceeds may be paid to:

  • The current policyholder
  • The policyholder’s estate

💡 Naming contingent beneficiaries helps avoid estate complications.

2.1.5 Group insurance policies

👨‍👩‍👧‍👦 Group insurance covers a defined group of individuals under one master policy.

📋 Common Groups

  • Employees
  • Union members
  • Professional associations

Coverage may also include:

  • Spouses
  • Dependants

2.1.5.1 Plan sponsor

🏢 The plan sponsor arranges the group insurance plan.

📌 Examples

  • Employers
  • Unions
  • Associations

The sponsor:

  • Owns the master contract
  • Determines plan provisions with the insurer

2.1.5.2 Insurer

🏢 In group insurance:

  • The insurer contracts with the plan sponsor
  • Not directly with each individual member

📌 The master policy governs the coverage.

2.1.5.3 Members and scope of coverage to other insured persons

👥 Covered individuals are called:

  • Members
  • Participants
  • Enrollees

📋 Coverage May Include

  • Employees
  • Spouses
  • Children
  • Dependants

🔄 Optional Coverage

Some plans allow members to apply for:

  • Additional optional insurance
  • Increased coverage amounts

⚠️ Anti-Selection Prevention

Mandatory participation helps insurers:

  • Maintain stable risk pools
  • Reduce anti-selection risks

2.1.5.4 Beneficiaries

💰 Group life insured members may designate beneficiaries to receive insurance proceeds.

📌 Beneficiary rights exist even though members are not direct parties to the master policy.

⭐ Key Takeaways

✅ The insurer and policyholder are the main parties to an insurance contract.
✅ The policyholder owns and controls the policy rights.
✅ The life insured is the person whose life is covered.
✅ Beneficiaries receive policy proceeds.
✅ Protected beneficiaries may provide creditor protection.
✅ Irrevocable beneficiaries gain strong legal rights.
✅ Contingent beneficiaries help avoid estate complications.
✅ Group insurance policies are arranged through plan sponsors.

2.2 Formation of policy

📘 An insurance contract is formed through a legal process involving:

  • Offer
  • Acceptance
  • Disclosure of risk
  • Policy delivery
  • Payment of premium

💡 Life insurance contracts follow special rules that go beyond ordinary contracts.

2.2.1 Rules about forming an individual insurance contract

⚖️ In contract law, contracts are generally created through:

  1. 📩 Offer
  2. 🤝 Acceptance

📌 Insurance Contract Process

In life insurance:

  • The applicant completes the insurance application
  • The insurer reviews and underwrites the risk
  • The insurer offers coverage by issuing the policy
  • The applicant accepts the offer when receiving the policy

💡 The contract becomes effective only after all required conditions are satisfied.

📋 Key Requirements for a Valid Policy

  • Completed application
  • Proper disclosure of risk
  • Underwriting approval
  • Payment of premium
  • Delivery and acceptance of policy

2.2.1.1 Application for insurance and representation of risk

📝 The insurance application is one of the most important parts of the policy formation process.

👨‍💼 Role of the Insurance Agent

Agents must:

  • Ask questions exactly as written
  • Avoid paraphrasing insurer questions
  • Ensure answers are complete and accurate
  • Help applicants understand the questions

⚠️ Importance of Full Disclosure

Insurers rely on application answers to:

  • Assess risk
  • Determine insurability
  • Calculate premiums
  • Decide policy terms

📋 Representations of Risk

All answers provided by:

  • The applicant
  • The proposed life insured

are considered representations made to the insurer.

✍️ Signatures Confirm

By signing the application, applicants confirm:
✅ Answers are complete
✅ Answers are accurate
✅ Information is truthful

💡 Incorrect or incomplete answers may affect policy validity.

2.2.1.2 Temporary insurance

⏳ Temporary insurance may provide limited coverage during underwriting.

📌 How Temporary Coverage Works

Applicants may qualify if they:

  • Are in good health
  • Have not recently been hospitalized
  • Can answer temporary insurance questions satisfactorily

🛡️ Coverage Features

Temporary insurance:

  • Usually lasts up to 90 days
  • Ends when the application is approved or declined
  • Has specific terms and conditions

💰 Death Benefit Protection

If the proposed insured dies before underwriting is completed:
➡️ The insurer may pay a temporary death benefit.

📋 Coverage Limits

Temporary insurance is usually limited to:

  • The lesser of:
    • The amount applied for
    • The insurer’s maximum temporary coverage limit

💡 Temporary insurance is not guaranteed permanent coverage.

2.2.1.3 Changes in insurability

⚠️ A policy may not take effect if the insured’s insurability changes before policy delivery.

📌 What Is a Change in Insurability?

A change that affects the insurer’s assessment of risk, such as:

  • Significant illness
  • Hospitalization
  • New medical conditions
  • Changes in medication

👥 Duty to Disclose

Both:

  • The policyholder
  • The proposed insured

must disclose known changes before policy delivery.

⚖️ Why It Matters

The insurer underwrites the risk based on the information originally provided.

If the risk changes:
➡️ The insurer must reassess the application.

💡 Failure to disclose material changes may prevent the policy from taking effect.

2.2.1.4 Approval of application by insurer

🏢 After underwriting, the insurer decides whether to approve the application.

📋 Possible Outcomes

The insurer may:
✅ Approve as applied
⚠️ Approve with changes
❌ Decline coverage

📌 Possible Policy Changes

  • Different underwriting classification
  • Higher premiums
  • Coverage exclusions
  • Modified policy terms

💡 The issued policy may differ from what the applicant originally expected.

2.2.1.5 Delivery of policy

📬 Policy delivery is an important final step before coverage becomes effective.

👨‍💼 Delivery Process

The insurer may:

  • Send the policy to the agent for delivery
  • Send the policy directly to the applicant

📌 Conditions Before Coverage Starts

The policy is usually not in force until:
✅ Delivery requirements are completed
✅ First premium is paid

💰 Premium Payment Situations

🏦 Premium Paid with Application

If the first premium was already submitted:

  • Coverage may begin on the insurer’s effective date
📅 Backdating Policies

Sometimes policies are backdated to preserve a younger insurance age.

📌 In this case:

  • The applicant must also pay premiums for the backdated period.
💵 Cash on Delivery (COD)

If no premium was paid initially:
➡️ Coverage starts only after payment is received.

💡 Delivery and premium payment are critical steps in activating the policy.

⭐ Key Takeaways

✅ Insurance contracts are formed through offer and acceptance.
✅ The application is a critical part of underwriting.
✅ Applicants must provide accurate and complete information.
✅ Temporary insurance may provide short-term coverage during underwriting.
✅ Changes in insurability must be disclosed before policy delivery.
✅ Insurers may approve, modify, or decline applications.
✅ Policies usually become effective only after delivery and premium payment.

2.3 Term and termination of policy

📘 Life insurance policies may end in several ways depending on:

  • Policy terms
  • Actions of the policyholder
  • Expiry dates
  • Cancellation rights

💡 Understanding how policies terminate helps policyholders make informed financial and insurance decisions.

2.3.1 Rescission: 10-day-free look

🔍 When an individual insurance policy is delivered, the policyholder usually receives a 10-day free look period.

📌 Purpose of the Free Look Period

This allows the policyholder to:

  • Review the policy carefully
  • Confirm coverage matches expectations
  • Decide whether to keep the policy

🔄 Right of Rescission

During this period, the policyholder may:
✅ Cancel the policy
✅ Return the policy
✅ Receive a full refund of premiums paid

📘 The legal term for cancelling the contract is rescission.

⚖️ Important Notes

  • The policy is treated as if it never existed.
  • No penalties apply during the free look period.

🏛️ CLHIA Guidelines

The Canadian Life and Health Insurance Association (CLHIA) recommends:

  • A 10-day free look for individual life and accident & sickness policies

💼 Segregated Fund Contracts

📈 Individual segregated fund contracts also include a rescission right.

📌 Time Limit

  • 2 business days after receiving confirmation of the transaction

💡 This protects clients purchasing investment-related insurance products.

2.3.2 Surrender

📄 Individual life insurance policies are considered unilateral contracts.

📌 What This Means

The policyholder may:

  • Cancel the policy at any time
  • Surrender the contract voluntarily

🔚 Effect of Surrender

Surrender results in:
❌ Termination of policy rights
❌ Termination of beneficiary rights

💰 Cash Surrender Value (CSV)

If the policy has accumulated cash value:
➡️ The insurer pays the calculated cash surrender value to the policyholder.

⚠️ Important Considerations

Not all policies have cash surrender values.

Examples:

  • Permanent insurance may accumulate CSV
  • Term insurance may not have CSV

💵 Unearned Premiums

Some policies may refund:

  • Unused premiums
  • Unearned premiums

according to policy terms.

💡 Surrendering a policy may have financial and tax consequences.

2.3.3 Expiry or termination

⏳ Some insurance policies terminate automatically according to their terms.

📋 Examples of Expiry

  • Term life insurance reaching the end of its term
  • Coverage ending at a specified age
  • Expiry of renewable or convertible rights

🔄 Guaranteed Renewable Policies

These policies may:

  • Allow renewal up to a certain age
  • Increase premiums at renewal periods

⚠️ Conversion Restrictions

Convertible term policies:

  • May only be converted before a specified age

📌 Final Expiry

Once the maximum renewal or conversion age is reached:
➡️ Coverage ends automatically.

💡 Policyholders should review renewal and expiry dates carefully to avoid losing coverage unexpectedly.

⭐ Key Takeaways

✅ Policyholders generally receive a 10-day free look period.
✅ Rescission allows cancellation with full premium refund.
✅ Segregated fund contracts include a short rescission right.
✅ Policies may be surrendered voluntarily at any time.
✅ Some permanent policies may pay cash surrender values.
✅ Term insurance expires according to policy terms.
✅ Renewable and convertible rights often have age limits.

2.4 Termination by the insurer

⚖️ In certain situations, an insurer may cancel or terminate an insurance policy before the coverage period ends.

📋 Common Reasons for Termination

  • Fraud
  • Misrepresentation
  • Concealment of material facts
  • Non-payment of premiums

💡 Insurance agents should understand termination rules to properly guide clients and help prevent policy cancellation.

2.4.1 Termination in the event of fraud, misrepresentation or intentional concealment

🚨 Insurance fraud occurs when an applicant or insured person intentionally misleads the insurer.

📌 Examples of Fraud

  • Deliberately providing false information
  • Hiding important medical or financial facts
  • Obtaining coverage the applicant does not qualify for

⚖️ Fraud vs Misrepresentation

  • Fraud → Intentional deception
  • Misrepresentation → Incorrect information that may or may not be intentional
  • Concealment → Failure to disclose important information

💡 Fraud allows insurers to cancel policies even after the normal contestability period ends.

2.4.1.1 During the application process

📝 If incorrect information is discovered before the policy is issued, the insurer may:

📋 Possible Actions

  • Adjust coverage
  • Adjust premiums
  • Continue underwriting
  • Decline the application entirely

📌 Misstatement of Age

If age was misstated:

  • Coverage may be adjusted to match premiums paid
  • Premiums may be recalculated based on the correct age

⚠️ Coverage may terminate if the correct age exceeds policy eligibility limits.

💡 Accurate disclosure during the application process is extremely important.

2.4.1.2 Within the first two years

⏳ The first two years after policy issue are known as the incontestability period.

📌 During This Period

If the insurer discovers:

  • Misrepresentation
  • Concealment

made in good faith, the insurer may:
❌ Cancel the policy
✅ Keep the policy in force

depending on the seriousness of the issue.

⚖️ After Two Years

Once the incontestability period expires:
➡️ The insurer generally cannot cancel the policy for innocent mistakes or omissions.

💡 Good faith errors receive greater protection after the two-year period ends.

2.4.1.3 After two years

🔒 After the incontestability period expires, policies are more secure.

⚠️ Important Exception

The insurer may still cancel the policy for:

  • Fraudulent misrepresentation
  • Intentional concealment

📋 Fraud Includes

  • Intentional false answers
  • Reckless disregard for truth
  • Deliberate deception

💡 Fraud protection never expires for insurers.

2.4.2 Termination for non-payment of sickness or accident insurance premiums

💳 Insurance coverage depends on timely premium payments.

📌 If Premiums Are Not Paid

The insurer may terminate the policy by:

  • Sending written notice
  • Mailing notice to the last known address

⏳ Notice Period

Coverage ends:

  • 10 days after written notice is mailed

⚠️ Termination procedures must follow policy and legal requirements.

2.4.3 Termination for non-payment of life insurance premiums

📉 Life insurance policies may terminate if premiums are unpaid.

⏳ Grace Period

Most life insurance policies provide:

  • A 30-day grace period

during which coverage continues even if payment is late.

📋 Policies Most Affected

  • Term life insurance
  • Permanent policies without cash values

💰 Policies with Cash Values

Some permanent policies may avoid termination if:

  • Cash surrender values are available
  • Automatic premium payment options exist

💡 Agents should understand policy-specific premium and lapse rules.

🔄 Policy Reinstatement

✅ Cancelled life insurance policies may sometimes be reinstated.

📌 Conditions for Reinstatement

The client must:

  • Apply within 2 years of cancellation
  • Meet insurability requirements again

⚠️ Insurer Approval Required

The insurer must confirm:

  • The insured still qualifies for coverage

💡 Reinstatement may require updated medical information or underwriting.

⭐ Key Takeaways

✅ Insurers may terminate policies for fraud, misrepresentation, or unpaid premiums.
✅ Fraud involves intentional deception and may void coverage at any time.
✅ The first two years are called the incontestability period.
✅ Good faith errors generally cannot void a policy after two years.
✅ Accident and sickness policies may terminate after proper notice.
✅ Life insurance policies usually include a 30-day grace period.
✅ Some cancelled policies may be reinstated within two years.

2.5 Assignment of a policy

📘 An assignment of a life insurance policy occurs when ownership rights or interests in the policy are transferred to another person or organization.

💡 Assignments may be used for:

  • Estate planning
  • Business arrangements
  • Loan security
  • Financial planning purposes

⚠️ Insurance agents should carefully explain the legal, tax, and ownership consequences before clients assign policies.

2.5.1 Absolute assignment

🔄 An absolute assignment is the complete transfer of policy ownership from one person to another.

👥 Key Parties

  • Assignor → Original policyholder transferring ownership
  • Assignee → New owner receiving ownership rights

📋 Rights Transferred to the Assignee

The new owner gains full control over the policy, including:

  • Changing beneficiaries
  • Accessing cash values
  • Surrendering the policy
  • Taking policy loans
  • Exercising ownership rights

⚠️ Tax Considerations

An absolute assignment may:

  • Trigger taxable gains
  • Be treated as a disposition for tax purposes

💡 Clients should seek professional tax advice before transferring ownership.

🚫 Restrictions on Policy Trading

Some provinces restrict or prohibit the buying and selling of life insurance policies.

📌 Examples of Restricted Arrangements

  • Viatical settlements
  • Life settlements
  • Stranger Owned Life Insurance (STOLI)

⚠️ Potential Concerns

Individuals may be encouraged to:

  • Sell existing policies for cash
  • Purchase policies intended for transfer to third parties

💡 Certain arrangements may violate provincial insurance laws.

2.5.2 Collateral assignment

🏦 A collateral assignment uses a life insurance policy as security for a loan.

📌 How It Works

The policyholder temporarily assigns policy rights to a lender as collateral.

💰 Why Lenders Accept It

Permanent life insurance policies may have:

  • Cash surrender values
  • Death benefits

which provide additional loan security.

🔒 Effect on the Policyholder

The policyholder may be restricted from:

  • Changing beneficiaries
  • Withdrawing funds
  • Surrendering the policy

if those actions affect the lender’s security interest.

🔄 Loan Repayment

✅ Once the loan is fully repaid:

  • The lender releases the collateral assignment
  • Full ownership rights return to the policyholder

⚰️ If the Life Insured Dies

If death occurs before the loan is repaid:

  1. The lender receives enough of the death benefit to repay the outstanding loan
  2. Remaining proceeds are paid to the policy beneficiary

💡 Collateral assignments are commonly used in personal and business financing strategies.

⭐ Key Takeaways

✅ Policy assignment transfers ownership rights or policy interests.
✅ Absolute assignment transfers full ownership to a new owner.
✅ The new owner gains full policy control.
✅ Policy transfers may create tax consequences.
✅ Some provinces restrict life insurance policy trading arrangements.
✅ Collateral assignment uses a policy as loan security.
✅ Lenders receive repayment from policy proceeds if necessary.
✅ Remaining death benefits are paid to beneficiaries.

2.6 Product specific policy provisions

📘 Different insurance and investment products contain unique contractual provisions, rules, and benefits.

💡 Understanding product-specific provisions helps:

  • Properly explain coverage
  • Compare products accurately
  • Avoid misunderstandings
  • Support long-term financial planning

2.6.1 Individual life insurance

🛡️ Individual life insurance policies contain standard provisions required by provincial insurance laws.

📋 Policy Particulars Usually Include

  • Name of the insured
  • Amount of insurance
  • Premium details
  • Grace period
  • Reinstatement conditions
  • Cash surrender rights
  • Loan provisions
  • Paid-up or extended insurance options

🔄 Renewal and Conversion Rights

Policies may explain:

  • Renewal rights
  • Conversion privileges
  • Future premium calculations

💡 The policy document defines the legal rights and obligations of all parties.

2.6.1.1 Statutory conditions

⚖️ Provincial insurance laws require certain terms and conditions to appear in life insurance contracts.

📄 Documents Forming the Entire Contract

  • Insurance application
  • Insurance policy
  • Attached documents
  • Riders or endorsements
  • Written amendments

💡 Only documents included in the contract form part of the legal agreement.

2.6.1.2 Reduction

📉 Some policies reduce coverage amounts at specified ages.

📌 Important Point

  • Coverage continues
  • Only the death benefit amount decreases

💡 Reduction provisions are commonly used to lower insurance costs over time.

2.6.1.3 Exclusion

🚫 An exclusion removes coverage for certain situations or causes of death.

⚠️ Effect of an Exclusion

If death occurs due to an excluded event:
❌ No policy benefit may be payable.

2.6.1.4 Exclusions — contractual or imposed by law

⚖️ Exclusions may arise from:

  • Contract wording
  • Court decisions
  • Public policy principles

📋 Examples

  • Illegal acts
  • Intentional wrongdoing
  • Causing the insured event deliberately

💡 Courts may deny benefits if public policy is violated.

2.6.1.5 Pre-existing condition exclusions

🏥 Some policies exclude claims related to medical conditions existing before coverage started.

📌 Common in Disability Insurance

Examples may include:

  • Back problems
  • Hearing loss
  • Chronic medical conditions

⚠️ Even if the condition previously caused no work interruption, related future disability claims may still be excluded.

2.6.1.6 Suicide clause

⚠️ Most life insurance policies contain a suicide exclusion during the initial coverage period.

📋 Typical Rule

If suicide occurs within:

  • The first 2 years of the policy
  • Or within 2 years after reinstatement

➡️ The insurer may deny the death benefit.

✅ After the Exclusion Period

Once the specified period ends:

  • Suicide is generally covered

💡 Provincial laws allow this exclusion provision.

2.6.1.7 Living benefits

💰 Some policies provide benefits before death occurs.

📌 Examples

  • Terminal illness benefits
  • Accelerated death benefits
  • Disability-related cash withdrawals

⚠️ Conditions Usually Apply

Benefits may require:

  • Medical confirmation
  • Limited life expectancy
  • Total disability

2.6.1.8 Cash surrender value (CSV)

💵 Some permanent insurance policies accumulate cash value over time.

📌 If the Policy Is Surrendered

The policyholder may receive:
➡️ The cash surrender value (CSV)

⚠️ CSV May Be Reduced By

  • Policy loans
  • Unpaid premiums
  • Surrender charges

💡 CSV growth may be guaranteed or investment-based.

2.6.1.9 Distinction between collateral loans and insurance policy loans

🏦 Permanent policies may support different types of borrowing.

🔒 Collateral Loans

  • Issued by third-party lenders
  • Policy assigned as collateral
  • Loan amount based on CSV

💳 Policy Loans

  • Borrowed directly from the insurer
  • Subject to tax rules and policy limits

⚠️ Excessive policy loans may create taxable gains.

💡 Agents should confirm tax implications before arranging policy loans.

2.6.1.10 Riders (Policy amendments)

📄 Riders are optional additions that modify or expand policy coverage.

📋 Examples of Riders

  • Child term rider
  • Additional term insurance
  • Disability benefits
  • Critical illness riders

💡 Riders customize policies to better meet client needs.

2.6.2 Group life and health insurance

👥 Group insurance provides coverage for a defined group under a master policy.

📌 Common Groups

  • Employees
  • Union members
  • Professional associations

🏢 Group Policyholder

The plan sponsor:

  • Owns the master contract
  • Determines benefit structure

2.6.2.1 Determination of the plan member group

👨‍👩‍👧‍👦 The covered group must be clearly identifiable.

📋 Examples

  • Employees of a company
  • Members of a union
  • Members of a professional association

2.6.2.2 Premiums and cost sharing

💳 Employers often share premium costs with employees.

📌 Important Facts

  • Employers remain responsible for insurer payments
  • Group premiums are not guaranteed
  • Premiums may change annually based on claims experience

💡 Claims experience affects future pricing.

2.6.2.3 Types of group insurance

🛡️ Group plans may include:

  • Life insurance
  • AD&D insurance
  • Disability insurance
  • Critical illness insurance
  • Health and dental coverage

💡 Flexible Benefits

Some employers allow employees to choose benefits within a set budget.

2.6.2.4 Administrative services only (ASO)

🏢 Some employers self-insure employee benefits.

📋 Under ASO Plans

  • Employer pays claims
  • Insurer only administers the plan

⚠️ ASO plans are generally not considered insurance contracts.

2.6.2.5 Certificates

📄 Group members receive certificates summarizing their coverage.

📌 Certificates Usually Include

  • Insurer information
  • Coverage amounts
  • Termination rules
  • Conversion rights

💡 Certificates summarize benefits but are not the master contract.

2.6.2.7 Access to copy of policy

📘 Group members may have limited access to the master policy.

⚖️ Some Provinces Allow Greater Access

Examples include:

  • Ontario
  • Alberta
  • British Columbia
  • Manitoba

2.6.2.8 Laws applicable to members (residence)

🌎 Provincial law generally depends on where the group member resides when coverage begins.

2.6.2.9 Term and termination

⏳ Most group plans renew annually.

📌 Coverage Usually Ends When

  • Employment ends
  • Membership ends
  • Group coverage terminates

🔄 Group Conversion Privilege

Some members may convert group life coverage into individual coverage within:

  • 31 days after termination

without medical underwriting.

2.6.3 Individual and group accident and sickness insurance

🏥 Accident and sickness insurance protects against:

  • Disability
  • Illness
  • Accidental death
  • Medical costs

2.6.3.1 Accidental death and dismemberment (AD&D)

⚠️ AD&D insurance covers accidental:

  • Death
  • Loss of limbs
  • Loss of hearing
  • Loss of eyesight
  • Paralysis

🚫 Common Exclusions

  • Illness
  • Suicide
  • War
  • Criminal activity
  • Drug or alcohol involvement
  • Extreme sports

💡 Determining whether death was truly accidental may require detailed investigation.

2.6.3.2 Disability specifics

💼 Disability insurance replaces income during disability.

📋 Coverage May Include

  • Partial disability
  • Total disability
  • Temporary disability
  • Permanent disability

🔄 Future Income Option (FIO)

Some policies allow increased coverage later without new medical underwriting.

2.6.3.3 Drug insurance

💊 Drug insurance helps cover prescription medication costs.

📌 Coverage May Include

  • Prescription drugs
  • Dental care
  • Extended medical expenses
  • Out-of-country coverage

⚠️ Coverage Features Vary

Plans may include:

  • Deductibles
  • Co-payments
  • Benefit caps
  • Formularies

2.6.3.4 Critical illness (CI)

❤️ Critical illness insurance pays a lump sum if the insured survives a covered illness.

📋 Covered Illnesses May Include

  • Cancer
  • Heart attack
  • Stroke

⏳ Survival Requirement

Most policies require survival for:

  • 30 days after diagnosis

💰 Additional Features

  • Return of premium benefits
  • Refund on cancellation
  • Refund on death

2.6.3.5 Long-term care (LTC)

👵 Long-term care insurance supports individuals unable to perform daily living activities independently.

📋 Daily Activities May Include

  • Dressing
  • Bathing
  • Eating
  • Mobility
  • Toileting

🏠 Covered Services May Include

  • Nursing care
  • Rehabilitation
  • Homemaking services
  • Supervision

⏳ Waiting Periods

Benefits usually begin after:

  • 30 days
  • 90 days
  • 180 days
  • Or longer

2.6.3.6 Parties

👥 Accident and sickness policies may involve:

  • Policyholder
  • Insured person
  • Beneficiaries
  • Corporate owners

💡 Businesses sometimes insure key employees or partners.

2.6.3.7 Rights of parties

⚖️ Rights and obligations are governed by:

  • Policy wording
  • Provincial insurance legislation

2.6.3.8 Effective date

📅 Coverage becomes effective on the policy’s effective date.

⚡ Faster Effective Dates

AD&D coverage may begin quickly because:

  • Medical underwriting is minimal or unnecessary

2.6.3.9 Termination of accident and sickness insurance

❌ Policies may terminate for:

  • Non-payment of premiums
  • Written cancellation
  • Policyholder request

⚠️ Notice Requirements

Written notice is often legally required before cancellation becomes effective.

2.6.3.10 Statutory conditions

📘 Accident and sickness policies must contain required statutory provisions.

📋 Required Information Includes

  • Names of insured persons
  • Coverage amounts
  • Premium information
  • Grace periods
  • Reinstatement rules
  • Effective and termination dates

2.6.4 Annuities

💰 Annuities provide periodic payments over time.

📋 Types of Annuities

  • Life annuities
  • Term certain annuities
  • Deferred annuities
  • Immediate annuities

📌 Uses

  • Retirement income
  • Estate planning
  • Creditor protection
  • Tax planning

2.6.4.1 Parties

👥 Parties involved may include:

  • Insurer
  • Policyholder
  • Annuitant
  • Payee
  • Beneficiary

2.6.4.2 The policyholder

📄 The policyholder controls:

  • Ownership rights
  • Beneficiary designations
  • Payment instructions

2.6.4.3 Annuitant (life insured)

👤 The annuitant is the measuring life used to determine payment duration.

2.6.4.4 Payee

💵 The payee receives annuity payments.

📌 Important Note

The payee may differ from:

  • The policyholder
  • The annuitant

2.6.4.5 Immediate annuities

📅 Immediate annuities begin payments shortly after purchase.

🔄 Deferred Annuities

Deferred annuities:

  • Accumulate value first
  • Begin payments later at maturity

2.6.4.6 Group annuities

👥 Group annuities support:

  • Pension plans
  • Group RRSPs
  • DPSPs
  • PRPPs

2.6.4.7 Structured settlements

⚖️ Structured settlements provide periodic compensation payments after legal settlements.

💡 Advantages

  • Tax-efficient payments
  • Long-term financial support
  • Reduced risk of spending lump sums too quickly

2.6.5 Segregated funds

📈 Segregated funds are insurance-based investment products linked to market performance.

📌 Key Features

  • Investments managed by insurers
  • Values fluctuate with markets
  • Maturity and death guarantees

🛡️ Guarantee

Most contracts guarantee at least:

  • 75% of premiums paid

on death or maturity before age 75.

📄 Disclosure Documents

Clients receive:

  • Information folder
  • Fund Facts
  • Key Facts documents

2.6.6 Pension products and other group annuity products

🏦 Pension products are regulated by:

  • Insurance laws
  • Income tax laws
  • Pension legislation

2.6.6.1 Defined benefit pension plan (DBPP)

📋 Benefits are determined using a formula based on:

  • Salary
  • Years of service

💡 Investment performance does not directly affect promised pension amounts.

2.6.6.2 Defined contribution pension plan (DCPP)

📈 Benefits depend on:

  • Contributions made
  • Investment performance

👨‍💼 Members Often Choose Investments

within available plan options.

2.6.6.3 Pooled registered pension plan (PRPP)

👥 PRPPs are designed for:

  • Self-employed individuals
  • Workers without employer pension plans

💡 Main Goal

Lower administration and investment costs through pooled management.

⭐ Key Takeaways

✅ Insurance products contain unique policy provisions and rules.
✅ Individual life insurance policies include statutory conditions and exclusions.
✅ Group insurance operates through master contracts.
✅ Accident and sickness insurance protects against disability and health-related risks.
✅ Annuities provide structured income payments.
✅ Segregated funds combine investing with insurance guarantees.
✅ Pension products help provide retirement income security.

2.7 Other products

💰 Insurance agents may also work with financial and retirement products designed to help Canadians:

  • Save for retirement
  • Build tax-efficient investments
  • Plan for home ownership
  • Manage pension transfers

📘 Many of these products are created under the federal Income Tax Act and may be offered through:

  • Individual contracts
  • Group contracts
  • Insurance company annuity structures

2.7.1 Deferred profit-sharing plan (DPSP)

🏢 A Deferred Profit-Sharing Plan (DPSP) is an employer-sponsored retirement savings arrangement.

📌 Key Features

  • Only the employer contributes
  • Contributions come from company profits
  • Employees do not contribute directly

💼 Flexibility

Employers can:

  • Decide contribution amounts
  • Select eligible employees
  • Set plan conditions

⏳ Vesting Rules

Employer contributions generally vest after:

  • 2 years

🔄 Transfers

When employees leave employment, DPSP funds may often be transferred to:

  • Another DPSP
  • RRSP
  • Pension plan

🏦 Insurance Company Structure

When arranged through an insurer:
➡️ The DPSP is usually established through a group annuity contract.

💡 DPSPs help employers reward employees while supporting retirement savings.

2.7.2 Tax-free savings account (TFSA) and First Home Savings Account (FHSA)

🏦 Governments encourage Canadians to save through tax-advantaged accounts.

💰 Tax-Free Savings Account (TFSA)

📈 A TFSA allows Canadians to grow investments tax-free.

📋 Key Features

✅ Contributions are not tax deductible
✅ Investment growth is tax-free
✅ Withdrawals are tax-free

🔄 Contribution Room

  • Annual contribution limits apply
  • Unused room carries forward indefinitely

👨‍👩‍👧 Spousal Contributions

Contributions to a spouse’s TFSA are permitted.

🔁 Re-Contributions

Withdrawn amounts may generally be re-contributed in future years.

👥 Beneficiary and Successor Holder Rules

If the beneficiary is a spouse:
➡️ The spouse may become the successor holder and continue the TFSA.

If the beneficiary is not a spouse:
➡️ Funds bypass the estate and are paid directly to the beneficiary.

🏦 Insurance Company Structure

TFSAs offered through insurers may use:

  • Individual annuity contracts
  • Group annuity contracts

🏠 First Home Savings Account (FHSA)

🏡 The FHSA helps first-time homebuyers save for purchasing a home.

📋 Eligibility

The individual must:

  • Be a Canadian resident
  • Be at least 18 years old
  • Be a first-time homebuyer

💰 Contribution Limits

  • Annual limit: $8,000
  • Lifetime limit: $40,000

✅ Tax Advantages

  • Contributions are tax deductible
  • Investment growth is tax-free
  • Qualified home purchase withdrawals are tax-free

⏳ FHSA Participation Ends At The Earliest Of:

  • 15 years after opening
  • Age 71
  • The year after a qualifying withdrawal

💡 FHSA combines features of both RRSPs and TFSAs.

2.7.3 Registered retirement savings plans (RRSP)

📘 An RRSP is a registered retirement savings vehicle designed to encourage long-term retirement savings.

📋 Key Features

✅ Contributions may be tax deductible
✅ Investment growth is tax-deferred
✅ Withdrawals are taxable

⚠️ Withdrawal Rules

  • Funds may be withdrawn anytime
  • Withholding tax usually applies
  • Withdrawn contribution room is generally not restored

💡 RRSPs are one of Canada’s most widely used retirement savings tools.

2.7.4 Registered retirement income fund (RRIF)

💵 A RRIF is designed to provide retirement income from accumulated registered savings.

📌 Key Features

  • Funds continue growing tax-deferred
  • Minimum annual withdrawals are required
  • No maximum withdrawal limit in many cases

⏳ Important Age Rule

RRSPs are commonly converted to RRIFs by:

  • Age 71

💡 RRIFs provide flexible retirement income options.

2.7.5 Locked-in retirement account (LIRA)

🔒 A Locked-In Retirement Account (LIRA) holds pension funds transferred from employer pension plans.

📋 Key Features

  • Funds are generally locked in
  • Early withdrawals are restricted
  • Income is intended for retirement purposes

⚠️ Withdrawal Restrictions

Most withdrawals are restricted before:

  • Age 55

📘 Tax Treatment

A LIRA is treated similarly to an RRSP for tax purposes but follows additional pension rules.

💡 LIRAs help preserve pension savings for retirement income.

2.7.6 Life income fund (LIF)

💰 A Life Income Fund (LIF) provides retirement income from locked-in pension savings.

📋 Key Features

  • Created from pension transfers
  • Subject to minimum and maximum withdrawal limits
  • Governed by pension legislation

📘 Tax Treatment

A LIF functions similarly to:

  • A RRIF

but includes additional pension-related restrictions.

💡 LIFs are designed to provide ongoing retirement income while protecting pension assets.

⭐ Key Takeaways

✅ Registered plans help Canadians save for retirement and future goals.
✅ DPSPs are employer-funded retirement savings plans.
✅ TFSAs allow tax-free investment growth and withdrawals.
✅ FHSAs help first-time homebuyers save tax-efficiently.
✅ RRSPs provide tax-deferred retirement savings.
✅ RRIFs provide retirement income from registered savings.
✅ LIRAs and LIFs manage locked-in pension assets.
✅ Many products may be structured through insurance company annuity contracts.

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