Life Insurance Contracts
KNOWLEDGE EXPECTED OF: Both CFP® Professionals and QAFPTM Professionals
- Define parties to a life insurance contract,1 such as:
- Identify the documents forming a life insurance contract.
- Ancillary documents referred to in policy
- Delivery receipt
- Define insurability.
- Explain the factors that an insurance company may use to determine an individual’s insurability,1 such as:
- Medical history
- Previous claims
- Amount of coverage requested
- Identify types of approvals upon adjudication of an application for life insurance, such as:
- Approval with standard premiums
- Approval with rated premiums (discounted or added premium)
- Approval with restrictions
- Explain insurable interest as it relates to life insurance.
- The time at which it must be in place for a policy to be valid
- The relationship of the policyholder to the life insured
- Define material fact.
- Define material misrepresentation.
- Define terms associated with the validity of a life insurance contract, such as:
- Void contract
- Voidable contract
- Explain how the validity of a life insurance contract may be impacted.
- When a mistake with respect to a material fact is made
- When a material fact is omitted
- When a misrepresentation of a material fact is made
- Define underwriting.
- Define the periods when a life insurance contract may be underwritten.
- Explain benefits and risks associated with pre-approval and post-claim underwriting.
- Identify policy provisions associated with life insurance contracts, such as:
- Definition of the contract
- Death benefit / coverage amount
- Length of coverage
- Settlement options
- Riders / endorsements / floaters
- Misstatements (of age or sex)
- Material misrepresentation
- Fraudulent misrepresentation
- Incontestability clause
- Right to rescind the contract
- Cash values
- Non-forfeiture options
- Policy loan provisions
- Reinstatement provisions for lapsed or cancelled policy
- Suicide clause
- Explain the coverage amounts / death benefit options available on life insurance policies.
- Level death benefit
- Increasing death benefit
- Decreasing death benefit
- Explain the types of joint life insurance policies.
- Joint first-to-die
- Joint last-to-die
- Explain the purposes for which joint first-to-die and joint last-to-die life insurance policies may be used.
- Define terms associated with the continuation of a life insurance policy, such as:
- Guaranteed renewable
- Conditional renewable
- Commercially renewable
- Define a beneficiary1 for a life insurance policy.
- Identify entities who may be named as a beneficiary of a life insurance policy, such as:
- Charitable organization
- Explain the impact of naming each entity as a beneficiary.
- Explain the impact of naming a minor child as a beneficiary of a life insurance policy.
- Explain the impact of naming multiple children as beneficiaries of a life insurance policy.
- Identify who may receive the proceeds of a life insurance policy.
- When a beneficiary is named
- When the beneficiary and insured predecease the policyholder
- When the beneficiary predeceases the policyholder and the policyholder predeceases the insured
- Define the types of beneficiaries that may exist on a life insurance policy.1
- Explain advantages and disadvantages of beneficiary designations on a life insurance policy.
- Naming a revocable beneficiary
- Naming an irrevocable beneficiary
- Naming a preferred beneficiary
- Naming a contingent beneficiary
- Naming the estate as a beneficiary
- Explain the actions for which the policyholder requires the consent of the irrevocable beneficiary named on a life insurance policy.
- Explain the actions for which the policyholder does not require the consent of the irrevocable beneficiary named on a life insurance policy.
- Identify parties who are preferred beneficiaries.
- Identify the documents in which a beneficiary to a life insurance policy may be designated.
- For revocable beneficiaries
- For irrevocable beneficiaries
- Identify when a beneficiary to a life insurance policy may be designated.
- For revocable beneficiaries
- For irrevocable beneficiaries
- Explain the potential impact of a discrepancy in beneficiary designations within an insurance contract and a will.
- Explain settlement options that may be available to a beneficiary, such as:
- Lump sum payment
- Funds held on deposit
- Annuity instalment payments
- Explain the tax impact to a beneficiary from receiving the proceeds of a life insurance policy.
- Explain the purpose of riders that may be added to a life insurance policy, such as:
- Waiver of premium
- Accidental death and dismemberment
- Guaranteed insurability
- Cost of living adjustments
- Term insurance
- Return of premium
- Family income benefit
- Identify the grace period for a life insurance policy.
- Identify that a life insurance policy that has lapsed may be reinstated with conditions.
- Identify the suicide clause for a life insurance policy.
- Minimum time frame
- Maximum time frame
- Impact if policy lapses
- Identify that an advanced benefit may be available on a life insurance policy under certain circumstances, such as a shortened life expectancy.
- Identify factors that may impact the premium of a life insurance policy, such as:
- Current health status
- Health history
- Smoking and drinking status
- Value of death benefit
- Term of policy
- Explain the factors that may be considered in structuring life insurance coverage, such as:
- Cash flow replacement needs
- Final expenses
- Retirement of debt
- Education costs for survivors
- Tax liabilities upon death of insured
- Equalization of estate for survivors
- Continuation provisions
- Future insurability
- Explain characteristics that may be used when comparing individual and group life insurance policies, such as:
- Types of policies available
- Ownership and control
- Period of coverage
- Termination options
- Application requirements
- Evidence of insurability requirements
- Time of underwriting
- Benefit recipient
- Optional riders
- Premium guarantees
- Tax impact
Glossary of Verbs (mouse over to see definition)
To state exactly the meaning of
To be aware of / to recognize and correctly name / to locate an appropriate resource
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
To note the similarities and differences between two or more things
To determine an approximate value for
To find the value using mathematics
To change from one form or purpose to another
To reach a conclusion or make a judgement through careful study
To give the meaning of / to construe or understand / to translate orally