Professional Documents
Culture Documents
Know These Cold
Know These Cold
Investment Section
Chapter 14: Why should I Invest?
o KTC: Click here for KTC topics in Chapter 14
Chapter 15: Why should I buy investments from a life agent?
o KTC: Click here for KTC topics in Chapter 15
Chapter 16: How much should I invest?
o KTC: Click here for KTC topics in Chapter 16
Chapter 17: What are the different types of investments?
o KTC: Click here for KTC topics in Chapter 17
Chapter 18: What are the risks?
o KTC: Click here for KTC topics in Chapter 18
Retirement Section
Chapter 21: When Can I Retire?
o KTC: Click here for KTC topics in Chapter 21
Chapter 22: Where will my Money come from?
o KTC: Click here for KTC topics in Chapter 22
Chapter 23: How can I keep more of my retirement income?
o KTC: Click here for KTC topics in Chapter 23
Permanent disability
What is the formula to determine the claim for a residual disability benefit?
What is the formula to determine the claim for a partial disability benefit?
o Common insurance formulas: Click here if you want to see additional
examples (other than in the text).
Presumptive disability benefit
Recurring disability benefit
All sources maximum of LTD
Claims for waiver of premium (difference between disability and life policies)
Claims for A&S policies
Know the difference between who the primary carrier is and who the secondary carrier is
for the priority of payment for benefits when there is a coordination of benefits (COB)
o Co-ordination of benefits: Click here if you want to see additional examples
(other than in the text).
CPP offset
Subrogation
Employee Assistance Programs (EAP)
INVESTMENTS SECTION
Chapter 14:
Chapter 15:
Chapter 16:
RETIREMENT SECTION
Chapter 21: When can I Retire?
What are the 6 things the planner and client must assess?
Name the 4 things involved in the implementation of the retirement planning process
Chapter 22: Where will my money come from?
What are the 4 broad sources of retirement income and give examples of each?
Know the 4 investments that do not qualify for a self-directed RRSP
Know the chart for calculating RRSP contributions
o Calculating RRSP contributions: Click here if you want to see additional
examples (other than in the text).
What happens to a RRSP upon death?
Know the rules regarding the Home Buyers Plan
Know the rules regarding the Lifelong Learning Plan
Know the 6 transfer options for locked-in RRSP funds
Know all the rules regarding RRIFs
Know all the rules regarding Locked-in Retirement accounts (LIRAs) and unlocking
o Locked in funds: Click here if you want to see additional examples (other than
in the text).
What are the 3 forms an employer-sponsored RPP can take?
What are the differences between a defined benefit plan (DBP) and a defined contribution
plan (DCP/MPP)?
What are the 3 plans an insurance company offers to manage pension plans?
What are the 6 areas that provincial legislation covers to protect pension benefits?
Know the rules for DPSPs
o DPSPs: Click here if you want to see additional examples (other than in the
text).
Know the rules for Group RRSPs
Know the summary chart of RPPs
o Pension adjustments: Click here if you want to see additional examples (other
than in the text).
Know all the rules for the 4 types of Government Retirement Pensions
What is the formula for determining the CPP retirement pension?
Know the formula for determining early or late CPP retirement options
Know the summary chart of the CPP Retirement Pension
Chapter 23:
Pension sharing
What are 5 ways to accomplish income splitting?
Uniqueness
Universal Life Insurance combines insurance and investment.
The investment part of the account (the policy) can build a reserve similar to a policy
reserve of a whole life policy. Universal life policies are usually non-participating (i.e.
they do not receive policy dividends).
The management of the investment account (i.e. the investment decisions) is the
responsibility of the policy owner (the insured).
The owner chooses how premiums are structured and has options concerning the death
benefits in order to meet the owners specific needs.
Flexibility
The face amount of the policy can be increased or decreased by the owner. Any change
will need satisfactory evidence of insurability.
The owner can add more lives to be insured and substitute one life insured for another.
There is flexibility in the amount and duration of the premiums.
How the savings portion is invested is also flexible, as long the policy is in force.
The policy owner can choose to receive the cash value of the policy in addition to the
sum insured on death of the life insured. This is different than a whole life policy where
the owner can receive the CSV upon surrender of the policy or the face amount upon
the death of the life insured.
Unbundling
There are three separate parts (insurance, investment, and expenses) to a universal policy. We
go into detail on each part on the next page.
1. The insurance part where the owner sees the cost of insurance (the mortality charge).
The mortality charge is based on:
o the age of the life insured
For example:
Claire was earning $8,000 a month before becoming disabled. Her disability benefit was set at
65% of her salary. After becoming disabled, she was able to earn $4,000 a month by working
part-time (50% of the time). What amount would Claire receive from her disability insurer?
What was her total income during this time?
Step 1: her disability benefit would be $8,000 x 65% (.65) = $5,200
Step 2: the percentage of the benefit while working part-time would be
($8,000 $4,000 = $4,000) $8,000 = .5 x 100 = 50% or $2,600/month (50% of $5,200)
Step 3: her total monthly income would be $4,000 + $2,600 = $6,600
Partial disability
Partial disability occurs when a straight percentage of the disability benefit is paid
depending on the amount of time the disabled person can work. It is paid to a maximum
number of months.
The formula for how much of the disability benefit will be paid is:
Total hours (100%) % of hours worked = % of benefit
For example:
Joan was earning $3,000 a month for working 35 hours per week and had a disability policy that
would pay her 60% of her earnings if she became disabled. After becoming disabled, Joan was
able to work 14 hours per week or 40% (14 35 x 100) of her previous schedule. What amount
would she receive as a partial disability?
Step 1: her disability benefit is $3,000 x 60% (.6) = $1,800
Step 2: total hours 100% hours worked 40% = disability benefit of 60%
Step 3: 60% x $1,800 = $1,080 partial disability
$400,000
$22,000
$75,000
$200,000
$200,000
$45,000
$80,000
$1,022,000
Liabilities
Mortgage
Credit cards
Car loans
Total Liabilities
$156,000
$11,500
$8,000
$175,500
Other information
Pats annual salary
Dougs annual salary
Pats life insurance
Dougs life insurance
Pats car
Dougs car
Annual education fund contribution
Funeral and burial costs for one
Pats annual contribution to investments
Taxes and legal fees upon death
Annual household expenses
Pats annual RRSP contributions
Dougs annual RRSP contributions
$82,000
$75,000
$100,000
$80,000
$25,000
$20,000
$8,000
$20,000
$15,000
$14,000
$45,000
$14,500
$13,500
If Pat died, Doug would sell his car and use Pats.
The artwork would not be liquidated if one died.
Both are the named beneficiaries of the others RRSP.
If Pat died, Doug would not liquidate the investment portfolio but continue to invest annually
Current interest rates, 2.8%,
Using the capital retention approach, what are the approximate insurance requirements of the Jones if
Pat died?
a)
b)
c)
d)
$0
$150,000
$300,000
$350,000
Correct answer c)
Rationale for correct answer:
Assets available at death
Bank account
Pats life insurance
Dougs car
Total
$22,000
$100,000
$20,000
$142,000 [A]
Final expenses
Funeral
Taxes and legal fees
Total liabilities
Total
$20,000
$14,000
$175,500
$209,500 [B]
$67,500
$75,000 [D]
Continuing expenses
Annual education fund contribution
Annual household expenses
Dougs annual RRSP contributions
Annual contribution to investments
Total
$8,000
$45,000
$13,500
$15,000
$81,500 [E]
Income needs: [D E]
- $6,500 [F]
Total needs:
Capitalized value of Pats life [F] ($6,500 .028)
Plus cash needs [C] ($232,143 + $67,500)
$232,143 [G]
$299,643 [H]
Co-ordination of Benefits
Determining the primary and secondary carriers for Co-ordination of Benefits (COB) is very
important when writing the LLQP exam. Memorize the chart in the Course Book on Priority of
Payment for Benefits.
Example # 1
Sam and Mary Briggs are both employed by firms with health plans. Sams plan does not
contain a COB. It has a $75 single deductible, a $150 family deductible, and an 80% coinsurance factor. Marys plan has a $50 single deductible, a $100 family deductible, and a 90%
co-insurance factor. Sams birthday is September 15, 1965. Marys birthday is August 23,
1967. Sams first claim for the year is $363.85. How much will be received as reimbursement
from each carrier?
Sams plan is the primary carrier since it does not have a COB.
The claim is for $363.85 the $75 single deductible = $288.85
$288.85 x 80% = $231.08 benefit from Sams plan
Two calculations from Marys plan:
1. If Marys plan had been the primary carrier:
$363.85 $50 = $313.85
$313.85 x 90% = $282.46
2. 100% of all eligible expenses reduced by payments made by the primary carrier:
$363.85 $231.08 = $132.77
Since the $132.77 is the lesser of the two calculations, Marys plan will pay this amount.
Example # 2
Assume Sams plan has a COB, as does Marys plan. The first claim is for their sons
prescription drugs of $288.45. How much will be received from each carrier?
Marys plan is the primary carrier since her birthday falls earlier in the calendar year.
$288.45 $50 family deductible = $238.45
$238.45 x 90% = $214.60
$__________
___________
3. Lesser of 1 or 2:
___________
___________
___________
___________
7. Plus any unused RRSP deduction room from all previous years:
___________
___________
9. Plus $2,000 over-contribution for those 19+ (if not already claimed)
___________
___________
Pension Adjustments
You will need to know the difference between a Pension Adjustment (PA) and a Past Service
Pension Adjustment (PSPA) when writing the LLQP exam.
Why do they affect a RRSP contribution?
Taxpayers who are self-employed have only one retirement vehicle that allows for tax
deductions based on contributions. It is a RRSP.
Tax payers who are members of a Registered Pension Plan (RPP) or a Deferred Profit
Savings Plan (DPSP) have retirement income in addition to their RRSP.
In order to make the retirement contributions and the potential for retirement earnings
fair, RRSP rules state that contributions to RPPs and DPSPs must reduce the allowable
contributions to personal RRSPs.
What is a pension adjustment (PA)?
It is simply the amount of total contribution made to a companys RPP or DPSP.
Much like the current years RRSP contribution is based on your previous years earned
income, your allowable RRSP contribution is reduced by your previous years PA.
What is a past service pension adjustment (PSPA)?
There are two situations where a PSPA occurs (these are only for defined benefit plans):
1. You joined a company that did not have a RPP. Five years later, they introduced a RPP.
The company is allowed to deposit five years worth of contributions to your plan. They
do not have to do it all in one year. Each years contribution of previous service reduces
your allowable RRSP contribution. A key difference to the PA is that it is the current
years PSPA that is used for your current years RRSP contribution, not the previous
years, as is the case for the PA.
2. Your company had a RPP when you joined five years ago. This year they improved the
benefits formula. For example, benefits might have increased from 1.5% to 2%. The
company is allowed to deposit five years worth of additional benefits to your plan. Once
again, they do not have to do it all in one year and it is the current years PSPA that
reduces your current years RRSP contribution.
Remember this chart. It will help you to understand in which years earned income, PA,
and PSPA is used to determine the current years RRSP allowable contribution.
Previous Year
Earned income
Pension Adjustment (PA)
Past Service Pension
Adjustment (PSPA)
Current Year
Locked-In Funds
There are different types of locked-in funds.
Why are registered pension funds (RPPs) locked-in?
Pension legislation prohibits people from receiving pension benefits until the retirement
date of the RPP is reached.
Locked-in funds can remain with the employer if the employee changes jobs and the
employers RPP allows it.
Some provinces have different rules regarding the transfer of locked-in funds.
Remember, locked-in RRSPs may hold the same investments as regular RRSPs and can be
managed or self-directed.