- (Topic 5)
(Matthew, 40 years old, is leaving his employer (XYZ Corp) and has $100,000 in a group RRSP.
What should Shawn, the advisor, do?)
Correct Answer:
A
Upon termination of employment, employees cantransfer group RRSP funds to an individual RRSPto maintain tax-deferred growth without triggering a taxable event. Exact Extract:
"Upon leaving employment, a member may transfer their group RRSP assets to an individual RRSP to maintain tax deferral."
(Reference:Segfunds-E313-2020-12-7ED, Chapter 1.3.11.2 Group Plans45:5†Segfunds- E313-2020-12-7ED.pdf**)
- (Topic 2)
Kalei owns a $250,000 life insurance policy with an accumulated cash surrender value of $75,000. She meets with her insurance agent Pamela to inform her that she quit her job last week. She wants to start an online business and needs $40,000 to fund the inventory and coverher living expenses for a few months. She heard that it was possible to obtain a loan using her policy at a 5% interest rate. Which of the following statements about collateral assignment is CORRECT?
Correct Answer:
B
When a life insurance policy is used as collateral for a loan, the policyholder retains ownership but must avoid actions that could reduce the value of the policy as collateral, such as reducing the cash value or cancelling the policy. This restriction ensures that the lender??s security interest in the policy remains protected until the debt is repaid.
In collateral assignments, the policyholder does not transfer ownership to the lender, nor is there a requirement to designate the lender as an irrevocable beneficiary. The assignment simply grants the lender a right to claim the policy proceeds to cover the loan amount if the policyholder defaults or passes away.
- (Topic 3)
Brian is a machinist. For the past seven years, he??s worked for a company that offers a group benefits plan. Under that plan, the premiums for long-term disability coverage are entirely paid by the employees. Last year, an injury forced Brian to stop working for eight months. After a four-month waiting period, during which he collected Employment Insurance (EI) benefits, Brian received long-term disability (LTD) benefits from the group plan??s insurer. Brian is now preparing his income tax return and wonders about the tax implications of the different benefits he received while on disability. What statement accurately describes the tax treatment of Brian??s EI and LTD benefits?
Correct Answer:
B
Comprehensive and Detailed Explanation:
EI benefits are taxable as income under Canadian law. LTD benefits are tax-free if the employee pays 100% of the premiums, as in Brian??s case (Chapter 8:Group Plan Specifics).
Option A: Incorrect; LTD is tax-free here. Option B: Correct; EI taxable, LTD tax-free. Option C: Incorrect; EI is taxable.
Option D: Incorrect; EI is taxable.
Reference: LLQP Accident and Sickness Insurance Manual, Chapter 8:Group Plan Specifics.
- (Topic 2)
Emeka, a new insurance agent with Sunrise Insurance, meets with her client, Mosi. After analyzing Mosi's needs, Emeka determines that Mosi's current life insurance coverage with Starlight Insurance is more than sufficient. Nevertheless, she persuades Mosi to cancel his existing coverage and buy a new life insurance policy with Sunrise Insurance. She believes this is a good compromise because Mosi will have the coverage he needs, and the new transaction will pay her a commission. Which of the following offences did Emeka commit?
Correct Answer:
B
Twisting involves persuading a client to replace an existing insurance policy with a new one from a different insurer, often to earn a commission, without a clear benefit to the client. Emeka??s action of convincing Mosi to cancel his sufficient coverage with Starlight Insurance to purchase a new policy with Sunrise Insurance, primarily for her commission, constitutes twisting. This practice isgenerally considered unethical, as it may not be in the best interest of the client and can lead to unnecessary costs and potential coverage gaps.
Churning, on the other hand, usually involves replacing policies within the same company to generate additional commissions, which does not apply here.
- (Topic 4)
Melissa, a La Tranquillit?? representative, is meeting with a client who tells her about something that happened to one of her friends. While she was taking part in an outdoor weekend at Mont-Tremblant Park, a forest fire broke out and one of the participants was never found. The client isabout to take out life insurance with Melissa. She asks Melissa what would happen to her insurance capital in such a situation. What can Melissa tell the client?
Correct Answer:
D
Comprehensive and Detailed In-Depth Explanation: In life insurance, a death benefit requires proof of death, typically a death certificate. Under Quebec law (Civil Code, Article 92), if a person disappears and death cannot be immediately confirmed (e.g., no body found), a court can issue a declaratory judgment of death after a waiting period—usually 7 years, or sooner with evidence of peril (e.g., forest fire). The LLQP notes that insurers delay payment until this legal determination, as premature payment risks fraud. Option D correctly states that the beneficiary could receive the face amount after this process. Option A (30-day payment) assumes immediate proof, which isn??t available here. Option B (premium refund) is incorrect, as the contract remains valid, not void. Option C (impossible payment) overstates the issue—payment is possible post-judgment. The Ethics manual mandates advisors to clarify claim processes, especially in uncertain scenarios.
References: Civil Code of Quebec, Article 92; LLQP Module on Claims; Ethics and
Professional Practice (Civil Law) Manual, Section on Death Benefits.
===========
