Fundamentals of Canadian Life Insurance

Transcription

1 Fundamentals of Canadian Life Insurance 63 Life Insurance Terms in THE ESSENTIAL REFERENCE OF LIFE INSURANCE TERMS IN PLAIN ENGLISH

2 Fundamentals of Canadian Life Insurance (Revised November 2012) The Essential Reference of Life Insurance Terms in Plain English 2

3 Fundamentals of Canadian Life Insurance Copyright 2012 The Financial Literacy Company All rights reserved. Any reproduction of parts or all of this book and its contents by any means electronic or mechanical is prohibited.! The Fundamentals of Canadian Life Insurance is a collection of terms common to the Canadian life insurance industry and relevant to all those who work in the financial services industry or in association with life insurers. The definitions of the terms are pure, that is, they do not reflect the practices or policies of any insurance company. Thus, there may be some minor discrepancies between these definitions and how an insurer uses this terminology or interprets and applies these terms. The information in this book is provided for educational purposes only; it should not be construed or interpreted as providing advice. Agents and advisors should always seek guidance from their principals and compliance experts in regards to informing themselves and others about details of the products they sell and other considerations of their business.! We welcome all feedback and suggestions for additions to the book. Please send your comments to info@clifece.ca. ISBN: CLIFE INC Sixteenth Avenue Suite 301 Richmond Hill, ON L4B 3N9 The Fundamentals of Canadian Life Insurance continuing education credits for life agents, CFP! s, and accident and sickness agents is provided upon satisfactory completion of an online test. Please see the website for details or info@clifece.ca. 3

4 Fundamentals of Canadian Life Insurance Table of Contents Accident and Sickness 6 Accidental Death Benefit/Accidental Death and Dismemberment Insurance 6 Adjusted Cost Basis 7 Annuities 8 Application 9 ASO Plans 10 Assignment 11 Assuris 12 Auhtority 13 Automatic Premium Loan 14 Beneficiary 14 Business Disability Insurance 15 Business Life Insurance 16 Business Overhead 17 Canada Deposit Insurance Corporation 18 Canada Pension Plan 19 Canada Life and Health Insurance Association 20 Capital Gains 21 Cash Surrender Value 22 Certified Financial Planner 23 Chartered Life Underwriter 23 Churning and Twisting 24 Claims 24 Co-insurance 25 Compliance 26 Conflict of Interest 26 Continuing Expenses 27 Contract 28 Co-ordination of Benefits 29 Corporation 30 Cost Illustrations 31 Creditor Protection 32 Criminal Law 33 Critical Illness Insurance 34 Death Benefit 34 Death Benefit Guarantee 35 Deductible 36 Defined Benefit Plan 37 Defined Contribution Plan 39 Definitions of Disability 40 Deposit-based Guarantee 41 Disability Income Insurance 41 Disclosure 42 Disposition 42 Earned Income 43 Effective Date 44 Equity 45 Errors and Omissions Insurance 46 Estate 47 Ethics 48 Exclusions 48 Face Page 49 Fiduciary Duty 50 Fixed-income Investments 51 Fraud 52 Grace Period 53 Grandfathered Policies 54 Group Disability Insurance 55 Group Health Insurance 55 Group Insurance 56 Group Life Insurance 57 Guaranteed Minimum Withdrawal Benefit Plans 58 Guarantees 59 Holding Out 60 Income Splitting 60 Income Tax 61 Incontestability 62 Index-linked Annuity 63 Inflation 63 Information Folder 64 Insurable Interest 65 Insured 66 Insured Annuity 67 Interest 67 Irrevocable Beneficiary 68 Joint and Last Survivor Annuity 69 Last Expenses 70 Law of Agency 70 Leveraging 71 Life Annuities 71 Life Income Funds 72 Locked-in Plans 73 LLQP 74 Locked-in Retirement Accounts 75 Long-term Care Insurance 76 Long-term Disability 77 Marginal Tax Rate 78 Maturity Guarantee 79 Maximum Tax Actuarial Reserve 80 Misrepresentation 81 Mistake 82 Money Laundering 82 Morbidity 83 Mortality 83 Mortgage Insurance 84 Mutual Funds 85 Needs-based Sales Approach 86 4

5 Net Cost of Pure Insurance 87 Non-forfeiture Options 87 Notional Units 88 Occupational Classification 89 Offset 90 Old Age Security 91 Participating Whole Life Insurance 92 Permanent Life Insurance 93 Personal Contract 94 Policy-based Guarantee 95 Policy Dividends 95 Policy Loan 96 Pooled Registered Pension Plans 97 Pre-existing Condition 98 Premium 99 Prescribed Annuity 100 Prescribed Retirement Income Funds 100 Present Value of Money 101 Privacy and Confidentiality 102 Probate 102 Rated Contract 103 Recurring Disability 103 Registered Disability Savings Plan 104 Registered Education Savings Plan 105 Registered Pension Plans 106 Registered Plans 106 Registered Retirement Income Funds 107 Registered Retirement Savings Plans 108 Reinstatement 109 Reinsurance 110 Renewable Term Life Insurance 110 Replacement 111 Rescission 112 Reset 113 Residual and Partial Disability Benefits 114 Riders 115 Risk Tolerance 116 Rule of Sales Charge 118 Segregated Funds 119 Self-directed RRSP 120 Settlement Options 120 Short-term Disability 121 Sole Proprietorship 122 Spousal Plan 122 Spousal Rollover 123 Stocks 124 Subrogation 124 Suicide Exclusion Clause 125 Tax-free Savings Account 125 Taxation of Life Insurance 126 Temporary Insurance Agreement 127 Term Annuity 128 Term Life Insurance 129 Term-to-100 Life Insurance 130 Time Horizon 130 Time Value of Money 131 Trusts 132 Unbundling 132 Underwriting 133 Unfair Trade Practices 134 Uniform Life Insurance Act 135 Universal Life Insurance 135 Waiver of Premium Rider 136 Whole Life Insurance 137 Yield to Maturity 138 5

6 Accident and Sickness Insurance (A&S) Accident and sickness insurance is a broad category of insurance also known as health insurance. A&S is available for both personal use and for groups. All Canadians enjoy basic health insurance from their provincial health plans. A&S policies step in to provide: - Extended health care. Pays for semi-private or private hospital rooms, prescription drugs, medical appliances (such as a knee brace), and other services. - Travel assistance. Pays the cost of health care needed outside Canada above the amount provincial plans cover. Will also cover costs such as those incurred by a traveling companion, and the return of a body to Canada. - Prescription drugs. - Dental services. - Accidental Death and Dismemberment. - Critical Illness Insurance. Pays a lump sum when the insured is diagnosed with a critical illness covered by the policy and remains alive 30 days after diagnosis. - Long-term Care Insurance. Pays for care of those who are no longer able to care for themselves. Advisor Resource: CLHIA guideline on travel insurance: le/guideline_g5.pdf Related Terms: Group Health Insurance. Critical Illness Insurance. Long-term Care Insurance. Accidental Death Benefit (ADB) Accidental Death and Dismemberment Insurance (AD+D) The accidental death benefit is a rider for life insurance policies that increases the death benefit paid to the beneficiary if the life insured dies because of an accident. The types of accidents that are covered are described in the policy, and death must occur within 365 days. 6

7 When the accidental death benefit rider provides an additional sum when there is a loss of a body part (eye, arm, leg, etc.), it is called an accidental death and dismemberment (AD&D) rider. This rider is available on both personal policies and group policies. Accidental death and dismemberment (AD&D) is also available as a form of accident and sickness insurance. It is a policy (not a rider) when it is offered this way. Accidental death and dismemberment (AD&D) provides a death benefit to a beneficiary if the insured dies, or a benefit to the insured if dismemberment occurs. If the insured suffers from more than one dismemberment (for example, both legs) a greater sum is paid than for a single dismemberment (one leg). 1. A schedule accompanies the (AD&D) policy and rider that specifies the amount paid per loss (such as loss of leg). 2. The key word in these policies is accident. Death must be the result of an accident for the benefit to be paid. Adjusted Cost Basis Adjusted cost basis (ACB) is a dollar amount that represents the net cost of the life insurance policy to the policy owner. It is made up of the gross cost of the policy (in other words, how much has been paid --- mostly, premiums) plus or minus other contributions that add to, or are subtracted from, that value. ACB increases by costs incurred by policy owner and decreases by benefits received by the policy owner. ACB is used to determine the taxable gain on a policy loan and the taxable portion of a withdrawal. Costs that increase the ACB include: - Premiums. - A policy loan repayment. The ACB is decreased by: - Life insurance coverage, called the net cost of pure insurance (NCPI). - Dividends. - A policy loan. 7

8 - A withdrawal. The ACB calculation for a plain vanilla policy is: ACB = premiums NCPI The ACB calculation for a par whole life policy with a policy loan is: ACB = premiums NCPI dividends policy loan When a life insured dies, the policy beneficiary receives the death benefit of the policy. The death benefit is not affected by the ACB. 1. As of Dec. 2, 1982, the method for calculating the ACB changed. Policies issued prior to this date are called grandfathered. These policies have preferential tax treatment compared to those issued after that date. 2. ACB is a difficult concept. It is best thought of as how much the person is out of pocket in terms of expense for the product. 3. For non-insurance purposes, the ACB is the adjusted cost base. Only in insurance is basis used. Related Terms: Net Cost of Pure Insurance. Grandfathered Policies. Annuities An annuity is an investment contract, usually made with a life insurance company. A single lumpsum deposit or a series of deposits funds the annuity. The deposits are called the capital. The capital grows due to the interest provided by the insurer, for instance at 3%. This means 3% interest is applied to the capital. The interest rate is fixed. Annuities are a guaranteed investment because the contract owner is guaranteed to receive his capital plus interest. The exception to this is if the contract owner has chosen to deposit his capital into a variable annuity. Instead of receiving a guaranteed interest rate, he will receive annuity payments based on performance of the stock market. The amount of benefit from a variable annuity is not guaranteed. Annuities pay a regular income, called the annuity benefit to the contract owner, who is called the annuitant. The contract owner can choose to receive the benefit monthly, quarterly, semiannually, or annually. 8

9 If an annuity is funded with a single deposit, the annuitant can begin to receive a benefit on the first annuity period he has selected. This is called an immediate annuity. Alternatively, if a series of deposits are made to the contract, the benefit will begin at a date in the future. An annuitant may also choose to make a single deposit but begin to receive benefits at a future date. This is called a deferred annuity. Annuities are available for a specified term, such as 10 years or to age 80, or for life. 1. The annuity benefit paid to the annuitant is determined by a number of factors. They include the rates offered by the insurer (there are differences between companies), the total amount of capital, how often the benefit is paid, and the age, gender and health of the annuitant. 2. All provinces define annuities as a form of life insurance. This gives them creditor protection. 3. Annuity benefits are paid monthly, every three months (quarterly), twice a year (semi-annually) or annually. The contract owner makes this decision on the application. 4. Withdrawals or surrender of the annuity contract is to be avoided since the annuitant will be financially penalized. Related Terms: Life Annuities. Term Annuity. Prescribed Annuity. Application After the life insurance agent has presented insurance options to the client, and calculated the correct amount of insurance required in a fact-finding interview, the client may then proceed to apply for the insurance policy. Completing the application form correctly is a key job for the agent because its details, together with other information, form the basis for underwriting the policy. - The concept of constructive notice applies to the agent during the application process. This means the insurance agent must disclose all information about the proposed policy owner and proposed life insured to the insurance company. - A power of attorney may complete an application for a physically or mentally disabled person. (A power of attorney is appointed in a legal document as a person who assumes decisions for another.) 9

10 - After the application is completed, it must be reviewed with the proposed insureds, and signed by the proposed policy owner and agent. The agent must not sign on behalf of the client; this is forgery. - If the agent believes that the standard premium rate will apply, he or she will ask for a cheque in the amount of the first premium to accompany the application. - The agent must promptly deliver the application to the insurance company, and be prepared to acquire more information if requested by the underwriters. - All details of an application are highly confidential and must never be shared with another person without the consent of the proposed insureds. - When the application is approved, the policy is issued. - The application together with the policy forms the entire contract between the policy owner and the life insurance company. 1. The policy owner provides information about his or her income and finances on the application to prove that premiums can be paid. 2. The underwriting of the policy determines premiums. This will include medical information from the Medical Insurance Bureau (MIB). 3. If the agent thinks that the life insured presents a higher risk than is covered by the standard premium, the agent should not ask for payment to accompany the application. 4. The agent may be required to complete an Inspection Report, Drug and Alcohol Questionnaire, or Hazardous Sports and Occupations Questionnaire to go along with the application. Related Terms: Cost Illustrations. Underwriting. Contract. Temporary Insurance Agreement. ASO Plans (Administrative Services Only) When a company has group insurance, the company either pays a premium to the insurer and the insurer pays the claims made by company plan members, or the company pays the claims. A company that chooses to pay claims itself is called self-insured. Such a company will often take out an administrative services only (ASO) contract so that it does not have responsibility for administration of the contract. ASO sees the company pay an administration fee to an insurer or third-party provider. The group members do not experience any difference in coverage. An ASO contract can save a company 10

11 considerable expense because the company is paying actual claims instead of a premium charged (and that must be paid) whether there are claims or not. The company limits its risk in terms of how much it will pay for claims by taking stop-loss insurance. The stop-loss insurance is used if a claim exceeds an agreed-upon limit that would arise from a catastrophic event. This is specific stop-loss insurance. If the insurance pays once a general threshold is reached for claims, it is called aggregate stop-loss insurance. 1. The alternative to a self-insured plan is a fully-insured plan. 2. In a fully-insured plan, the company pays the premium to the insurer. Such a plan may be structured on a refund or non-refund basis. 3. A fully-insured plan that provides a refund, if premiums exceed claims plus expenses, is called a retrospective rating arrangement or refund accounting method of funding. 4. A fully-insured plan that does not provide a refund is called a retention method of funding. Related Term: Group Insurance. Assignment When a life insurance policy is assigned, it is turned over to another person, company, or organization. In effect, ownership changes hands and the original policy owner loses his or her rights to the benefits of the policy. - An absolute assignment sees a policy switched from its owner to another owner. It could be used if a business held a key person life insurance policy on a senior executive in which the business was named as the beneficiary, and that executive leaves the company. Part of a compensation package could include transfer of the policy so that the executive assumes the obligation for premium payments but is able to name a beneficiary for the life insurance coverage. This is a permanent change. - A collateral assignment sees a policy switched from its owner to a financial institution. This would occur if a person was taking a loan for business purposes. Collateral (or security) for taking the loan is provided to the lender by the policy. If the borrower dies with the loan unpaid, the death benefit of the policy goes first to the lender and the balance to the beneficiary of the policy owner. The collateral assignment could be terminated when the loan is repaid. 11

12 - A charitable assignment sees a policy switched from its owner to a charitable organization. When the charity becomes the beneficiary, the policy owner receives the tax benefit that applies to a charitable gift. If a policy owner assigns the policy and continues to pay premiums, each premium is a charitable gift for the year and receives a non-refundable tax credit. 1. Some or all of the premiums paid for a life insurance policy used as collateral may be an allowable tax deduction. 2. Tax specialists should be consulted when assignment is contemplated. Assuris Assuris is a life insurance organization that ensures coverage for policy owners will continue if a Canadian insurance company goes bankrupt or cannot meet its financial obligations. The amount Assuris guarantees is based on the type of policy: - up to $200,000 of a term life insurance policy or term-to-100 life insurance policy is covered in full. If the face amount is greater than $200,000, then the policy owner will receive the greater of 85% of the death benefit or $200, universal life insurance policy owners receive the same guarantee as term life but the investment account of the policy owner receives additional coverage: the greater of 85% of the account or $60, whole life insurance policy owners receive the same guarantee as universal life except the additional coverage is based on the cash value of the policy. Dividends will continue but may be reduced in value. - disability insurance policy owners receive the greater of $2,000 per month or 85% of their benefit. - health insurance policy owners receive the greater of $60,000 or 85% of their benefit. - segregated fund contract owners receive the greater of $60,000 or 85% of their maturity or death benefit guarantees. 12

13 - annuitants receive the same amount as disability income insurance owners; but if the annuity has a guaranteed interest rate, then 100% of the value of the annuity up to $100,000 is received. 1. In 2012, Union of Canada Life Insurance Company was liquidated due to insufficient capital reserves. Its 22,000 policy owners did not completely lose the money invested in their policies, or lose their insurance coverage, thanks to Assuris. 2. Assuris does not settle policy disputes; it steps in to salvage corporate obligations if an insurance company becomes unable to meet those obligations. Advisor Resource: Related Term: Canada Deposit Insurance Corporation. Authority A person has authority when he or she has the right to take certain actions. The agency contract gives the agent authority. Authority comes in four forms: 1. Express authority. When a written or verbal contract specifies the actions that can be pursued by the agent on behalf of the insurer. 2. Implied authority. The actions taken by an agent on behalf of the insurer based on what would normally be expected. 3. Actual authority. When an agent is authorized to act on behalf of an insurer, and clients are informed of this, then actual authority exists. It includes express authority and implied authority. For instance, an agent has actual authority to assist in the completion of a life insurance application. 4. Apparent authority. Clients expect an agent to have the authority to take certain actions based on industry practices, representations by the insurer, past dealings, and other similar information. When an agent appears to have been authorized to act on behalf of an insurer, and clients believe that the agent has received the authority of the insurer to do so, then apparent authority exists. Actions taken by the agent with apparent authority are just as binding on the 13

14 insurer as those taken with actual authority. The insurer, however, can take legal action against an agent who has overstepped his or her apparent authority. 1. Apparent authority is the source of problems between clients, insurers, and agents. Related Term: Law of Agency. Automatic Premium Loan (APL) An automatic premium loan (APL) is one non-forfeiture option for policy owners with whole life insurance. A policy owner can stop paying premiums and the automatic premium loan (APL) will continue premium payments on his behalf. The APL uses the cash surrender value of the policy to pay premiums. Once the cash surrender value (CSV) is used for the final premium and it is exhausted, there is a 30 or 31-day grace period. If the life insured dies during the grace period, the death benefit (minus amount taken from the CSV and interest) will be paid to the beneficiary. But, if the premium is not paid during the grace period, the policy is finished and the whole life policy owner receives no money because no CSV exists. Advisor Remark: 1. The other non-forfeiture options are the extended term insurance option and the reduced paid-up insurance option. Related Terms: Non-forfeiture Options. Whole Life Insurance. Grace Period. Beneficiary The policy owner (also called the insured) names the beneficiary on the application for life insurance. 14

15 The beneficiary can be a person, group of people, the estate of the policy owner, a business, a trustee, or a charity who receives the death benefit of a life insurance policy. The death of the life insured triggers the payment to the beneficiary. A policy owner may name a primary beneficiary and a contingent beneficiary. The contingent beneficiary receives the death benefit if the primary beneficiary has died. The beneficiary may be revocable or irrevocable. The policy owner may change a revocable beneficiary at any time. It is appropriate for an agent to regularly review the beneficiary named in his or her client!s insurance policy. An irrevocable beneficiary must give his or her written consent to be replaced as beneficiary. Also, the irrevocable beneficiary controls how the policy owner can deal with the policy. His or her permission is needed if the policy owner wants to receive the cash surrender value of the policy, to take a loan against the policy, or to assign the policy. The beneficiary of the policy receives the death benefit tax-free. 1. A minor can be a beneficiary. 2. A business will be named as a beneficiary when life insurance is used to fund the transfer of a business to a new owner after the first owner dies or for key person life insurance. Related Term: Irrevocable Beneficiary. Business Disability Insurance Businesses need disability insurance to accomplish these objectives: 1. Business protection if the key person becomes disabled. The key person, or key employee, is an employee who is essential to a business, and whose disability would have a financial impact on the company. Key person disability insurance pays the disability benefit to the business to use as it chooses. 15

16 2. An orderly sale of the business if an owner is disabled. A buy/sell agreement must be in place between an owner of a company and a potential buyer. The disability buy-out insurance buys out the disabled owner according to the terms of the buy/sell agreement. 3. Business protection if the owner is disabled. A business overhead insurance policy will begin paying the overhead expenses of a business when the business owner is disabled, after an elimination period. Overhead expenses include employee wages, rent, and hydro and telephone bills. They do not include inventory or a payment of the salary to the business owner. The policy benefit will be paid for up to three years. 1. The buy-sell agreement is essential because it establishes the price to be paid for the company, and other terms of payment. 2. Overhead insurance is available for professionals in private practice, such as lawyers and doctors, and self-employed business people with a good track record. Related Terms: Business Life Insurance. Business Overhead Insurance. Business Life Insurance Businesses need life insurance to accomplish these objectives: 1. Business protection if the key person dies. The key person, or key employee, is an employee who is essential to a business, and whose death is likely to have a financial impact on the company. Key person life insurance names the business as the beneficiary of the policy and the key person as the life insured. If the key person dies, the business receives the death benefit. The money can be used for the cost of hiring a replacement employee, or to bridge the financial transition between the key employee!s death and the contribution of the new key employee. 2. An orderly sale of the business if an owner dies. A major part of the estate of a business owner can be the value of the business he or she owns. Surviving family members need to have a way to receive that value, without resorting to a sale of the company. To do so, a buy/sell agreement must be established between an owner of a company and a potential buyer. It can be structured as: 16

17 - A cross-purchase agreement. A life insurance policy is then acquired that names the buyer as beneficiary. The buyer uses the money from the policy to pay survivors. - A criss-cross agreement. A life insurance policy is acquired that names all partners as beneficiaries. - A cross-purchase, tax-free dividend agreement. The business is named beneficiary of a life policy. Shares of the business are transferred to the estate of the deceased owner and surviving shareowners use a promissory note to buy the shares. The company then issues a dividend in the amount of the promissory note. 1. The buy-sell agreement is essential because it establishes the price to be paid for the company, and other terms of payment. 2. A cross-purchase, tax-free dividend agreement can only be used by an incorporated company since only incorporated companies can issue dividends. 3. A variation on key person insurance is split dollar life insurance. Such insurance sees the business receive the death benefit of a policy if a key person dies, and the key person contributing to the cash value of a policy. The cash value may be accessed during life, or upon death, may be received by a surviving spouse. Related Terms: Business Disability Insurance. Capital Gains. Business Overhead Insurance. Business Overhead Insurance Business Overhead Insurance is a form of disability insurance for a business owner. The insurance does not pay a benefit to the owner, instead, the benefit is used to pay ongoing fixed expenses of the business. In this way, an owner who generates revenue for the business is able to protect his business if disability should occur. The owner will protect himself or herself with a personal disability policy. Benefits begin after the elimination or waiting period is over. They are paid monthly. Payments are limited to actual expenses incurred for costs such as: - rent - utilities - employee salaries (this does not include a salary for the disabled owner) There will be a maximum to the number of benefit payments received. 17

18 1. Key to the use of this insurance is that the owner must produce income for the company, or business. Therefore, it is very useful for professionals such as lawyers, doctors, accountants, and engineers. 2. Premiums may be tax deductible as a business expense. Related Term: Business Disability Insurance. Canada Deposit Insurance Corporation (CDIC) Canada Deposit Insurance Corporation (CDIC) is a Crown Corporation that provides protection on balances up to $100,000 in Canadian currency that are held with its member financial institutions. Those institutions include banks, Canadian trust and loan companies, and deposit-taking associations governed by the Cooperative Credit Associations Act. CDIC does not cover credit unions and caisses populaires, Canadian branches of foreign banks, and some Canadian chartered banks. CDIC reimburses account owners for losses up to the $100,000 limit on eligible deposits if the financial institution, such as a bank, becomes bankrupt. Eligible deposits include: - savings and chequing accounts; - Guaranteed Investment Certificates (GICs) and similar term deposits with a maturity date of five years or less; - money orders - certified cheques - bank drafts - traveller!s cheques (when issued by a CDIC member) Ineligible deposits include: - mutual funds; - stocks; - bonds; - treasury bills - GICs with a maturity date of more than five years. CDIC coverage is automatically provided to depositors; they do not need to apply for coverage. Advisor Resource: 18

19 1. The insurers of deposits at financial institutions are: - Assuris for insurance products; - CDIC for banks, trust and loan companies, and some deposit-taking associations; - Canadian Investor Protection Fund (CIPF) for investment dealers who sell stocks and securities; - the Mutual Fund Dealers Association (MFDA) Investor Protection Corporation (IPC) for mutual funds. 2. All insurers across the industry provide protection against insolvency of firms; they do not insure against losses suffered by investors. Canada Pension Plan The Canada Pension Plan (CPP) is a program delivered by the federal government and is in place in all Canadian provinces except Quebec. In Quebec, the Quebec Pension Plan (QPP) provides the equivalent of the CPP. The CPP provides five forms of income to those who qualify: 1. Retirement income. All Canadians who are employed or self-employed contribute to the CPP when they earn more than an amount established as the minimum for contributions. There is also a maximum amount above which contributions cease. CPP can begin as early as age 60 on a reduced basis; at age 65 the full pension is received, and after age 65 the pension is increased every month. The amount of reduction or increase pre-/post age 65 had been set at a flat 0.5% per month or 30% for the full five years on either side of age 65. Changes were introduced in 2011 that boosted the amount the pension would increase by waiting. In 2012 the penalty for taking the pension before age 65 was increased. Year Monthly Increase for CPP Benefits CPP Benefit Bonus or Penalty Rates Annual Equivalent Monthly Decrease for CPP Benefits Annual Equivalent % 6.84% 0.5% 6% % 7.68% 0.52% 6.24% % 8.4% 0.54% 6.48% % 8.4% 0.56% 6.72% % 8.4% 0.58% 6.96% % 8.4% 0.6% 7.2% 19

20 In 2012 another change was introduced: contributors no longer have to stop working or significantly reduce earnings for two consecutive months to receive the CPP retirement pension before the age of A survivor!s pension. This monthly payment is made to the spouse of a CPP contributor who dies. 3. A children!s benefit. This monthly payment is made to the child of a CPP contributor if the contributor dies. It is paid to age 18 or age 25 if the child attends school full time. 4. A disability benefit. When disability is proven to be both severe and prolonged, CPP will pay a monthly income to the disabled person. 5. A children!s disability pension. This is payment made to a disabled contributor and his or her child. CPP also provides a lump-sum payment as a death benefit when a contributor dies. The amount, to a maximum of $2,500, is paid to the contributor!s estate. Advisor Resource: 1. An employed person shares his or her contribution to CPP with his or her employer. Those who are selfemployed contribute the full amount. 2. Contributions can be made to CPP to age 70 if a person continues and work, and whose income is greater than the minimum for CPP contributions. 3. The CPP disability pension begins after a four-month waiting period once disability has been proven. Related Term: Old Age Security. Canadian Life and Health Insurance Association (CLHIA) The Canadian Life and Health Insurance Association (CLHIA) is a voluntary trade association that represents the collective interests of its member life and health insurers. The Association!s membership accounts for 99 per cent of the life and health insurance in force in Canada and administers about two-thirds of Canada!s pension plans. 20