Insurance and financial planning

Fees associated with products

The representative must thoroughly explain the pricing of proposed segregated funds to his client, in particular the cost of insurance coverage, and explain to him how these segregated funds may correspond to his needs, as defined in the FNA.

When evaluating different segregated funds, the personal insurance representative must take each fund’s fee structure into account.

• Sales charges: fees payable by the client upon purchase or redemption of invested funds, before maturity, based on a fee schedule. They are calculated based on a percentage of the value of the shares at the time of their purchase or sale. Some funds do not have sales charges.
• Management and operating expenses: fees associated with the funds’ administration and daily management, deducted directly from the shares. All segregated funds have management and operating fees. Management fees vary based on the fund type, the management style and market offering. In particular, they include payment for the manager and the representative’s trailer fee. Operating expenses are the cost of functioning, which includes auditors’ and legal experts’ commissions, printing fees, bank fees, marketing, and taxes.
  
  These fees are shown as a management expense ratio (MER), which corresponds to a percentage of the fund’s average net asset. It does not appear on the client’s account, but it must still be considered because it decreases the returns. It should be noted that the MER was deducted from past returns released by the fund.
  
  The MER includes trailer fees, which depend on the applicable sales charge structure. The MER varies from one segregated fund to another, based on the protection offered. In general, an IVIC with…

• a 100% guarantee at expiration and at death has a higher MER than an IVIC with a minimum coverage of 75%.
• segregated funds of actively managed shares have a higher MER than a segregated fund requiring little management.
• postponed sales charges has a higher MER than a contract with no sales charges.
• a guarantee reset option has a higher MER.
• a minimum withdrawal rider has a higher MER.

• Trading fees: fund trading fees – in particular, this includes fees for fund switching and short-term trading.

The client may incur other fees.

Representative compensation

The representative’s compensation (lien 2) includes various elements that may impact the client’s investment:

• The sales commission, based on the selected sales charges option
• Bonuses, normally based on the maintenance and growth of business
• The trailer (service) fee, based on the selected sales charges option – when there is no sales charge (zero sales charge), trailer fees are generally higher, which may result in a higher MER and therefore a larger impact on the segregated fund’s return for the client.

Communication at the point of sale

Individual variable insurance contracts (IVICs) are purchased through an insurance proposal. Normally, using this document, the client selects the segregated funds where his premiums (contributions) will be invested, and he designates his beneficiary or beneficiaries. The contract (policy), included with the proposal, is useful for the representative to explain all the contract features to the client. The client normally receives his copy of the contract once the insurer has the proposal in hand and the first premium has been paid.

IVICs must be provided to consumers with an information booklet that includes the following information about IVICs:

• the policy “highlights,” where the main features of the IVIC are explained
• the fund overview, which describes each fund offered through the IVIC

The representative must provide the information booklet to the client as either a paper or electronic copy, as the client prefers, before the client signs the proposal. The representative must then explain the main features of the IVIC and its associated segregated funds so the client has a thorough understanding of it.

A confirmation of receipt for the information booklet must be signed by the client.

Former purchases

When there are former purchases of segregated fund units, the representative is not required to provide a new information booklet. However, by the finalization of the IVIC at the latest, the representative must inform the client of:

• the possibility of obtaining the most recent version of the information booklet or fund overviews, as applicable, from the insurer, for all available funds, at any time
• how to access to these documents with the insurer

The insurer must allow the client to view the Fund overview online at any time. At the client’s request, the insurer must also provide a paper copy at no cost.

Annual statement

The insurer provides an annual statement to IVIC holders no later than during the four months following the closure of each fund’s year end.

One point to remember is the tax impact of certain transactions or options involving segregated funds.
Insurers provide personal insurance representatives a document describing the tax consequences based on the options, the drafting of their contracts, the holder type, the annuitant, etc. Representatives must of course learn this information, but occasionally it’s necessary to consult a tax specialist to properly check the specific tax implications at the time of a client or potential client’s death.

An insurance and group annuity adviser, a group annuity plan adviser, or an actuary may offer a VRSP administered by a life insurer to an employer (for their employees). If the client is an individual, the VRSP must be distributed by a financial security adviser. In addition, a life insurer administering a VRSP may offer this plan to an employer or individual directly, with no representative, if no counsel is requested or provided.

However, to meet high demand, the law allowed for such a VRSP to be offered to an employer by a financial security adviser or a group insurance plan adviser during a limited period, until December 31, 2017.

The following is a list of what different representatives authorized to distribute a VRSP administered by a life insurer can and cannot do.

A financial security adviser or a group insurance plan adviser can:

• Until December 31, 2017, offer a VRSP to an employer, without an adviser for group annuity products
• For financial security advisers only, offer a VRSP to an individual, inform him of the applicability of the proposed VRSP and, of course, advise the individual of other individual annuity products administered by a life insurer
• For financial security advisers only, offer individual advice on selecting an investment option within the scope of the VRSP if…
• He accepts an individual mandate from an employee
• He obtains a mandate from the employer outlining the provision of individual advice to employees
• The offer is made to an individual

He cannot:

• Offer advice or information to the employer or individual about other group annuity products
• Compare the VRSP to other group annuity products
• Make recommendations on the type of group annuity plans to choose
• Replace a VRSP that the employer already purchased or replace an annuity plan already established with the employer through a VRSP

A group insurance and annuity adviser or group annuity adviser can:

• Offer a VRSP to an employer
• Advise the employer and give him information about the VRSP offered and about different group annuity products
• Compare the VRSP to other group annuity products
• Give the employer recommendations on the type of plan to choose
• Replace a VRSP that the employer already purchased or replace an annuity plan already established with the employer through a VRSP

He cannot:

• Offer a VRSP to an individual
• Offer personalized advice to individuals about choosing an investment option within the scope of the proposed VRSP

Personal insurance representatives and group personal insurance representatives must first and foremost ensure that they fully understand their client to determine if this product aligns with their situation, except in the event where his mandate only includes employees purchasing the VRSP offered to the employer.

The insurance contract is created once the insurer accepts the purchaser’s proposal. The creation of the contract therefore signifies that there is a voluntary agreement between the purchaser and the insurer, when the insurer agrees to insure the risk as defined in the insurance proposal.

It is important to remember the distinction between the contract creation and its entry into effect, because certain conditions outlined by law or in the contract can vary based on the insurance type. Conditions for the life insurance contract’s entry into effect are not the same as those for accident and sickness insurance.

However, if the accident and sickness insurance coverage is an addition to the life insurance contract, the conditions for the life insurance’s entry into effect apply. On the other hand, if the life insurance coverage is an addition to the accident and sickness insurance contract, the conditions for the accident and sickness insurance’s entry into effect apply.

Life insurance
The life insurance contract enters into effect when the following three conditions are met:

1. the proposal is accepted with no modifications by the insurer
2. the first premium is paid
3. the risk insurability has not changed between the proposal signature and its acceptance by the insurer

However, the law allows the insurer to give the purchaser more beneficial conditions. For example, the insurer may offer insurance coverage starting from the signature of the proposal, even if the first premium will be paid later, or require that the first premium be paid and apply an effective date that is before the proposal acceptance. The insurer may offer multiple premium payment methods (monthly, quarterly, biannual or annual payment).

Accident and sickness insurance

An accident and sickness insurance contract enters into effect when the policy is provided to the purchaser or when the policy is provided to a representative of the insurer to be delivered to the purchaser, if this has been stipulated in the proposal.
As with life insurance, the insurer may grant the purchaser more advantageous conditions and agree that the contract will enter into effect on the date of the proposal’s acceptance.
The personal insurance representative must understand the conditions of the contract’s entry into effect. He must also be able to explain to the client, for example, the different premium payment methods.

To purchase life insurance or accident and sickness insurance, the purchaser must have an insurable interest in the life or health of the insured, depending on the situation.

Generally, the purchaser may purchase insurance on his life or on the life or health of the following people:

• His spouse
• His descendants or his spouse’s descendants
• His subordinates or employees
• People in whose life and health the purchaser has a pecuniary or moral interest
• People who contribute to the purchaser’s support or education

In individual insurance, this insurance interest must exist when the contract is finalized. Its importance is tied to the fact that we want to prevent someone from speculating on the life of another person by threatening their safety. If there is no insurance interest when the contract is finalized, the contract is void. However, the insured person may agree in writing to be covered by insurance if this interest does not exist when the contract is finalized. A verbal agreement is not valid. Furthermore, insurers stipulate specific questions on this topic in the insurance proposal.

For example, if a person purchases life insurance for their spouse when the contract is finalized and then the couple separates while the contract is still in effect, the purchaser doesn’t lose the insurance interest in the life of his ex-spouse because this interest existed when the contract was finalized.

We must remember that insurance interest also applies when the purchaser would like to transfer his contract to another person, called the transferee. The contract transferee must also have an insurance interest in the life of the insured person at the time of the transfer, unless the insured person agrees otherwise in writing.

In group insurance, the purchaser is not required to have an insurance interest because he is acting only as the contract administrator.

Designating a beneficiary

In life insurance, the beneficiary is the person who will receive the insured capital in the event of the insured person’s death. If the insurance holder would like to designate a beneficiary, he can do so:

• in the policy itself, usually on the beneficiary designation form included in the proposal
• in a will; however, any designation made in a will with the intent of replacing a former designation must mention the insurance in question, unless the testator’s intention leaves no doubt
• in a separate document, for example a letter sent by the holder to the insurer or a separate beneficiary designation form that the insurer provides to his clients

Clarity of the designation

The beneficiary must exist at the time the insured capital becomes payable, and the designation must be sufficiently clear for identification of the beneficiary.

No beneficiary designated

When no beneficiary is designated or the holder designated his “legal heirs,” “assigns,” “liquidators,” “legal representatives,” or other similar expression, there is no designation and the insured capital is paid…

• either to the holder’s estate (if the holder and the insured person are the same person)
• or to the holder (if the insured person is not the holder)

Revocable and irrevocable beneficiaries

When the life insurance policyholder designates a beneficiary, it is revocable unless the holder expressly states that it is irrevocable. In such a case, the holder cannot revoke this beneficiary without his written authorization. If the irrevocable beneficiary refuses to give his consent, the holder cannot replace him with another. When the designation is made in a will, it is always revocable. Therefore, unless specified in a form or document (other than a will) that the designation is irrevocable, the holder can always change his mind and designate another person as beneficiary. Designation of a beneficiary, just like revoking one, is only valid as such starting on the day the insurer receives it.

If the holder designates his spouse (through marriage or civil union) as beneficiary, the designation is irrevocable unless the revocability is stipulated in a separate document, or if this designation is made in a will. It should be noted that as of December 1, 1982, all divorces cancel the designation of the married spouse as beneficiary or subrogated holder, even if they were designated as irrevocable. As of 2002, the same principle applies in the event of dissolution or nullity of the civil union, which also results in cancellation of any designation of the spouse as beneficiary or subrogated holder. The holder may then designate a different person. It should be emphasized, however, that legal separation does not automatically lead to cancellation of the spouse’s designation, but the court, at the time it announces its ruling, may declare it revocable or void.

Additionally, the courts ruled that when the spouse’s designation takes place before the marriage or civil union, divorce or dissolution of the civil union does not cancel the designation. The holder may therefore modify it as he wishes, under the condition that it is revocable. Therefore, it is important to properly establish the time of the designation to determine the effect of a divorce (or dissolution of a civil union) on this designation.

Validity of the beneficiary designation

All beneficiary designations that are not included in the policy (that is, in the proposal) are not valid until the day the insurer receives it. Further, if the holder makes multiple irrevocable designations independently from one another, priority is given to the one the insurer receives first. If the holder cancels a beneficiary designation, the law does not require this revocation to be made during his lifetime (if he is also the insured person), but it must have been received by the insurer in order to be valid for him. It may so happen that after the death, the estate or a family member finds a beneficiary designation that was made during the holder’s lifetime, but was not sent to the insurer. If this new designation is sent to the insurer, it is valid for him and the insured capital must be paid to the new beneficiary. However, if the new designation is not sent to the insurer within 30 days of the receipt of the documents confirming the event leading to the benefit, the insurer may pay the insured capital to the beneficiary for whom they received the last designation; they will then be exempt from their payment obligation.

It is important for the personal insurance representative to know that these rules are followed by insurers because they are required to carefully check if the person claiming the payment of the insured capital is entitled to it. It is helpful for the representative to know these rules because he may be called to advise and guide his client or the liquidator of the estate upon the insured person’s death.