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MTHEL131 (113)
David Kohler (108)
Lecture 10

MTHEL 131 Class Note Lecture 10

7 Pages
262 Views

Department
Mathematics Electives
Course Code
MTHEL131
Professor
David Kohler

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[Nov. 23, lecture 10] 1
Broker, in theory, can sell the products of any insurer out there
In reality, 80% of the products the broker would sell would be with the same company
17% would be with the 2nd company
Why does the broker tend to sell products primary from on company?
1. The insurance products can be complex
2. Related to administration; the industry is proliferative with different forms
3. Financial incentives, prizes and rewards, extra commission
Long Term Care Insurance
Principal of Risk Management
Insure high value with low probability of loss
Uninsured low value with high probability of loss
Long Term Care Insurance became a product in Canada 15 years ago
Long Term Care Insurance is designed to provide a monthly income to the insured in
the event they cannot care for themselves
Waiting Period: 14 days
Benefit Period: 2 years, 3 years, or whole life
Benefit Amount: range of $2,000, $3,000 or $4,000
When the premium is paid by the policy holder, the benefit is tax free
Long Term Care Insurance manages the risk of depleting your investment
Circumstance that the claim would be paid for Long Term Care
6 Activities of daily living:
Eating
Bathing
Dressing
Toileting
Transferring (Mobility)
Maintaining Continence
The claim can be paid once the claim adjuster of long term care has determined is the
policy holder unable to do 2 or 3 of the activities of daily living
If yes, then the claim pays
Another way to receive the claim is if the cognitive impairment exist (ex. Alzheimer's
Disease)
[Nov. 23, lecture 10] 2
With any policy, they have to be underwritten
A life insurance policy is a contract; all contracts must have offer, consideration, and
acceptance
In the case of an insurance contract, the offer is the application; the acceptance is the
issue of policy; the consideration is the first premium
How to prioritize different products?
If a person has no dependence: 1. Disability Insurance; 2. Critical Illness insurance; 3.
Long term care insurance
If a person has dependence: 1. Life Insurance; 2. Disability Insurance; 3. Critical Illness
insurance; 4. Long term care insurance
Long term care system in Canada
Not a formal system; there are nursing homes, community services, day care (for kids and
adults)
The demand for long term care is going to rise significantly as demographic changes take
place as the baby bomber aging
The reason why the long term care insurance is rising:
1. People are living longer
In 1972, there were 15 people are over 100 years old in Canada
In 2009, there were 6,000 people are over 100 years old in Canada
2. The population is aging
The fastest growing demographic in Canada is 85+; and it is going to triple in next few
years
3. Rising rate of morbidity
Traditionally, children have been looking after the elder one, and if you have 4 or 5
children, the chance is 1 or 2 are going to around to help you out when you are old; but
now the families are 1 or 2, so that is a lot less potential that the kids are going to be
around to help
The child is living far away from town
Long term care insurance is protecting your saving and investment

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Description
[Nov. 23, lecture 10] 1 Broker, in theory, can sell the products of any insurer out there In reality, 80% of the products the broker would sell would be with the same company 17% would be with the 2 company Why does the broker tend to sell products primary from on company? 1. The insurance products can be complex 2. Related to administration; the industry is proliferative with different forms 3. Financial incentives, prizes and rewards, extra commission Long Term Care Insurance Principal of Risk Management  Insure high value with low probability of loss  Uninsured low value with high probability of loss  Long Term Care Insurance became a product in Canada 15 years ago  Long Term Care Insurance is designed to provide a monthly income to the insured in the event they cannot care for themselves  Waiting Period: 14 days  Benefit Period: 2 years, 3 years, or whole life  BenefitAmount: range of $2,000, $3,000 or $4,000  When the premium is paid by the policy holder, the benefit is tax free  Long Term Care Insurance manages the risk of depleting your investment Circumstance that the claim would be paid for Long Term Care 6Activities of daily living:  Eating  Bathing  Dressing  Toileting  Transferring (Mobility)  Maintaining Continence → The claim can be paid once the claim adjuster of long term care has determined is the policy holder unable to do 2 or 3 of the activities of daily living  If yes, then the claim pays →Another way to receive the claim is if the cognitive impairment exist (ex.Alzheimer's Disease) [Nov. 23, lecture 10] 2  With any policy, they have to be underwritten Alife insurance policy is a contract; all contracts must have offer, consideration, and acceptance → In the case of an insurance contract, the offer is the application; the acceptance is the issue of policy; the consideration is the first premium How to prioritize different products?  If a person has no dependence: 1. Disability Insurance; 2. Critical Illness insurance; 3. Long term care insurance  If a person has dependence: 1. Life Insurance; 2. Disability Insurance; 3. Critical Illness insurance; 4. Long term care insurance Long term care system in Canada  Not a formal system; there are nursing homes, community services, day care (for kids and adults) → The demand for long term care is going to rise significantly as demographic changes take place as the baby bomber aging The reason why the long term care insurance is rising: 1. People are living longer → In 1972, there were 15 people are over 100 years old in Canada → In 2009, there were 6,000 people are over 100 years old in Canada 2. The population is aging → The fastest growing demographic in Canada is 85+; and it is going to triple in next few years 3. Rising rate of morbidity  Traditionally, children have been looking after the elder one, and if you have 4 or 5 children, the chance is 1 or 2 are going to around to help you out when you are old; but now the families are 1 or 2, so that is a lot less potential that the kids are going to be around to help  The child is living far away from town  Long term care insurance is protecting your saving and investment [Nov. 23, lecture 10] 3 Study done by the Royal Bank  Why senior would come into the bank and withdraw all the money in the RRSP (when a person do that, it is fully taxable)  80% of the time, the reason people withdrawing money from their RRSP when they’re seniors is to pay the unexpected health care cost → The health care cost is rising significantly → If you cumulative the total of all the health care service you consumed in your lifetime, 70% of the total amount of health care service you consumed in your lifetime would be consumed in your final year of your life Government has 2 options to face rising health care cost: 1. Raise taxes  Taxes come from 3 sources:  Income: federal + provincial  HST (consumption): federal + provincial  Property: municipal 2. Cut the health care service/fees  Charging for labor delivery service  Charging certain medical procedures that are free before  OHIP not cover the optometrist’s charges anymore  Greece spend way too much money, and screwing up the economy Pensions 1. Canada Pension Plan (CPP) Misconceptions about CPP  It is not a government program  We measure what kind of a program it is base on who’s funding it  The CPP is not funded by the government; it is funded half by employees and half by their employers  CPP is contributed by all Canadians between the age of 18 and 70 who earn more than $3,500 per year  The percentage you will contribute is 4.95% of your gross income  The 5 benefits available under the CPP  Retirement Benefit/Pension [Nov. 23, lecture 10] 4 → The amount you get at retirement is the function of how much you earn and how long you work → Maximum benefit amount: $960/month  Survivor Pension →If you are married and your spouse passes away and you are the survivor, the spouse is the member of CPP, you might be eligible for survivor pension with maximum of $500/month → If you are under 35 years old, young couple with no kids, no payment → If you are under 35 years old, young couple with kids, then you are eligible for the payment  Death Benefit (insurance) → Every member in of CPP has a small amount of life insurance of $2,500  Disability Benefit → Definition of disability within the plan →Adisability that is severe and prolong likely result in death → You need be in bad shape to qualify disability benefit in pension plan → In 2011, the maximum benefi
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