Insurance of Persons Concepts Relevant to Damage Insurance
Core Concepts
Although damage insurance focuses on property and liability, candidates must understand basic concepts of insurance of persons (life and health) because they may intersect with damage insurance, such as in commercial lines or personal lines. Key concepts include the principle of insurable interest in life insurance, which must exist at the time of application (not at time of loss), and the beneficiary designation. Life insurance is not a contract of indemnity; it pays a stated sum. Disability insurance replaces income, and critical illness insurance pays a lump sum on diagnosis. In Quebec, the AMF regulates both damage and life insurance, and agents may hold dual licences. The concept of "accident" versus "sickness" and the waiting periods are important. Also, group insurance and creditor insurance are common.
Traps in Questions
A common trap is applying damage insurance principles to life insurance, such as indemnity or subrogation (which does not apply to life insurance). Another trap is the insurable interest requirement: in life insurance, it must exist at the time the contract is made, and consent is required if the insured is not the applicant. Questions may also test the tax treatment of life insurance proceeds (generally tax-free to beneficiary) versus disability benefits (taxable if premiums were deductible).
Worked Example
A business takes out key person life insurance on a critical employee. The business must have insurable interest at the time of application, and the employee must consent. If the employee dies, the business receives the death benefit tax-free, but the premiums are not deductible.
Rule of Thumb
Life insurance is not indemnity; insurable interest at application and consent are key. Disability benefits may be taxable depending on premium deductibility.