Insurance and Estate Planning: Risk Transfer and Asset Transfer
Insurance fundamentals
Know the principles of insurable interest, indemnity, utmost good faith, and the role of the beneficiary designation. Distinguish term from permanent life insurance, and describe how a universal life policy separates the insurance cost from the investment account. Understand the tax treatment of a death benefit: proceeds paid to a named beneficiary generally flow tax-free, while proceeds paid to the estate may be exposed to probate and creditor claims. Know the capital dividend account and the tax on a policy disposition during lifetime.
Disability and critical illness
Compare disability insurance (income replacement, own-occupation versus any-occupation definitions, elimination period, benefit period) with critical illness insurance (lump sum on diagnosis of a covered condition, survival period, return of premium options). Questions often test which policy responds to a specific scenario.
Estate planning tools
Understand wills, intestacy, probate, powers of attorney for property and personal care, trusts (inter vivos and testamentary, spousal and alter ego), joint ownership with right of survivorship, and beneficiary designations on registered plans. Know the deemed disposition at death, the spousal rollover, and the principal residence exemption as an estate tool.
Traps
Watch for questions that assume a will avoids probate, that joint ownership is always appropriate, or that a beneficiary designation can be overridden by a will.
Rule of thumb
Name a beneficiary directly on registered plans and life policies to bypass probate; use a secondary beneficiary to avoid a lapse.