Bill 141 would basically abolish the Chambre Financiere in Quebec and transfer the responsibilities of the Chambre to the AMF. But is this too much responsibilities for the AMF? There are evidence that the AMF has eroded the level of knowledge that a representative must have in order to be licensed. We can prove this by the quality of the life insurance exam questions that representatives must take in order to be licensed. If the AMF clearly failed in administering the quality of the examination to qualify representatives to receive a license, should the AMF be given even more responsibilities?
The second question for the Quebec exam on life insurance that we are reviewing is about the taxation of Universal Life. Any life insurance representatives selling UL should be able to answer this question. If you can’t you should not be selling insurance and if you are the regulator you should fire some people and hire some people who know insurance in order to regulate the sale of this product effectively.
The fact that no licensed insurance representatives in Quebec have challenged this exam question shows the level of ignorance that licensed representatives have about life insurance and this should concern consumers who are dealing with these representatives.
Tom has just submitted a claim for his father’s universal life and group life insurance policies. He wants to know if death benefits will be taxable.
How would you answer his question?
a) The death benefit paid by an individual insurance is never taxable. If the employer paid the group life insurance premium, the premium would not be added to Tom’s income and the death benefit would also be tax-free.
b) The death benefit for individual and group life insurance policies is always tax-free.
c) If the universal life insurance policy is not exempt, the death benefit would be taxable in full. The death benefit of a group life insurance policy is always paid tax-free.
d) The death benefit of an individual life insurance policy is always paid tax-free. If the employer has paid and deducted the group life insurance portion, the death benefit becomes taxable.
Answer for the exam:
Answer to: False. The group life insurance premium paid by the employer would be added to Tom’s income.
Answer b: Good answer. Death benefits from individual or group life insurance are always tax-free.
Answer c: False. The death benefit of universal life insurance is paid tax-free.
Answer by: False. The death benefit of group insurance, regardless of who paid the premium, is still tax-free.
The right answer:
None of the above. As stated by Advocis: “The tax on non–exempt policies must be paid at least every three years. … If you are insured under a non–exempt policy, then upon your death investment income generated from this policy that has not yet been taxed will be considered taxable income.
As a result, part of the Cash Surrender Value paid as death benefit, where tax is owed under a non-exempt policy would not be tax-free.
Please note also the case of Corporate insurance. While the death benefit is paid tax free to the corporation, only a portion of the life insurance proceeds (death benefit less ACB) keep its tax free status when the life insurance proceeds are paid ultimately to the ultimate recipient. As a result, from a consumer perspective, this death benefit is not tax-free as taxes would be owed on part of this death benefit.