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LLQP (life licence)

LifeLLQP Life Insurance✓A&SLLQP Accident & Sickness Insurance Seg FundsLLQP Segregated Funds & Annuities EthicsLLQP Ethics & Professional Practice (Common Law)

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Ethics and Professional Practice · Component 1: legal aspects of contracts (60%)

Contract Formation, Disclosure & Provisions

How a life or A&S contract comes into force, what both sides must disclose, how long a misrepresentation can be raised, and the provisions that keep a policy alive or let it lapse: grace, reinstatement, age misstatement, assignment and the statutory conditions for A&S.

Legal aspects of insurance and annuity contracts3 min read6 sections

Must-know for the exam

A life contract takes effect on delivery, payment of the first premium and no change in insurability since the application, unless the contract says otherwise (s. 48).
The entire contract is the application, the policy, attached documents and written amendments (s. 41(2)).
Insurable interest: own life, child, grandchild, spouse, a person you depend on, an employee, or anyone whose life is a pecuniary interest; otherwise the life insured's written consent.
After 2 years in force during the insured's lifetime, non-disclosure cannot void a life contract unless there was fraud (s. 52(2)).
A misstated age adjusts the benefit to what the premium buys at the true age (s. 54(2)).
Grace period: 30 days for life and A&S premiums after the first (ss. 50, 106).
Reinstatement: within 30 days after the grace period by paying, or within 2 years with evidence of insurability and arrears with interest (s. 57).
An absolute assignment makes the assignee the insured and revokes revocable designations; a collateral assignment affects the beneficiary only as far as the debt.
A&S statutory conditions: notice of claim in 30 days, proof in 90, outer limit one year; insurer cancels with 15 days' registered notice or 5 days' personal notice.
For A&S, the 2-year protection does not cover a disability that began in the first 2 years (s. 112(3)).

On this page · 6 sections

Traps that cost marks

Treating delivery plus premium as enough, and forgetting the third condition: no change in insurability.
Thinking the client must physically receive the policy even when the insurer has released it for unconditional delivery.
Assuming the agent's acceptance of a cheque counts as payment even when it bounces.
Forgetting that the signed application is part of the contract.
Believing the evidence of insurability is the insurer's private file that the client cannot see.
Confusing a void contract (no insurable interest) with a voidable one (misrepresentation, 2-year rule).
Assuming all close relatives qualify; siblings are not on the list.
Thinking a company can never be the insured (owner) of a life policy.

Why it matters on the exam

These rules come from the provincial Insurance Acts, which are uniform across the common-law provinces. Questions give dates and facts and ask whether coverage is in force, whether the insurer can contest, or what the client must do to restore a lapsed policy. Section numbers here are from British Columbia's Act.

Formation and disclosure

•Both the applicant and the person whose life is insured must disclose every material fact they know (s. 51(1)).
•A misstatement on an application for an increase affects only the increase (s. 51(3)).
•The insurer's own misrepresentation lets the insured avoid the contract within 2 years (s. 53).
•An agent is not treated as the client's agent to the client's prejudice (s. 90).

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Exam-style questions

Hana completed an application for $400,000 of term life insurance on 2 June and paid nothing with it. The policy was issued on the terms she applied for and mailed to her agent on 20 June. Before the agent delivered it, Hana was diagnosed with a serious heart condition. The agent then delivered the policy and collected the first premium. Is the contract in force?
Insurer X issued Owen's policy on the terms he applied for and sent it to his agent for unconditional delivery. Owen had already paid the first premium with his application, and his health had not changed. Owen died in a car accident before the agent handed him the policy. What is the insurer's position?
Ravi, 49, of Brandon, bought a $500,000 life policy last year after completing a written medical questionnaire. He is now refinancing his business and his lender wants to see the full contract. Ravi writes directly to the insurer asking for a copy of the entire contract and of the written medical answers he gave as evidence of insurability. It is his first such request. What must the insurer do?

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