11.2 Amount, Term, Premium, Riders, Beneficiaries, Exclusions, Illustrations
Key Takeaways
- A CISRO 3.2 recommendation is a package: selected product(s), amount of coverage, term if applicable, premium, recommended riders, primary and contingent beneficiaries, exclusions, and important clauses — not a product nickname.
- On the Kowalski file the package is about $564,000 of convertible Term 20 or Term 30 for Anika’s dated layer, $100,000 more of term with Nadia irrevocable, a $25,000 permanent slice for Heart & Stroke, and existing group left in place as a layer.
- Premium must be payable from the household’s real cash flow; a $689,000 participating-whole-life premium that crowds out RESP deposits is not adapted to the situation even if the face amount matches the shortfall.
- Primary and contingent beneficiaries must match the need: Anika for the family layer, a trustee for minors, Nadia irrevocable for the court order, Heart & Stroke for the gift, and a named person rather than “estate” unless probate cash is the point.
- Disclose aviation, suicide, contestability, and other exclusions, and name grace period, incontestability, misstatement of age, conversion, and free-look as clauses the client is buying — full statutory teaching sits in the implementation chapter.
Quick Answer: After you choose term versus permanent versus group, CISRO 3.2 tests whether the recommendation package is complete: selected product(s), amount, term if applicable, premium, riders, beneficiaries (primary and contingent), exclusions, and important clauses. A face amount without a payee, or a rider without an exclusion, is an incomplete 3.2 answer.
This independent OpenExamPrep section helps learners study those official characteristics. Implementation steps (application, signed illustration, temporary insurance, delivery) are the next chapter. Here you still propose.
Selected product(s)
Name the chassis and the owner. “Life insurance” is not a selected product.
Tomasz Kowalski — personal package (exam-style, not a carrier quote):
| Product | Owner | Why this product, not another |
|---|---|---|
| New individual level Term 20 or Term 30, renewable and convertible | Tomasz (or Anika if a legitimate insurable-interest and control design is documented — default is Tomasz as owner of coverage on his own life) | Funds Anika’s dated $564,000 layer; conversion keeps a path to permanent if aviation or health later blocks a new medical |
| New individual term $100,000 (standalone or a term rider with a separate irrevocable designation) | Tomasz | Completes Nadia’s $200,000 Ontario order; must not be a revocable share of Anika’s policy |
| Keep the 2019 $250,000 term | Tomasz | Already in force; $100,000 irrevocable to Nadia, $150,000 to Anika — do not replace it without a replacement analysis |
| Small permanent (Term-100 or whole life) $25,000 | Tomasz | Heart & Stroke gift that must be paid whenever death occurs |
| Manufacturer basic group $142,000 | Sponsor is policyholder; Tomasz is the member | Layer only; optional group remains declined |
Anika Patel still needs her own individual product. Her group $236,000 is employer-controlled. A Term 20/30 on her life, sized to Tomasz’s and the children’s loss of her salary and unpaid care, is a second selected product, not a rider on Tomasz.
Northline (reminder, not a second fact-find): if the buy-sell is a share redemption, the selected products are two corporately owned policies of $1,200,000 each. If it is a cross-purchase, the selected products are personally owned by the survivor-buyer. Same face, different product in the 3.2 sense because owner and beneficiary changed.
Amount of coverage
Amount is the face amount that funds the named need after existing resources, not a round number you like and not the size of OpenExamPrep’s practice bank.
On Tomasz, the Chapter 4 shortfall is about $689,000 of new coverage, split $564,000 dated Anika + $25,000 permanent gift + $100,000 Nadia. Rounding the whole file to $1,000,000 of new term over-insures relative to the worksheet unless you have a new fact (T4 heading to $160,000, failed RRSP rollover risk, or capital retention instead of 18-year liquidation).
Do not double-count. The 2019 $150,000 for Anika and $142,000 of group are already in the $641,500 of resources. Adding another $689,000 on top of a worksheet that forgot those resources would overstate the amount.
Do not under-count Nadia. Capitalizing remaining support at 1% was only about $121,000; the order requires $200,000. The amount in the recommendation is the order, minus the $100,000 already designated, equals $100,000 new — not $21,000.
Business: Northline’s amount is $1,200,000 per life, matching each 50% block of a $2,400,000 FMV. Harbourview’s amount is recruiting-plus-profit after the bank’s collateral claim, not the loan balance alone.
Term (if applicable)
“Term” here means the initial coverage period of a term product (and the years a term rider lasts), not “Term-100.” Term-100 is a permanent product.
Match the period to the dated risk:
- Sofia is 4; an 18-year income fund plus a 23-year mortgage argues for Term 20 at a minimum, and Term 30 if you want one conversion window that still covers the mortgage reset and the youngest child’s education without a cliff at year 20.
- Nadia’s remaining spousal support is 6 years and Marek’s remaining childhood is shorter; the order may still want coverage until a stated date. Do not buy Term 10 that expires while the order still requires insurance.
- A five-year construction loan on a business file can be Term 10 (with a plan to drop it), not Term 30.
Write renewable versus non-renewable and convertible versus not as part of the term characteristic. Non-convertible Term 20 on a 45-year-old private pilot is a scheduled uninsured death if he is declined at expiry.
Premium
Premium is the amount, mode, and who pays. Monthly PAD versus annual, employer versus employee versus corporation, and extra-premium ratings all belong in the package.
The Kowalski household’s Chapter 2 surplus was about $900 a month before treating RESP and RRSP as optional. New premium competes with those deposits. A teaching illustration — not a quoted insurer rate — is enough to make the 3.2 point:
| Design (hypothetical teaching premiums at age 45, male, for discussion only) | Face | Monthly outlay | Fits the $900 contested surplus? |
|---|---|---|---|
| Convertible Term 20 | $564,000 | much lower than permanent | Usually yes, even after an aviation extra-premium |
| Term-100 | $25,000 | modest | Yes for the gift slice |
| Participating whole life | $689,000 | often several hundreds of dollars | No — this is how a “perfect face amount” still fails 3.2 |
If underwriting adds an aviation extra-premium or a table rating, the premium in the recommendation changes. You cannot lock a preferred-class illustration and then ignore 3.1. If the rated term still fits cash flow and the need, propose the rated term. If it does not, reduce face, lengthen the term period to keep a lower initial rate only if the period still covers the need, or write a residual uninsured risk — do not hide the rating.
Corporate premiums on Northline are generally not deductible; the death benefit is generally received tax-free. Do not sell a lower “after-tax cost” that assumes a deduction the ITA does not give to ordinary buy-sell life premiums.
Recommended riders
Riders customize; they do not replace face amount. Recommend a rider only when its trigger matches a residual risk on this file.
| Rider | Recommend on Tomasz? | Why |
|---|---|---|
| Waiver of premium | Usually yes on the new term and the small permanent | A six-month (carrier-specific) total-disability wait keeps the death benefit in force if he cannot pay; it does not replace salary (A&S module) |
| Guaranteed insurability (GIB) | Consider if a T4 path toward $160,000 or another child is realistic | Option dates buy more life coverage without new medical; aviation risk makes future insurability valuable |
| Term rider on a permanent base | Alternative structure: $25,000 T-100 plus a $564,000 Term 20 rider | One file, two durations; confirm the rider’s conversion rules |
| Accidental death / AD&D | Usually no as a substitute for face | Private aviation is a classic exclusion on AD riders; illness still pays $0 extra |
| Child / family term rider | Optional small unit for Sofia / future children | Convertibility without evidence is the value; it does not replace Tomasz’s $564,000 |
| Accelerated TI / CI rider | Only if a living-benefit need was fact-found | Do not spend death-benefit dollars on a rider the clients did not ask for |
| PUA rider | No on this cash-flow file | Dump-in rights belong on participating whole life with surplus deposits |
Payor waiver belongs on a child’s policy, not on Tomasz’s adult-owned term. Group AD&D at work is a different certificate; do not count it as life face.
Beneficiaries: primary and contingent
CISRO names beneficiaries (primary and contingent) as a characteristic of the recommendation. A primary who dies in a common accident without a contingent can dump the death benefit into the estate — the opposite of a named-person plan.
| Coverage slice | Primary | Contingent | Notes |
|---|---|---|---|
| New ~$564,000 family term | Anika Patel | Trustee for Sofia (and Leila if Anika wants), not a minor named naked | Minors need a trustee; “the children” without a trustee is a servicing mess |
| 2019 $150,000 | Anika (already) | Review contingent | Do not make Nadia revocable here |
| $100,000 new + $100,000 existing for the order | Nadia Rossi, irrevocable | Per the order or a named contingent the court accepts | Irrevocable means Tomasz cannot change it without Nadia’s consent |
| $25,000 permanent | Heart & Stroke Foundation of Canada (confirm legal name of the qualified donee) | A contingent charity or the estate if the gift must still be paid | Revocable versus irrevocable designation has tax-credit consequences taught in 11.3 |
| Group $142,000 | Confirm the plan’s default (often the spouse or estate) | Plan rules | HR portal designations can be stale |
| Northline redemption policies | Northline Precision Ltd. | Not Anika personally | Wrong payee = unfunded buy-sell |
Contingent beneficiary is not contingent owner. Contingent owner is a 11.3 / ownership tool for when the owner dies and the life insured is still alive. Contingent beneficiary is who is paid if the primary beneficiary predeceases (or dies in a common disaster).
Naming the estate as primary puts cash in the executor’s hands for CRA and debts, but can expose proceeds to probate (provincial estate-administration levies) and to creditors. Use estate as beneficiary when the purpose is estate liquidity that must sit where the tax debt sits, and say so. Do not use it by accident on Anika’s income-replacement layer.
Exclusions
An exclusion is a risk the contract will not pay, or will pay only in part. The recommendation must name the ones that actually touch the file, not a generic “see page 14.”
- Suicide within the typical two-year suicide period under provincial Insurance Acts (confirm in the e-book) — the contract may refund premiums rather than pay face.
- Incontestability / contestability (typically two years): material misrepresentation can void or reduce; fraud is treated more harshly and may have no two-year safety valve. That is an exclusion-like outcome you disclose as part of “what we applied for.”
- Aviation. Tomasz’s private-pilot hobby is a 1.1 lifestyle fact. The life policy may be issued with an aviation extra-premium, an aviation exclusion, or a requirement to fly only as a fare-paying passenger. An AD rider that excludes non-passenger aviation is a rider that does not cover his hobby. Disclose before the illustration glow.
- War, riot, criminal act, hazardous sports on AD/AD&D and some group accident certificates.
- Group: actively-at-work requirements, reductions at a stated age, and plan-term exclusions in the booklet.
- Rider-specific: waiver waiting period, CI survival period, TI life-expectancy definition.
Do not tell the client “life insurance pays for any death.” The 3.2 package includes the no.
Important clauses (as part of the proposal)
CISRO lists important clauses among the characteristics of the recommendation. The full statutory list — grace period, incontestability, suicide, misstatement of age, settlement options, free look, revocable versus irrevocable — is unpacked in Chapter 12. In 3.2 you still name the clauses that change the client’s understanding of what they are buying:
| Clause | What to say in the proposal |
|---|---|
| Grace period | Coverage continues for the contractual days after a missed premium; it is not a free month to skip PAD |
| Incontestability and suicide | Typically two-year clocks; confirm provincial wording in the e-book |
| Misstatement of age or sex | Face or premium is adjusted; the claim is not automatically denied |
| Conversion (term) | Window, destination products, attained-age rates, no new medical for the listed amount |
| Free look / rescission | Commonly 10 days after delivery in many provinces — confirm |
| Settlement options | Lump sum versus insurer-held proceeds; the beneficiary’s choice later is not your 3.2 face amount |
| Replacement / LIRD | If this package replaces the 2019 term, disclosure rules apply; do not “rewrite” silently |
Illustrations inside the package
The comparison illustration from 11.1 becomes a document in the file. For participating whole life or UL, the recommendation should attach (or walk through) guaranteed columns and a less-favourable non-guaranteed scenario. For term, the illustration is simpler: premium, period, renewability, convertibility, and that cash value is nil. The client should leave knowing which numbers are contractual and which are pictures.
Signed illustration at application is 3.3. If the underwriter rates the aviation risk, the illustration must be re-run. Presenting the preferred-class page after a table rating is a 3.2 failure even if the product names are right.
Close the Kowalski proposal in one paragraph: $564,000 convertible Term 20 or 30, Anika primary, trustee contingent, waiver of premium, GIB if the T4 path is real; $100,000 term, Nadia irrevocable; $25,000 T-100 or whole life, Heart & Stroke primary; keep group and the 2019 term; aviation exclusion or extra-premium disclosed; two-year suicide and contestability named; premium checked against the $900 surplus; Anika’s own term still to be proposed. That is a recommendation. “Buy some permanent” is not.
Which set is the complete list of official characteristics of a CISRO Life 3.2 recommendation?
Tomasz still needs $100,000 to satisfy an Ontario order that Nadia be an irrevocable beneficiary, and he wants a $25,000 Heart & Stroke gift at death. Anika is to receive the new family term. Which beneficiary design belongs in the 3.2 package?
Tomasz flies as a private pilot. Which statement correctly treats exclusions and important clauses in the recommendation package?