LLQP Ethics Common Law: Contract Law

Topic snapshot

Sample questions

These questions are original Securities Prep practice items aligned to this LLQP competency area. They are designed for self-assessment and are not official exam questions.

Question 1

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

During a virtual meeting, an applicant questions why you are collecting identification details on a life insurance application. They say, “Isn’t insurance a federal matter? If I don’t like how this is handled, do I complain to Ottawa?” The client wants to proceed today but only if they understand who regulates what. What is the best professional action?

• A. Explain, in plain language, that insurance business and agent licensing/market conduct are generally regulated provincially, while the federal government has authority in related areas such as criminal law and anti–money laundering/anti-terrorist financing requirements; confirm what information is needed and why, and document the explanation in the client file.
• B. Reassure the client that the identification questions are optional and suggest leaving them blank to protect privacy, since the insurer can always ask later if needed.
• C. Tell the client that insurance is primarily regulated by the federal government, so any concern about application information should be directed to a federal regulator; then continue the application as planned.
• D. Advise the client that you cannot discuss regulation at all and that they should consult a lawyer if they have questions; proceed with the application because the client wants to complete it today.

Best answer: A

What this tests: Contract Law

Explanation: In common-law Canada, the day-to-day regulation of the insurance business—such as agent licensing, market conduct expectations, and handling most consumer complaints about sales practices—is generally a provincial responsibility. The federal government can still affect insurance activities through other heads of power, including criminal law and anti–money laundering/anti-terrorist financing obligations.

In practice, when a client asks “who regulates this” or “why are you collecting this information,” the ethical and professional response is to:

• Provide a clear, high-level explanation (without technical constitutional detail).
• Explain the purpose of the information request (supporting informed consent and fair dealing).
• Avoid encouraging incomplete applications.
• Document what you explained and the client’s questions/concerns.

This provides an accurate, high-level division of powers, supports informed consent, and keeps good records. It answers the client’s concern without giving legal advice or minimizing required disclosure.

Question 2

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Which statement is most accurate about naming multiple beneficiaries and contingent beneficiaries on a life insurance policy?

• A. If one primary beneficiary dies before the insured, the deceased beneficiary’s share automatically goes to that beneficiary’s estate, even if a contingent beneficiary is named.
• B. If two primary beneficiaries are named with percentages (for example, 60% and 40%), the insurer generally pays the death benefit in those proportions; a contingent beneficiary is paid only if the primary beneficiary(ies) are not entitled to receive the proceeds at the time of death (for example, have predeceased the insured).
• C. A contingent beneficiary receives their share at the same time as the primary beneficiaries, as long as they are listed on the policy.
• D. When multiple primary beneficiaries are named, the insurer must always split the proceeds equally, even if percentages are specified.

Best answer: B

What this tests: Contract Law

Explanation: Beneficiary designations let the policyowner direct who receives the death benefit. Common structures include:

• Multiple primary beneficiaries: You can name more than one primary beneficiary and usually allocate shares by percentage (e.g., 60% to one person and 40% to another). This helps avoid ambiguity at claim time.
• Contingent beneficiary(ies): These are the “backup” beneficiaries. They receive proceeds only if the primary beneficiary designation cannot be carried out at the insured’s death (for example, a primary beneficiary has died before the insured, or otherwise is not entitled to receive).

From a practical LLQP perspective, the key outcome is that the insurer pays according to the most current, valid beneficiary instructions on file, using the primary designation first and the contingent designation only when needed.

This correctly reflects common policy beneficiary structuring: primary beneficiaries can be allocated fixed shares, and contingent beneficiaries receive proceeds only if the primary beneficiary designation cannot be carried out at claim time.

Question 3

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Nina left her employer and is moving the commuted value of her pension into a locked-in retirement account. She asks if she can use the money for a home down payment and name her adult child as beneficiary.

Which statement is INCORRECT?

• A. Beneficiary rules for locked-in retirement assets can differ from ordinary savings, and a spouse may have priority unless a valid waiver is completed.
• B. Locked-in funds are meant for retirement income, so withdrawals are generally restricted except in limited permitted situations.
• C. Locked-in retirement assets are often protected from seizure by creditors, subject to limited exceptions.
• D. Because the money belongs to Nina, she can withdraw it at any time and name any beneficiary without restrictions.

Best answer: D

What this tests: Contract Law

Explanation: Locked-in retirement assets (from many supplemental pension plans and related locked-in accounts) are designed to preserve funds for retirement. That is why access is typically restricted: the money is intended to provide future retirement income rather than be spent early for other goals.

These arrangements also commonly include creditor-protection and spousal-protection features, which is why beneficiary rules can differ from a regular personal account. In practice, the spouse may have priority rights unless a valid waiver is completed, and payments to minors may require a trustee/guardian arrangement rather than direct payment to the minor.

The incorrect statement is the one that treats locked-in assets like ordinary savings with unrestricted withdrawals and unrestricted beneficiary designations.

This is incorrect. “Locked-in” means access is restricted to preserve retirement income, and beneficiary designations can be constrained (often with spousal priority rules).

Question 4

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

In a group life insurance plan, a member receives a group certificate/booklet that appears to conflict with a provision in the master contract held by the employer. Which statement is most accurate?

• A. When there is a discrepancy, whichever document provides the greater benefit to the member automatically governs.
• B. The group certificate/booklet replaces the master contract for the member because it is the only document the member receives.
• C. The master contract governs only administrative matters, while the group certificate/booklet governs all coverage terms for the member.
• D. The group certificate/booklet summarizes the coverage, but the master contract is the governing legal contract if there is a discrepancy.

Best answer: D

What this tests: Contract Law

Explanation: In group insurance, the master contract (master policy) is issued to the policyholder (typically the employer or plan sponsor) and is the legal contract that sets the plan’s terms, conditions, definitions, and rights/obligations.

The employee/member usually receives a group certificate/booklet, which serves as evidence of coverage and a summary of key provisions in plain language. Because it is a summary, it may be abbreviated and can sometimes contain errors or be less detailed. If there is a conflict between the certificate and the master contract, the master contract governs.

From a professional practice standpoint, when a client points to a conflict, the appropriate approach is to avoid making promises based only on the booklet and to confirm the governing wording (typically through the insurer/administrator) and document the clarification.

The certificate is evidence of coverage and a summary for the member, but it does not override the master policy; the master contract controls the legal rights and obligations.

Question 5

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Which statement is most accurate about the grace period and how a policy can lapse, and what an agent should do in principle?

• A. During the grace period the policy cannot lapse for non-payment, and the agent should assure the client there will be no impact on coverage even if payment is not made.
• B. If the policy lapses for non-payment, it is automatically reinstated as soon as the client pays the overdue premium, so the agent does not need to discuss reinstatement requirements.
• C. If a premium is missed, coverage typically continues during the grace period; if the premium is still unpaid by the end of that period, the contract can lapse/terminate, so the agent should promptly contact the client to explain consequences and options and document the discussion.
• D. If a premium is missed, the insurer must cancel the contract immediately, and the agent should wait for the insurer’s cancellation notice before contacting the client.

Best answer: C

What this tests: Contract Law

Explanation: In principle, the grace period is a contractual feature designed to prevent an immediate loss of coverage when a premium is late. During that period, the contract generally remains in force while payment is overdue.

A lapse can occur when the premium remains unpaid beyond the grace period. At that point, the insurer may treat the contract as lapsed/terminated for non-payment, and the client may lose coverage.

From a professional practice standpoint, an agent should not ignore a known non-payment risk. The agent’s appropriate follow-up is to contact the client promptly, explain the potential consequences (including lapse/termination and loss of coverage), outline available options (such as paying the premium or discussing reinstatement if a lapse occurs), and keep clear notes of what was discussed and decided.

This reflects the purpose of a grace period (temporary protection while payment is overdue), how a lapse can occur (non-payment after the grace period), and appropriate professional follow-up (clear communication and documentation).

Question 6

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Which statement best describes beneficiary designations in accident and sickness (A&S) insurance and the difference between living benefits and death benefits?

• A. In A&S insurance, a beneficiary designation applies to all benefits, including disability income, so disability payments are made directly to the named beneficiary.
• B. A beneficiary for A&S insurance must be designated only at the time of application, and it cannot be updated after the policy is issued.
• C. Living benefits are payable only after the insured’s death, while death benefits are payable while the insured is alive if they become disabled.
• D. A beneficiary designation is mainly relevant when the A&S coverage includes a death benefit (for example, accidental death). The policyowner can generally name or change a beneficiary according to the contract, while living benefits (such as disability income or medical reimbursement) are normally payable to the insured (or service provider), not to a beneficiary.

Best answer: D

What this tests: Contract Law

Explanation: In insurance contracts, a beneficiary is the person (or entity) named to receive death benefit proceeds if the contract provides a death benefit. In accident and sickness (A&S) insurance, many coverages pay living benefits—for example, disability income replacement, reimbursement of eligible medical expenses, or payments to health-care providers.

A key practical distinction is:

• Living benefits are paid while the insured is alive, usually to the insured (or sometimes directly to the provider). They are designed to cover loss of income or health expenses.
• Death benefits (such as accidental death coverage) are paid when the insured dies, typically to a named beneficiary.

Because many A&S coverages do not include a death benefit, beneficiary designations are most relevant only when there is an actual death benefit component (for example, accidental death and dismemberment coverage that includes an accidental death payout).

This correctly distinguishes living benefits (paid during the insured’s lifetime) from death benefits (paid on death) and recognizes that beneficiary designations apply to death proceeds when the contract provides them.

Question 7

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Which statement is most accurate about naming a minor child as beneficiary of a life insurance policy?

• A. A minor can be named as beneficiary, but they generally cannot provide a valid discharge to the insurer, so proceeds are typically paid to a legally authorized guardian or a trustee designated to receive and manage the money for the minor.
• B. If the policy owner is the child’s parent, no trustee or guardian is needed because the parent automatically controls and can use the insurance proceeds for any purpose once the child is named beneficiary.
• C. A minor cannot be named as a beneficiary, so the only appropriate designation is the insured’s estate.
• D. Because a beneficiary designation is part of the contract, the insurer must pay the proceeds directly to the minor beneficiary as long as the beneficiary’s identity is clear.

Best answer: A

What this tests: Contract Law

Explanation: When a minor is named as beneficiary, the key practical consideration is capacity and receipt of funds. A minor generally cannot give a legally effective discharge to the insurer (i.e., cannot validly sign that payment fully settles the insurer’s obligation). As a result, insurers typically require payment to someone with proper legal authority to receive and manage the proceeds for the minor, such as a guardian or a designated trustee for the minor.

From a best-practice standpoint, discussing and documenting how proceeds will be received and administered (for example, naming an appropriate trustee for the minor beneficiary) can reduce delays, avoid court involvement, and help ensure the money is managed for the child’s benefit until they reach adulthood.

This reflects the practical issue of legal capacity: insurers need a legally effective receipt. Naming an appropriate trustee/guardian helps ensure proceeds can be received and administered for the child.

Question 8

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Jordan applies for a permanent life policy on their own life. Jordan will be the policy owner and wants their parent, Priya, to pay the premiums from Priya’s bank account to help out. Priya asks the agent to “just set it up” and says they don’t need to be on the paperwork.

What is the agent’s best professional action?

• A. Accept Priya’s verbal request to pay premiums and set up pre-authorized debits because Jordan is the owner and is responsible for the policy.
• B. Explain that the premium payor can be different from the owner, then obtain Jordan’s written authorization to take funds from Priya, document why the arrangement is used, and confirm both parties understand that the owner controls the contract.
• C. Tell Priya they cannot pay premiums unless they are named as the beneficiary, and have Jordan sign a beneficiary change form to proceed.
• D. Recommend making Priya the policy owner so the payor and owner match, and proceed without further discussion to avoid delays.

Best answer: B

What this tests: Contract Law

Explanation: A premium payor can be different from the policy owner. The policy owner has control rights under the contract (for example, making changes, naming/changing beneficiaries, and deciding whether to continue coverage). A premium payor is simply the person whose funds are used to pay premiums.

When a third party pays premiums, professional practice requires:

• Clear disclosure to ensure everyone understands the owner retains control and the payor does not gain ownership rights just by paying.
• Appropriate authorization/consent for using the third party’s bank account and sharing any necessary information.
• Strong documentation (who pays, why, what was explained, and who agreed) to prevent future disputes and to support informed consent.

The best action is to confirm roles and control, obtain the necessary authorizations, and document the arrangement and the discussion.

This addresses third-party premium payment with clear disclosure and informed consent, and it creates a defensible record showing who controls the policy and why another person is paying.

Question 9

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

Two years after a divorce, Sam reviews his life insurance policy and RRSP and notices his ex-spouse is still named as beneficiary on both. Sam assumes the divorce automatically removed her. Which statement is most accurate in a common-law province?

• A. The insurer or financial institution must remove the ex-spouse as beneficiary as soon as it receives proof of divorce, even if Sam gives no instructions.
• B. Because the ex-spouse is the beneficiary, she controls the policy and can block Sam from changing the beneficiary designation at any time.
• C. Divorce does not automatically change beneficiary designations; Sam should review and update them (and consider any separation agreement/court order and whether any designation is irrevocable) to align with his estate planning goals.
• D. Divorce automatically revokes any ex-spouse beneficiary designation on insurance policies and registered plans, so no action is needed.

Best answer: C

What this tests: Contract Law

Explanation: In common-law Canadian practice, separation or divorce is a major life event that should trigger a beneficiary and ownership review. A beneficiary designation on a life insurance policy or registered plan generally remains in place until it is properly changed by the person with authority (often the policy owner or planholder), subject to constraints like an irrevocable beneficiary designation or terms in a separation agreement or court order.

This matters for estate planning because a named beneficiary usually receives proceeds directly (outside the estate), which can defeat the client’s intended distribution under a will and can create disputes with the estate or new family members. The professional expectation is to prompt a review, explain implications in plain language, confirm authority, and document the client’s decisions and any constraints identified (e.g., legal agreements).

This reflects the practical common-law principle that beneficiary designations typically remain effective until the owner/annuitant makes a valid change (subject to any legal obligations or irrevocable designations).

Question 10

Topic: Integrate into Practice the Legal Aspects of Insurance and Annuity Contracts

A new employee receives a benefits booklet (group insurance certificate) from their employer. The employee asks whether the booklet is the full insurance contract and what information it is supposed to contain.

Which statement is most accurate?

• A. If the certificate is unclear or incomplete, the insurer must automatically pay claims based on the employee’s interpretation because the certificate is designed to replace the master policy.
• B. A group insurance certificate mainly lists the premium and insurer contact information; exclusions and limitations are only found in the master policy and do not need to be disclosed to members.
• C. A group insurance certificate typically summarizes eligibility, benefits, limitations/exclusions, and how to make a claim, but the master policy is the governing contract if there is a discrepancy.
• D. The group insurance certificate is the contract for the employee and it overrides any conflicting wording in the master policy.

Best answer: C

What this tests: Contract Law

Explanation: In group insurance, members usually receive a certificate/booklet that is designed to explain the plan in plain language. It typically includes practical information a member needs to understand and use coverage, such as eligibility rules, coverage amounts or benefit descriptions, limitations and exclusions, beneficiary/claim procedures, and contact or administrative details.

However, the certificate is generally a summary of the group plan. The legally governing contract is the master policy issued to the plan sponsor (often the employer). If there is a conflict between the certificate and the master policy, the master policy wording is typically determinative, which is why it matters to avoid overpromising based on a summary document.

This reflects how group coverage is structured: the member receives a summary for understanding, while the insurer and plan sponsor’s master policy sets the legal terms.

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• LLQP Ethics Common Law: Representative Conduct

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