m9 training slides
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CMFAS Module 9: CMFAS Module 9: Life Insurance andLife Insurance and
Investment Linked Policies Investment Linked Policies
1
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CMFAS M9 Exam ObjectivesTo test knowledge and understanding:
a. Life Insurance & Investment-Linked Policies
b. Annuities
c. Riders
2
d. Sales Process
e. Underwriting Process
f. After-Sales Service
g. Impact of Law & Taxation on Life Insurance
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Good To Know
Exam mode: Computer Screen
Duration : 2 Hrs
Questions : 100Multiple Choice Questions
MUST Bring NRIC
or Passport on the day of exam!
3
Passing Mark : 70% (70 Questions)1 mark for each right answer
No mark deducted for wrong and blank answer
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CMFAS M9 Question TypesType of Questions
1. The majority of exam questions test the ability to recall materials from the textbook.
2. Application questions.
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2. Application questions.
3. Questions that test the understanding of:i. the underlying insurance principles and concepts;ii. products
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Chapter 1Risks and Insurance
5
Risks and Insurance
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Risks and InsuranceDefinition of RiskRisk is defined as exposure to the chance of injury or loss, a hazard or dangerous chance Dictionary.comSpeculative Risk
Pg 2
6
Involves 3 possible outcomes: loss, gain or no changeExample: InvestingPure RiskNo possibility of gain: Either loss or no lossExample: Natural Disaster
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Risks and Insurance
Characteristics of Insurable Risk Loss occurs by chance Loss must be definite Loss must be significant
Pg 3 - 4
7
Loss must be significant Loss rate must be predictable Loss must not be catastrophic to the insurer
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Risks and Insurance
Dealing with RiskRemember ACTA! Avoiding the risk Control the risk
Pg 4-5
8
Control the risk Transfer the risk Accept the risk
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Risks and Insurance
3 Types of Personal Risk Premature death Outliving resources Poor health (sickness/disability)
Pg 5
9
Poor health (sickness/disability)
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Risks and Insurance
Basic Life Insurance Terms You Should Know Death Benefit Applicant Policy Owner
Pg 6
10
Policy Owner Life Insured Third Party Policy Sum assured Beneficiary
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Risks and Insurance
Hazards
Pg 7
Physical characteristic that may increase the likelihood of a loss
Physical Hazard
11
likelihood of a loss Hazard
Likelihood that a person may act dishonestly in the insurance transaction
Moral Hazard
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Risks and Insurance
Anti Selection and Underwriting Anti Selection/Adverse Selection
People who have more to lose, tend to seek more insurance
Underwriting
Pg 8
12
UnderwritingMethod of minimising anti-selection problems. Can classify risks as:
1) Standard 2) Sub-standard 3) Postponed/Declined
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Risks and Insurance
Various Life & Health Insurance Products Life Insurance Policies:1) Term 2) Whole Life 3) Endowments 4) ILPs Annuities
Pg 9-10
13
Different types. The most common being till end of life annuity
Health Insurance ProductsDesigned to cover hospital/ medical/ surgical/ emergency accident outpatient expenses
1) Private Health Insurance 2) CPF Board
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Risks and Insurance
Life Insurance Financial Protection against: Premature Death
Outliving Resources Sickness/ Disablement
Pg 10-11
14
Sickness/ Disablement1) Critical Illness 2) Medical Expenses 3) Hospital Cash 4) Disability Income 5) Long Term Care
BusinessesKeyman Insurance being the most common form
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Risks and Insurance
Basic Life Insurance Principles Law of Large Numbers
As the #of people increase, the risk to the insurer decreases
Principle of Utmost Good Faith
Pg 13-16
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Principle of Utmost Good FaithApplicants are expected to:
1) Disclose all material facts 2) Not to make any misrepresentation of material facts
Insurers are also expected to abide by this principle
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Risks and Insurance
Information Revealed Information Not Revealed
Non Disclosure
Concealment
Pg 14-16
Innocent Misrepresentation
Negligent Misrepresentation
Fraudulent
Misrepresentation
16
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Risks and Insurance
Insurable Interest Requirement Compulsory in all contracts of Life Insurance
It exists if:
1) A person is likely to benefit if the insured continues to live
Pg 16 - 18
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1) A person is likely to benefit if the insured continues to live2) He/she will suffer a loss or detriment with the insureds death
Why is it necessary?1) It minimizes the moral hazards in insurance2) Proposer is expected to safeguard the subject matter
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Risks and InsuranceInsurable Interest
When must it exist? General Insurance policies: At the time of the lossLife Insurance: Only during inception, not required during death
Pg 16-20
18
death
Examples inlude: 1) Own life 2) Another Person Whom One is Dependant On 3) Trustees & Beneficiaries4) Creditors & Debtors 5) Key-person Insurance6) Spouse 7) Child or ward
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Risks and Insurance
A Valid Trust Structure should meet the
following conditions
Life Insured is the Settlor
Applicant is the Trustee of the
Trust
Any Beneficiary has insurable
interest on Settlor
Pg 19
19
Trust interest on Settlor
Beneficiary is Settlors spouse
Settlors child / ward below 18
years old
Any person whom Settlor is partly /
wholly dependant on
OR
OR
OR
Mr Davids Wife and SonMr Ravi (Lawyer)
Trustee applies for whole lifepolicy on the life of Mr Lim(Settlor).
Beneficiaries of this policyare Mr Lims wife and son.
Mr Lim consents to thepurchase of the whole lifepolicy
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Risks and Insurance
A Beneficiary of a Trust requires the following conditions to be met
Life Insured is the relevant Beneficiary
Applicant is the Trustee of the
Trust
Any Beneficiary with insurable interest on relevant Beneficiary
Pg 19
20
Beneficiary Trust relevant Beneficiary
Relevant Beneficiarys
spouse
Relevant Beneficiarys child / ward below 18
years old
Any person whom relevant
Beneficiary is partly / wholly dependant on
OR
OR
OR
Mr Roberts Wife and DaughterMr Ramesh (Lawyer)
Applied for term policy onthe life of Mrs Roberts(Relevant Beneficiary inTrust).
Beneficiary of this policy isMr Roberts.
Mrs Roberts consents to thepurchase of the policy.
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Risks and Insurance
Structure of the Singapore Insurance Market Buyers, Sellers (Reinsurers) Intermediaries
Pg 21-24
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Intermediaries1) Representative of a Life Insurance Company (Insurer)2) Representative of a Bank or Other Financial Institution3) Representative of a Licensed And Exempt Financial Adviser 4) Introducers of Life Insurance Advisory Services
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Risks and InsuranceOther Relevant Organisations
Rating AgenciesThey provide independent assessment and opinion on the overall
financial capacity or credit worthiness of financial institutions that issue capital market instruments.
Pg 21-24
22
capital market instruments. They basically reflect the rating agencys opinion on the credit worthiness of the financial institution.In the case of rating an insurer or re-insurer, the agency will make their decision based on a broad range of factors. Not all insurance and reinsurance companies are rated as they are not compulsory for them to get it.
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Risks and Insurance
Other Relevant Organisations Market Associations
They are trade associations in Singapore representing insurance
companies and intermediaries. Examples of such members are:
Pg 24-25
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companies and intermediaries. Examples of such members are: Association of Financial Advisers [AFA(S)] Life Insurance Association of Singapore (LIA) Singapore Reinsurers Association (SRA)
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Risks and Insurance
Financial Industry Disputes Resolution Centre (FIDReC) Affordable, one stop centre for customers For claims up to $100,000 (insureds and insurers only)
Pg 25-26
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For claims up to $100,000 (insureds and insurers only) For claims up to $50,000 (consumers and banks only) Individuals or sole proprietors accepted
1) Mediation (1st Stage)2) Adjudication (2nd Stage)
FIDReCs Dispute Resolution Process
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Risks and Insurance
MoneySENSE Programme Launched in 2003, brings initiatives to enhance the
basic literacy of consumers Covered in 3 tiers
Pg 27
25
Covered in 3 tiers1) Basic Money Management 2) Financial Planning3) Investment Know-How
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Quiz Time!A class of relationship in which insurable interest needs to be proven is when a:
A. person insures his own lifeB. creditor insures the life of his debtor
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C.wife buys a policy on the life of her husbandD.guardian buys a policy on the life of her ward who is
a minor
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Quiz Time!QUESTION: One of principles of Utmost Good Faith
ANSWER: Disclosure of all material facts, Not making any Misrepresentation of material facts
QUESTION: Name TWO personal risks
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ANSWER: Premature Death, Outliving Resources, Poor Health(Sickness or Disability)
QUESTION: How many classes of Risks are there as a resultOf Underwriting? Name all
ANSWER: 4. Standard, Sub-Standard, Postponed, Declined
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Chapter 2
Setting Life Insurance Premium
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Premium
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Setting Life Insurance Premium
Actuaries consider the following: Mortality & Morbidity Rates (Fig.2.1) Investment Income
Expenses (What are the 2 Categories?)
Pg 30-35
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Expenses (What are the 2 Categories?) Gender (Difference in Premium Rates) Smoking Status Sum Assured Premium Frequency (RP vs SP vs Yrly Renewable vs Ltd
Prem)
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Setting Life Insurance Premiums
Suitability of Frequency and Mode of Premium Payments Premium affordability
If customer has not set aside sufficient money to buy life
Pg 35-36
30
If customer has not set aside sufficient money to buy life
insurance policies, please dont attempt to sell him a Single Premium Policy. The coverage will not be enough.
Product suitability
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Quiz Time!
QUESTION: Name any 3 factors actuaries must take note of when setting life insurance premiums1) Mortality and Morbidity Rates2) Investment Income3) Expenses
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3) Expenses4) Gender5) Smoking Status6) Sum Assured7) Frequency of Premium PaymentsCan be found on Pg 30
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Quiz Time!
QUESTION: How is Gross Premium Calculated?ANSWER: Gross Premium = Net Premium + Loading (Expenses)
QUESTION: Policy owners need only pay
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QUESTION: Policy owners need only pay premiums for a specified period of time. What type of premium payment is this called?
ANSWER: Limited PremiumCan be found on Pg 35
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Chapter 3
Classification of Life Insurance Products
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Insurance Products
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Classification of Life Insurance Pdts
Hmm, how do Iclassify
soooo many products?
34
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Ways of classifying: By Statutory Insurance Fund insurers to maintain
separate insurance funds for ILP and Par/Non-Par policies.
By Premium Type (Single, Recurrent, Regular, Yearly
Classification of Life Insurance Pdts Pg 38
35
By Premium Type (Single, Recurrent, Regular, Yearly Renewable, Limited Payment Policy)
By Product Type By Ownership (Single Life, Joint {First-To-Die vs Last-
Survivor}, Third-Party, Group Policy)
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Classification of Life Insurance Pdts
S17 of the Insurance Act (Cap. 142):Insurers who are registered to carry on insurance business are required to maintain insurance funds in respect of their insurance business
To ensure that
Pg 38-39
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To ensure that the assets and liabilities of the shareholders and those relating to the insurance businesses are kept separate!
ILPs cannot be mixed with Par & Non Par Plans
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Product Type Purpose Served
Term Insurance Provide life cover for fixed term
Whole Life Insurance Provide life cover for whole life
Endowment Insurance Provide life cover for limited term and lump sum at end of the term
Investment Linked Life
Insurance
Provide mainly for investing in UTs or investments with some
insurance cover
Classification of Life Insurance Pdts Pg 39
3737
Universal Life Insurance Provides life cover with flexibility in changing mix btwn cover and
investment
Annuities Protect against insufficient income arising out of excessive longevity
Critical Illness Insurance Protects against contracting one of the covered critical illnesses
Long Term Care Insurance Protects against being unable to perform a specific number of ADL*
Medical Expense Insurance Protects against risk of ill health and hospitalisation
Disability Income Insurance Protects against risk of loss of income if a person is disabled
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Classification by Premium Type Single Premium Policy is paid at the beginning of the policy
term in one lump sum
Recurrent Single Premium - It allows the policy owner to
Classification of Life Insurance Pdts Pg 40-41
38
Recurrent Single Premium - It allows the policy owner to make single premium payments on a regular basis
Regular Premium It allows the policy owner to pay premiums on a yearly, half yearly, quarterly or monthly basis
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Classification by Premium Type Yearly Renewable Premium Only applicable to Yearly
Renewable Term policies. The premium upon renewal is based on the life insureds attained age
Classification of Life Insurance Pdts Pg 40-41
39
the life insureds attained age
Limited Premium Payment Applicable to policies where the policy owner needs to pay premiums only for a specified number of years or a specified age
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Classification by Ownership
Single Life Policy Most common type of insurance policy issued As policy only covers one life, hence the name of the
policy
Classification of Life Insurance Pdts Pg 41-43
40
policy
Joint Life Policy Generally used to cover husband and wife (to cover a
loan) First-to-die Life Insurance Policy pays on the death
of one of the insureds Last Survivor Life Insurance Policy pays out only
on the death of the second life insured
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Third-party (life of another) policy Usually issued to the husband on the wifes life and
vice versa or parent on childs life One of the parties may not be covered under the
policy e.g. Husband = policy owner, wife = life insured The cover for the two parties differs e.g Father buys
Payors benefit rider, Child = Life insured
Classification of Life Insurance Pdts Pg 41-43
41
Payors benefit rider, Child = Life insured
Group policy Multiple employer groups such as trade associations
and labour unions; Members of professional associations or affinity
groups (such as membership clubs); and Debtor-creditor groups which generally consist of a
credit granting institution such as a bank and its debtors
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Characteristics of Group Life Insurance Master Contract Issued under a single contract called the
Master Contract. Kept by policy owner. When an insured member dies or leave the group, only his coverage is terminated.
Classification of Life Insurance Pdts Pg 43
42
member dies or leave the group, only his coverage is terminated. They main plan goes on as it under the master contract
Minimal Underwriting Requirements Made available to the participating employees with simpler medical underwriting if the group size is large. Medical examination is only required where the sum assured exceeds the free cover limit
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Characteristics of Group Life Insurance Experience Rating Usually underwritten based on past
claims experience.
Cost Effective Many life insured. Only one master contract,
Classification of Life Insurance Pdts Pg 43
43
Cost Effective Many life insured. Only one master contract, thus save on admin costs
Plan Continuation It is usually renewable by the employer on a yearly basis
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Individual Life Insurance Group Life Insurance
Only the individual applicant Members who belong to the group.
Ocassionally, family members are also
covered
Each individual insured gets a policy
contract
A master contract is issued for the
Company
Individual can select the amount of Members may or may not have the right to
Classification of Life Insurance Pdts Pg 44
44
coverage he wants decide on the amount. Can be a flat
amount or multiple of basic salary
Individuals health and financial status
evaluated
Group evaluated as a whole
Coverage continues till termination, policy
expiry or maturity
Coverage ceases when individual leaves
group. The remanining members still
covered
Higher cost of coverage due to individual
underwriting and higher admin costs
Lower cost of coverage due to less admin
costs and documentation involved
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Group Life InsuranceNormally Group Life Insurance can be written as: 1) Term Life Insurance2) Whole Life Insurance
Classification of Life Insurance Pdts Pg 45
45
2) Whole Life Insurance3) Endowment Insurance
Since Group Term Life Insurance has the greatest appeal toemployers and is sold by most insurers in Singapore, we willdiscuss only Group Term Life Insurance
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Group Term Life Insurance Yearly Renewable Term Insurance Policy
Premiums varies with the size and experience of Group on yearly basis
Classification of Life Insurance Pdts Pg 45
46
yearly basis Just a simple health declaration needed if the group is small
Group Term Life Insurance (Features)1) Coverage
Mostly 24-hours worldwide coverage, with certain exclusions. Usually up to age 65-70 and covers Death and TPD
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Group Term Life Insurance (Features)2) Extended Benefit
Provides continued coverage for 12 months even though the employee leaves the company, usually on the condition
Classification of Life Insurance Pdts Pg 45
47
employee leaves the company, usually on the condition that:
a) Employee remains unemployed b) Employer notifies the insurer within (usually 14) days from
the date of terminationc) Master policy is in force
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Group Term Life Insurance (Features)3) Riders
Allows for the provision of riders such as:1) Critical Illness 2) Accidental Death & Dismemberment
Classification of Life Insurance Pdts Pg 46
48
1) Critical Illness 2) Accidental Death & Dismemberment3) Hospital & Surgical 4) Disability Income
4) Sum assuredAccording to rank ORNumber of times of basic monthly salary
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Group Term Life Insurance (Features)5) PremiumsPaid on annual basis. Grace period is usually 30/31 days from annual premium due date.
Classification of Life Insurance Pdts Pg 46
49
annual premium due date.
Premium Payment
Non-Contributory
(Company pays premiums in full)
Contributory
(Members pay premiums in part
or in full)
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Group Term Life Insurance (Features)6) Commencement of cover
Coverage normally commences at the start of employment. Covers only people who are actively at work
Classification of Life Insurance Pdts Pg 47
50
Covers only people who are actively at work
7) Assignment of PolicyNO third party assignment allowed
8) Termination of Coveragea) When employee reaches specified ageb) Employee retires or gets terminated
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Group Term Life Insurance (Features)9) Termination of Coverage
c) Employee transferred to work overseas during which he is no longer under Company payroll
Classification of Life Insurance Pdts Pg 47
51
is no longer under Company payrolld) Temporary leave of absence, vacation without pay, sick or injured for more than 6 monthse) Employer does not pay premium within grace periodf) Insurer or employer decides not to continue with policy*Reinstatement usually allowed. Terms & conditions apply
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Group Term Life Insurance (Features)10) Claims procedure
Documentation needed: Death claim form (1 by employer and 1 by attending
Classification of Life Insurance Pdts Pg 47
52
Death claim form (1 by employer and 1 by attending physician)
Copy of Death Cert Copy of payslip Police report (if applicable) Incident report (if applicable)
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Group Term Life Insurance (Features)10) Claims procedure
Documentation needed: TPD claim forms (1 by employer and 1 by attending
Classification of Life Insurance Pdts Pg 48
53
TPD claim forms (1 by employer and 1 by attending physician)
Copy of payslip Copy of NRIC (certified by employer)
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Quiz Time!
Under a Last Survivor Life Insurance policy:
A. death benefit is payable on the second deathB. death benefit is payable on both deaths, in
proportionate amounts
54
proportionate amountsC. income benefits are payable after the first death and
last until the second deathD.annuity benefits are payable after the first death and
last until the second death
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Quiz Time!
QUESTION: Name the 2 kinds of contribution plans for GTL Policies
ANSWER: Contributory & Non-contributory
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QUESTION: How are the sum assured for GTL Policies determined?
ANSWER: According to rank, according to number of times of basic monthly salary
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Chapter 4
Traditional Life Insurance Products
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Insurance Products
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Traditional Life Insurance Products
Term Insurance
Level Term
Decreasing Term
Increasing Term
Whole Life Insurance
Ordinary Whole Life
Limited
Endowment Insurance
Pure Endowment
Anticipated
Pg 50-59
57
Increasing Term
High Protection
No Savings
Limited Premium Payment WL
High Protection
Low Savings
Anticipated Endowment
Low Protection
High Savings
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Traditional Life Insurance Products
Inception of Policy
Policy Expiry Date
What happens if he dies?
Term Policies
Pg 50-59
58
Policy TermNothing is payable if the insured isalive after policy expiry
No Cash value No Policy Loan No bonus payable Premium is the lowest Premium is usually fixed EXCEPT for
Increasing Term and Renewable Term Insurance
e.g. CPF Dependants Protection Scheme
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Features of Term Insurance Covers the insured against death during the policy term Non participating = no bonus payable on death Duration of cover is only for period specified at inception.
Classification of Life Insurance Pdts Pg 50-51
59
Once specified period is up, policy expires Policy lapses if premium is not paid within grace period Most insurers offer TPD coverage and certain riders which
can be attached to the policy No cash value accumulation
No policy loan feature
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Features of Term Insurance No automatic premium loan Premium cost is the lowest compared to other types of life
insurance
Death benefit is paid in a lump sum
Classification of Life Insurance Pdts Pg 51
60
Death benefit is paid in a lump sum Upon TPD, the sum assured is paid either in a lump sum
or in installments.
Example of Term Insurance is the CPFs DependantsProtection Scheme (DPS). The DPS covers death and TPDand is renewable yearly up to age 60.
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Traditional Life Insurance Products
S$100,000 Level Death benefit payable
Nothing is payable if the insured survives to the end of the policy term
Example: A10-Year S$100,000 Level Term Insurance Policy
Term
Pg 50-59
61
Policy Term1 10 (end of policy term)S$0
Note: Both the death benefit and the premium remain level throughout the term of the policy
Term Policies
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Traditional Life Insurance Products
S$100,000 Death Benefit
Example: A10-Year S$100,000 Decreasing Term Policy
Pg 50-59
62
Policy Term1 10
S$0
1. Based on observation, what happens to the sum assured over time?2. Under which situation will an insured need a Decreasing Term Policy?3. Will the premiums reduce as the sum assured is reduced periodically?4. When will the premium stop but coverage can still continue?
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Traditional Life Insurance Products
S$150,000
Fig 6.10 10-Year S$100,000 Increasing Term Insurance
Death Benefit increasing at 5% per annum
Period of Benefit Payment
Pg 50-59
63
Policy Term1 10S$100,000
1. What happens to the death benefits?2. Why do you think the client need an Increasing Term Insurance?3. Will the premium be increased at each increase of sum assured?
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Traditional Life Insurance ProductsExample: Exercising The Renewable Option For a 5-Year Renewable Term Insurance Policy
Renew w/o evidence of insurability
Conditions allowed for renewal: Expiry date DOES NOT EXCEED
a specified age Premium MUST BE PAID at
renewal
Pg 50-59
64
Policy Inception Date
Policy Expiry Date
New Policy Expiry Date
1/1/2005 31/12/2009 31/12/2014
of insurabilityrenewal Pay a higher premium at EACH
RENEWAL due to his ATTAINED AGE
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Traditonal Life Insurance Products
Yearly Renewable Term (YRT) insurance:
$ Premium
Depending on policy terms, clientmay not be able to renew thepolicy after age 70.
Pg 50-59
65
1. What is the advantage and disadvantage of renewable option?2. To discourage client from renewing such policy indefinitely, what is
one of the conditions the insurers may rely on? (ans on pg 56)
30 31 32 33 34 35 36 70
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Traditional Life Insurance Products
Term Policy
Suitable for clients who preferpermanent insurance but do nothave the budget at the time ofpurchaseWhole
Life Policy
Change or Convert w/o evidence of insurability
Pg 50-59
66
Attained Age ConversionWhen term coverage is converted to permanent insurance under attained age conversion, the renewal premium rate is based on the attained age of the insured.Original Age ConversionThe date of the conversion is considered to be the date on which the policyowner
purchased the original term policy. The premium would be based on the earlier age.Policy owner usually needs to make a large cash outlay at time of conversion
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Traditional Life Insurance Products
Conditions allowed for conversion are:
Term Policy
Suitable for clients who preferpermanent insurance but do nothave the budget at the time ofpurchaseWhole
Life Policy
Change or Convert w/o evidence of insurability
Pg 50-59
67
Conditions allowed for conversion are:1. Anytime during the policy term or before he reaches a specified age, depending
on whichever is the earlier
2. Must be done in writing on a form as prescribed by the insurer accompanied by the premium for the new policy based on the insureds attained age
3. Sum Assured for the new policy < = Term policy4. New policy will include all limitations of risk (exclusions) applicable to the Term
policy
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Suitability of Term InsuranceTerm Insurance is suitable either the need for protection is: Purely Temporary Permanent, but the insured cannot temporarily afford the
Classification of Life Insurance Pdts Pg 60
68
premiums for permanent insurance
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Whole Life Insurance Plans Nature of WL Insurance
1) Provides for the payment of the policys face value + bonuses if applicable upon the death of the insured.
Traditional Life Insurance Products Pg 61
69
bonuses if applicable upon the death of the insured. 2) Provides coverage for the whole life of the insured. Hence the name
3) Known as Ordinary Whole Life or Limited Payment Life4) Riders allowable to be attached5) TPD coverage is normally included as part of the policy or as a rider
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Definition of Total & Permanent DisabilityAn insured is said to be suffering from TPD if he cannot everperform any work, occupation or profession.
Traditional Life Insurance Products Pg 61
70
He is also considered to have TPD if he suffers from one of the following:1) Loss of sight of both eyes2) Loss of both limbs; and/or3) loss of sight of one eye and loss of one limb
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Whole Life Insurance Plans Features of WL Insurance
1) Covers against death, for whole of insureds life
Traditional Life Insurance Products Pg 61
71
2) Normally coupled with a TPD benefit/rider. TPD claims either in lump sum or installments capped at $2M/insurer3) Accumulates cash value (usually after 3 years)4) Riders allowable to be attached5) Premium higher than term policy. Fixed amount throughout premium term on a regular basis
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Whole Life Insurance Plans Features of WL Insurance
6) Premiums payable throughout the policy term or for a limited period
Traditional Life Insurance Products Pg 61-62
72
limited period
7) Death benefit is paid in one lump sum
8) Can be a participating or non-participating policy
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Traditional Life Insurance Products
Inception of Policy
End of Policy Term
Whole Life Insurance
Pg 61-63
73
Maturity value (Basic SumAssured) is paid to theinsured if he is alive at theend of the policy term
If insured dies at 60, policypays out at age 60,premium payment stops.Policy ceases.
30 100 (for example)60AGE
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Pg 61-63
Policy Endows Here
Traditional Life Insurance Products
S$100,000
Cash Values
Cash Value = Death Benefit
74
1. If he dies before 100, how much will insurer pay?2. If he lives till 100 and beyond, how much will insurer pay?3. What if he stops paying premiums before reaching 100?
30 40 50 60 70 80 90 100
Premium
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Traditional Life Insurance Products
Whole Life Insurance Plans Non-forfeiture options
Surrendering the policy for its cash value:Policy owner surrenders his whole policy for its
Pg 64
75
Policy owner surrenders his whole policy for its accumulated cash values. This option should be exercised with constraint. Although he can purchase another insurance plan in the future, his health status might have changed.
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Traditional Life Insurance Products
Whole Life Insurance Plans Non-forfeiture options
Use the cash value to purchase extended term insurance
Pg 64
76
insurancePolicy owner uses his existing cash values to convert his existing policy to an extended term insurance. Appropriate when policy owner does not want to pay for his premiums anymore, but still wants coverage.
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Traditional Life Insurance Products
Whole Life Insurance Plans Non-forfeiture options
Use the cash value to purchase paid up Whole Life Insurance
Pg 64
77
Policy owner uses his existing cash values to convert his existing policy to a reduced amount of paid-up Whole life policy. The sum assured is the amount that can be purchased at the Insureds attained age by the net cash value as if a single premium. No further premiums required.
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S$300,000(Sum assured)
$66,000(Cash Values)
Cash Values
Traditional Life Insurance Products
Example of Non-
Forfeiture Options
Pg 64
78
(Cash Values)
25 30 35 40 45 50 100 (years)
Example: Mr. Beckham, aged 50 years, has $300,000 policy, with $66,000 cash value. He has the following options: 1) Surrender whole policy for $66,0002) Continue the $300,000 coverage for 16.5yrs as Paid Up Term
Insurance3) Reduce the coverage to $184,000 of paid up Whole Life Insurance
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Criteria Ordinary Whole
Life Insurance
Limited Premium
Payment Whole
Life Insurance
Premiums Lower Higher
Traditional Life Insurance Products Pg 67
79
Premium Payment Term
Payable for life Can be arranged to be fully paid up during ones working years
Sum Assured(assuming same age, gender and premiums)
Higher Lower
Cash Value Builds up slowly Builds up quickly
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Traditional Life Insurance Products
Whole Life Insurance Term Insurance
Offers lifetime coverage; for entire lifetime
of the insured (as long as the policy remains
in force)
Offers limited term coverage. No more
benefits once that period ends
Generates cash value, thus creating a NO cash value throughout the whole termGenerates cash value, thus creating a
savings vehicle. Normally generated from 3rd
policy year onwards
NO cash value throughout the whole term
More expensive in premiums when
compared to Term Insurance
Much cheaper than most plans, including
Whole Life Insurance plans
Provides less coverage than Term Policies for
the same amount of premiums
Provides superior coverage over Whole Life
Insurance for the same amount of premiums
80
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Traditional Life Insurance Products
Suitability of Whole Life Insurance In summary, the Whole Life Policies:
1) Provide protection against long term or permanent needs; and
Pg 67-72
81
2) Accumulate a savings fund that can be used for general purposes or to meet specific objectives
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Traditional Life Insurance Products
Nature of Endowment InsuranceIts another type of life insurance, that provides death benefitduring the policy term, or the maturity value which is equal tothe death benefit if he survives to the end of the policy term.
Pg 67-68
82
Unlike whole life insurance plans, they have a fixed maturitydate. They are designed to provide a death benefit equal to the
Target accumulation amount during the accumulation period. They can be participating or non participating policies
-
Traditional Life Insurance Products
Features of Endowment Insurance Duration of cover is only for the specified period at
inception of the policy Upon death/maturity, benefit usually paid in lump sum TPD benefit usually paid in lump sum or in installments
Pg 69
83
TPD benefit usually paid in lump sum or in installments Riders are allowable to be attached Cash value builds up quickly. Non forfeiture options like APL* available once policy
acquires cash value Policy lapses if premium is not paid within grace period.
APL will activate if policy has sufficient cash value
-
Traditional Life Insurance Products
Features of Endowment Insurance Policy loans allowed once policy acquires cash value Premium usually higher than Term Insurance and Whole
Life Insurance. Lump sum premium is allowed. Payable either the full term or for limited number of years
Pg 69
84
either the full term or for limited number of years Can be Participating or Non Participating
-
Traditional Life Insurance Products
Endowment Insurance Plans Types of Endowment Insurance
1) Pure Endowment Insurance
Pg 67-72
85
2) Anticipated Endowment Insurance
-
Traditional Life Insurance Products
Maturity Date
Death Benefit payable when death/ TPD
occurs
Premium for such policyis higher than term andwhole life (non-par)
Example of an Endowment
Insurance Policy
Pg 67-72
86
Policy Term
Inception of Policy
Maturity value (Basic SumAssured) is paid to theinsured if he is alive at theend of the policy term
Can be 10, 15, 20 yrs or up to a certain age limit (e.g. 65)
-
Traditional Life Insurance Products
Inception of Policy
Maturity Date
Nothing is
Example of a PURE Endowment Insurance Policy
Should death/TPD
Pg 67-72
87
Policy TermFace Amount is paid to theinsured only if he survives tothe end of the specified period
It is NOT sold as a standalone policy,EXCEPT in some sub-standard cases,where underwriter may counter-offer thispolicy to the insured in view of his medicalhistory
payable!death/TPD occur
-
Maturity Benefit, $12,500
$2,500 $2,500$2,500 $2,500 $2,500
Example of an Anticipated Endowment Insurance Policy
Traditional Life Insurance Products Pg 67-72
88
3 6 9 12 15 18Example of an 18-year, $25,000 Anticipated Endowment
Insurance Policy. Insured will receive cash payments every 3 years.
Should he die/get TPD during the course of the term, he would still receive $25,000 + bonuses.
Cash payments can be left with the Insurer to accumulate interest.
-
Traditional Life Insurance Products
Suitability of Endowment Insurance Plans Childrens Education
Saving/Investing Purposes
Pg 72
89
1) Childrens Education2) Savings/ Investment Purposes
(Such as retirement planning, etc)
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Traditional Life Insurance Products
MAS Disclosure Requirements Relating to Life Insurance Policies Must furnish the client with:
1) Product summary
Pg 72
90
1) Product summary2) Benefit Illustration3) Product Highlights Sheet (ILP only)4) Your Guide to Life Insurance
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Quiz Time!
QUESTION: Name the 2 kinds of Endowment Insurance Policies
ANSWER: Pure Endowment & Anticipated Endowment
91
QUESTION: What are the 3 non-forfeiture options?
ANSWER: Surrendering cash values, use cash values to purchase a Paid Up whole life policy, use cash value to purchase to an Extended Term Insurance policy
-
Quiz Time!QUESTION: Give an example of a Decreasing Term
Insurance
ANSWER: Mortgage InsuranceIMPORTANT NOTE: Read
the table on pages 73-74. Its a testable item!
92
QUESTION: What is renewable option (Term Insurance)?
ANSWER: Giving the life insured the right to renew the policy at the end of the policy term, without the evidence of insurability.
-
Chapter 5
Riders (Supplementary
93
(Supplementary Benefits)
-
Riders (Supplementary Benefits)Riders = supplementary benefitsBasic Contract = can be Non-Par or Par policy
Riders Basic Contract
Basic Contract
+
Pg 76
94
riders are not automatically included in a policy. policy-owner must specifically request for riders to be
included but their requests are subject to insurers assessment and approval subject to additional premium
Contract +Riders
-
Riders (Supplementary Benefits) Riders cannot be dropped by the insurer as long as premiums
are paid when due
If the policy lapses, the insurer may refuse to reinstate a rider at the same time that it reinstates the policy
Pg 76
95
Cannot purchase a rider without a basic policy
Cannot cancel the basic policy and retain only the rider
The term of the rider cannot exceed that of the basic policy
-
Some of the common riders offered by insurers are: Waiver of premium rider Total and permanent disability (TPD) rider Critical illness rider Term riders
Riders (Supplementary Benefits) Pg 76
96
Term riders Payor benefit rider Guaranteed insurability option rider Accidental death benefit rider Accidental death and dismemberment rider Hospital cash (income) benefit rider
-
Riders (Supplementary Benefits)Waiver of Premium Rider Keeps a policy in force in the event that the insured is not
able to pay the premiums, when he is totally and permanently disabled or is suffering from one of the critical illness covered under his policy
Pg 77
97
It causes the premiums under a policy to be waived once any of the aforesaid events happened2 Main Groups
Total and permanent disability (TPD)
Critical illness
Refer to Page 78 for definition of TPD
-
Riders (Supplementary Benefits)
$ $ $ $ $ $
Disability or Critical Illness occurs
recovers
Pg 78
98
Waiver of Premium Rider
Keeps the policy in force and the policys cash value would also continue to increase
Premium Paying Term
Premium Waived
-
Riders (Supplementary Benefits)
TPD is defined as: Disability such that there is , neither at the time the disability commences, nor at any time thereafter, any work, occupation or profession that the life insured
Pg 78
99
work, occupation or profession that the life insured can ever be capable of doing or following to earn or obtain any wages, compensation or profit.
-
Riders (Supplementary Benefits)Rider expires when the insured reaches a specified age
Disability or Critical Illness occurs
Rider expires here$ $ $
100
here
No waiver of premium
Premium Paying Term
$ $ $$ $ $ $ $ $
Normally rider expires at age 60 or 65 years
-
Riders (Supplementary Benefits)
TPD is defined as: It also includes the total and irrecoverable: 1) Loss of sight of both eyes or2) both feet at or above the ankle or
Pg 78
101
2) both feet at or above the ankle or3) One hand at or above the wrist and one foot at or above the ankle.
-
Riders (Supplementary Benefits)
TPD Waiver of Premium Rider Exclusions:1) Intentionally self inflicted injuries, while sane or insane2) Bodily injuries sustained as a result of travel or flight in or on any type of aircraft, except
Pg 78
102
It also includes the total and irrecoverable: 1) Loss of sight of both eyes or2) both feet at or above the ankle or3) One hand at or above the wrist and one foot at or above the ankle.
-
$(60% of SA)$(10% of SA) $ $ $
Total and Permanent Disability Rider
Example of Payment of TPD Benefit
Riders (Supplementary Benefits) Pg 80
103
Disability Strikes
6 month waiting period
In the event of a total and permanent disablement, the disability benefit is paid as a
lump sum or in installments spread over a number of years.
Most insurers place a limit (usually $2M) on the aggregate amount of TPD benefit that they will pay on all the policies that an insured has
with the insurer. They will also not pay if the disability was caused by intentional self-inflicted injuries.
-
Riders (Supplementary Benefits)
Critical Illness Rider
Acceleration Benefit
Additional Benefit
Pg 81
104
Exclusions:1) Pre-existing illnesses2) Self inflicted injury/illness, while sane or otherwise3) Willful misuse of drugs and/or alcohol4) Congenital or inherited disorder
Benefit
-
Exclusions:
5) AIDS or HIV
6) Bodily injury sustained as a result of travel in or on any type of aircraft,
Riders (Supplementary Benefits) Pg 84
105
6) Bodily injury sustained as a result of travel in or on any type of aircraft,except as a fare paying passenger or as a crew member of aninternational airline operating on a regularly scheduled passenger flightof a licensed commercial aircraft
7) War or warlike operation, civil war or civil commotion
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$200K Whole Life Policy with 50%
Acceleration
Death/ TPD
$200K Whole Life Insurance Policy with
50% Acceleration Rider
Critical Illness
Riders (Supplementary Benefits)
106
$100K payout
$100K payout
Death/TPD
Acceleration Rider
$200K payout
-
$100K Whole Life Policy with 200K
Acceleration Rider
Riders (Supplementary Benefits)
Critical Illness
$100K Whole Life Insurance Policy
with 200K Additional Benefit
Rider
107
Rider
$100K payout
$200K payout
$100K payout
-
Eligibility Criteria for Critical Illness Rider
1) Must be a Critical Illness covered by rider2) Meets definition & not fall under exclusions
Riders (Supplementary Benefits) Pg 85
108
2) Meets definition & not fall under exclusions3) Meets the conditions as specified by Insurer4) Meets Waiting Period and Survival Period
-
Riders (Supplementary Benefits) Pg 85Acceleration Benefit Additional Benefit
Payment under the policy on diagnosis of a
covered critical illness affects the basic sum
assured
Payment under the policy on diagnosis of a
covered critical illness does not affect the basic
sum assured
May cause the policy to be terminated upon the
payment of a covered critical illness claim, if it is a
100% acceleration rider
Will not cause the policy to be terminated upon
the payment of a covered critical illness claim
The maximum amount payable under the policy is The maximum amount payable under the policy is
109
The maximum amount payable under the policy is
equal to the basic sum assured plus bonuses (if
any)
The maximum amount payable under the policy is
equal to the basic sum assured plus bonuses (if
any) plus the rider sum assured
Critical illness sum assured must not exceed that
of the basic sum assured
Critical illness rider sum assured can be up to a
certain number of times of the basic sum assured,
subject to the insurers guidelines
Critical illness rider term usually follows the basic
plan and can be for life
Critial illness rider term must not exceed that of
the basic plan and usually expires when the life
insured reaches a specified age
-
Lump sum payout Pay a lump sum amount upon diagnosis of critical illness covered
by the policy
One critical illness claim only Only one covered CI can be covered. There are some policies
which can cover more than one
Waiting period Specific waiting period. Say 90 days
Cap on sum assured Some insurers may impose a limitation on the amount to
minimise moral hazard
Level premium Premium is level and is either guaranteed or non guaranteed
Riders (Supplementary Benefits) Pg 84
110110
Level premium Premium is level and is either guaranteed or non guaranteed
Flexibility No restriction on how the benefit can be used. Both for ILP and/or
traditional
No cash value Do not acquire cash value
Termination Auto terminated once basic policy terminates. May expire at the
maximum age before the basic policy terminates
24hour worldwide coverage Provide worldwide coverage, 24/7 unless otherwise stated
-
Riders (Supplementary Benefits)Term Rider
Is a term policy attached to a permanent policy Cannot be attached to a term policy Amount of the term rider coverage is usually expressed as a
ratio of the sum assured of the basic plan
Pg 88
111
ratio of the sum assured of the basic plan
Types of term riders Level term rider Decreasing term rider Family income benefit rider
-
Riders (Supplementary Benefits)
Term Rider Payor Benefit Rider (3rd party policies, on payors life) Guaranteed Insurability Option Rider Accidental Death Benefit Rider
Pg 88-93
112
Accidental Death & Dismemberment Rider Hospital Cash (income) Benefit Rider
Read up on pages 94 - 95
-
Quiz Time!
QUESTION: Name the 2 categories that the riders of Waiver of Premium Rider are in
ANSWER: TPD and Critical Illness
113
QUESTION: What are the 3 types of Term Riders?
ANSWER: Level Term, Family Income Term, Decreasing Term.
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Chapter 6
Participating Life Insurance Policies
114
Insurance Policies
-
Participating Life Insurance PoliciesWhat are participating policies?Life insurance products that participate in the performance of
the participating fund of the life insurer. They share in the profits or the surplus of the participating fund
Common participating plans:
Pg 98
115
Common participating plans:1) Participating Whole Life Insurance policy
2) Participating Endowment Insurance policy3) Participating Anticipated Endowment Insurance policyObjective of Par Policies and Its ImplicationsThey provide competitive and stable medium-to-longterm returns to participating policy owners.
-
Participating Life Insurance PoliciesGuaranteed and Non Guaranteed Benefits (Bonuses)
Participating policies provide a combination of guaranteed and non guaranteed benefits.
Guaranteed benefits are paid out to the beneficiaries should the life insured die within the policy term, and also upon surrender.
Pg 99
116
insured die within the policy term, and also upon surrender.
Non guaranteed benefits depend on the following keyfactors: 1) Investment performance2) Level of expenses incurred by or allocated to the participating fund3) Amounts paid out to meet claims on policies in the participating fund
-
Bonus Distribution
Methods
Participating Life Insurance Policies
Reversionary BonusTerminal / Maturity
bonus
Pg 99-102
117
Cash Bonus Interim Bonus
-
Participating Life Insurance PoliciesTypes of Non-guaranteed Benefits (Bonuses)- Revisionary Bonus (RB) Its the most common type of bonus. Also known as Annual Bonus. It is an addition to the sum assured, regardless of the age of the
insured, or how long the policy has been in force.
Pg100
118
insured, or how long the policy has been in force. In proportion to the sum assured eg: $10 for every $1,000 SA. Declared yearly and credited to each policy on its anniversary date. Sometimes called vesting Guaranteed once declared.
-
Participating Life Insurance PoliciesTypes of Non-guaranteed Benefits (Bonuses)- Revisionary Bonus (RB)
1) Simple Revisionary Bonus(Refer to Example 6.1, Page 101)
Pg100
119
2) Compound Revisionary Bonus(Refer to Example 6.2, Page 101)
-
Participating Life Insurance PoliciesTypes of Non-guaranteed Benefits (Bonuses)- Terminal Bonus (TB)
It is added on top of the RB when terminated (due to death, TPD, CI, etc) maturity or surrender, usually provided the policy has been in force for a
Pg102
120
maturity or surrender, usually provided the policy has been in force for a
minimum period.
In Singapore, typical bonus allocation for insurers take place in March/April, following the end of the financial year.
-
Participating Life Insurance PoliciesTypes of Non-guaranteed Benefits (Bonuses)- Terminal Bonus (TB)
Pg102
Policies that terminate in the early part of the year before the finalisationof the bonus allocation may be given interim bonuses.
121
Typically determined based on the prevailing bonus rates, or bonus ratesused in reserves for future bonuses or results from an interim bonusinvestigation report
-
Participating Life Insurance Policies Pg102
Cash DividendsSome plans provide cash dividends rather than additions to the sum assured. Can be converted to additional sum assureds or applied to
Types of Non-guaranteed Benefits (Bonuses)
122
reduce future contributions.
-
Participating Life Insurance Policies Pg103
Types of Non-guaranteed Benefits (Bonuses)
Refer to the Examples written on the white board for INTERIM BONUSES:
123
-
Participating Life Insurance Policies Pg103
Types of Non-guaranteed Benefits (Bonuses)
Level of Revisionary Bonus vs Terminal BonusThe mix between revisionary bonus & terminal bonus can vary for
124
different participating products. Some have higher terminal bonus withlower revisionary bonus, and vice versa.
-
Participating Life Insurance Policies
Death Benefit
Guaranteed Death Benefit
Bonuses Credited
Surrender Value
Guaranteed Surrender
Value
Surrender ValueBonuses Credited
=
=
+
+
Pg 104
125
Value Credited
Paid-Up Amount
Guaranteed Paid-Up Value
Paid-up Value of Bonuses Credited
= +
Buying a life insurance policy is a long term commitment. Early termination of the policy usually involves high cost and the surrender value may be less than the total premiums paid.
-
Participating Life Insurance Policies Pg 104
AssetsBonuses
Assets backing
Determination of Bonuses
126
Participating Fund
Premiums Participating Policies
Current bonuses
(once declared,
guaranteed)
Future bonuses
(non-guaranteed)
Assets backing Participating
Group
-
Participating Life Insurance Policies Pg 105
Risk Sharing Mechanism
a) Risk sharing rulesb) Methodology to determine amount of asset to back each
participating product group
127
Risk Sharing Rules
a) Bonuses (RB & TB) allocated on yearly basisb) Bonuses allocated have to be approved by the Board of
Directors of the insurer
-
Participating Life Insurance Policies Pg 105-106
Risk Sharing Rules
Key risks affecting participating fundperformance include:
128
Investment risk Expense risk acquisition and maintainence Mortality risk Dread disease and other morbidity risks Lapse/surrender risk Business risk, eg, non participating policies and riders
-
Bonus AllocationThe Appointed Actuary to take the following into consideration:
1) Maintaining equity and fairness between different generations of participating policies
Participating Life Insurance Policies Pg 107
129
2) Maintaining solvency of the fund
3) Ensuring consistency with the objective to provide competitive and stable medium to long term returns to participating policy owners
Vesting and Allocation of Bonuses are NOT the same!Bonuses allocated may not vest immediately. Usually, allocated bonuses are vested only upon the policy anniversary for which the bonuses are due and after premiums are paid
-
- Determination of Annual Bonuses to be allocated:
Allocated annually to all in-force participating policies, except in some cases, such as policies in force for less than 2 years. Normally bonus rates will only be adjusted IF:
there is a prolonged period of good or poor performance; and/or
Participating Life Insurance Policies Pg 107-109
130
there is a prolonged period of good or poor performance; and/or there is a change in medium to long-term expected investment
returns
- Terminal Bonus
A percentage of compounded bonus. Normally given only to long term plans. Not applicable to policies that terminate during the initial years.
-
- Terminal Bonus
Using the 90:10 rule. The Insurance Act states that insurers can only take out just 1/9 of the amount allocated to policy owners as bonus for that year.
Pg 108-109Participating Life Insurance Policies
131