pce a chapter21 - 30
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PCE – Part C Life Insurance
• Revision 01 (25/11/2011)
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2
LIFE INSURANCE PRELIMINARIES
CHAPTER 21
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3
• Characteristics of Life Insurance Products
• Basic Principles of Insurance as Applied to Life
Insurance
• Risk Covered by Life Insurance
LIFE INSURANCE PRELIMINARIES
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4
CHARACTERISTICS OF LIFE INSURANCE PRODUCTS
Long Term Contracts
Principle of Uberrima Fides
Aleatory Contracts
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5
• Insurable Interest
• Payment of a Claim Terminates a Life
Insurance Contract
• The Risk to be Insured Increases with Time
CHARACTERISTICS OF LIFE INSURANCE PRODUCTS
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6
RISKS COVERED BY LIFE INSURANCE POLICIES
Premature Death
Permanent Disability
Temporary Disability
Retirement Benefits
Financial Guarantee
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7
LIFE INSURANCE PRODUCTS &
FAMILY TAKAFUL BUSINESS
CHAPTER 22
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8
LIFE INSURANCE PRODUCTS
Categories ofLife Insurance Products
Group Insurance
Home Service Insurance
Ordinary Life Insurance :Term, Whole Life (WL)
andEndowment Insurances
Types of Life Policies
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9
Family Takaful Business
Miscellaneous Policies :Children’s Insurances and Joint-Life Insurance
Supplementary Benefits (Riders)
Other Contracts :Permanent Health Insurance (PHI),
Dread Disease Coversand Investment-Linked Policies
LIFE INSURANCE PRODUCTS
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10
CATEGORIES OF LIFE INSURANCE PRODUCTS
Participating Contracts (Par)
Non-participating Contracts (Non-par)
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11
TYPES OF LIFE POLICIES
Home Service
Group Insurance
Ordinary
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12
ORDINARY LIFE INSURANCE
Term Insurance Whole Life (WL)
AnnuitiesEndowment
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13
ORDINARY LIFE INSURANCE
Term Insurance
Level TermInsurance
Decreasing TermInsurance
Renewable andConvertible
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14
ORDINARY LIFE INSURANCE
Ordinary Life PolicyLimited PaymentWL Policy
WL EndowmentPolicy
Whole Life (WL)
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15
ORDINARY LIFE INSURANCE
AnticipatedEndowment Insurance
Uses ofEndowment Insurances
Endowment
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ORDINARY LIFE INSURANCE
Annuities :Level Life Annuity Contracts
Deferred Annuity
Guaranteed Immediate
Reversionary
Last Survivor
Joint LifeSingle Life
Deferred Annuity
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17
Characteristics:• For the lower income class • Premium payments at more frequent intervals,
usually weekly & small amount• Home services representatives collecting the
premium• Whole life & endowment insurances with low sum
assured are the most popular products
HOME SERVICE INSURANCE
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18
GROUP INSURANCE
Characteristics:• Insure lives in large groups at low rates for some
purpose. E.g employess of industrial or commercial establishment or other organization
• A stipulated percentage of all the lives in the group must be included, to enable a average mortality experience in accordance with the basis of calculation
• The group must consist of a minimum number of lives if medical examination is to be exempted/waived.
• The lives assured must be in the regular employment of the assured employer
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19
OTHER CONTRACTS
Permanent Health Insurance (PHI)
Dread Disease Covers
Investment-Linked Policies
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20
SUPPLEMENTARY BENEFITS (RIDERS)
Accidental Death Benefits
Disability Benefits
Sickness Benefits
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21
MISCELLANEOUS POLICIES
Children’sInsurance
Protected
Educational P
oliciesC
hildren’s
Deferred A
ssuranceJoint LifeInsurance
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22
FAMILY TAKAFUL BUSINESS
Types
Participant’s Accounts (PA) andParticipant’s Special Account (PSA)
OperationBenefits
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23
POLICY CONDITIONS
CHAPTER 23
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24
POLICY CONDITIONS
• Definition of a Policy
• Privileges and Conditions
– Privileges
– Restrictive Conditions
– Conditions Explaining the Contract
• Policy Transactions
• Policy Alterations
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25
DEFINITION OF A POLICY
Contract
• Intangible
• Legally Binding
Agreement
Policy
• Tangible
• Agreement is in Concrete
Form
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26
PRIVILEGES AND CONDITIONS
• Days of Grace• Surrender Value• Policy Loans• Paid-up Policy• Non-forfeiture Conditions•Automatic Premium Loan•Paid-up Policy•Extended Term Assurance
• Reinstatement Condition
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27
• Suicide Clause
• Foreign Travel & Residence
• Occupation & Dangerous
Hobbies
• Incontestability Clause
PRIVILEGES AND CONDITIONS
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28
• Admission of Age• Misrepresentation of Age•Understated of Age•Overstated of Age
PRIVILEGES & CONDITIONS
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29
POLICY TRANSACTIONS
Duplicate Policy
Assignment of a Life Policy(Absolute and Conditional)
Reassignment
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30
POLICY ALTERATIONS
• Address• Name• Mode of Payment• Sum Insured• Beneficiary• Term of Insurance• Policy Altered to Paid-up• Class of Policy• Removal of Extra Premium
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PRACTICE OF LIFE INSURANCE:
NEW BUSINESS-SELECTION OF LIVES AND
OTHER ISSUES
AT & D- Center for Learning Excellence
CHAPTER 24
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32
RISK MANAGEMENT PROCESS
Identifying the Risk Factors
Selection of Lives to be Insured
Quantifying Risk
Costing Risk
Monitoring the Insurance Fund
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33
THE RISK FACTORS -MORTALITY
• Age• Sex• Occupation• Social Status• Ethnicity• Geographical Location• Marital Status• Personal Habits and Family History• Avocation• Foreign Residence
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34
SELECTION OF LIVESTO BE INSURED
• Financial Underwriting• Medical Underwriting• Non-medical Underwriting• The Role of Agent in the Underwriting Process of
Non-medical Insurance• Objectives of Selection
–Standard Life–Sub-standard Life–Deferred–Declined
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35
MODES OF ACCEPTINGSUB-STANDARD LIVES
• Classification of Extra Risks:–Increasing Extra Mortality–Level Extra Mortality–Decreasing Extra Mortality
• Treatment of Sub-standard Lives:–Increasing Premium–Decreasing Death benefit–Bonus Adjustment–Alternative Policy Plan–Exclusion of a Particular Hazard
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36
TAXATION OF LIFE INSURANCE PREMIUMS
• Objectives:
–To Encourage National Thrift
–Promote Individual Financial Independence
• Total Relief:
–RM6000 (Life Insurance and EPF)
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37
TAXATION OF LIFE INSURANCE PREMIUMS
PersonalIncome Tax Basics
Income Tax Rates and Relief:Subject to Annual Review &Income Tax Act 1967
Assessment Year:1 January – 31 December.
Income for the Year of Assessment shall be the Income for the Year Preceding the Year of Assessment
Taxable / Assessable Income:Salary, Leave Pay, Commissions,Bonuses/Dividends, Gratuity,Fees and Allowances
Allowable Deductions:EPF, Life Insurance Premiums,Approved Charity Organization,Personal Relief,DependentChildren/Relatives’ Support
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38
TAXATION OF LIFE INSURANCE PREMIUMS
Chargeable Income =
Assessable Income less
Allowable Deductions
Chapter 19
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39
PRACTICE OF LIFE INSURANCE-
NEW BUSINESS-PREMIUM RATING
AT & D- Center for Learning Excellence
CHAPTER 25
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40
QUANTIFYING THE RISK
• Pooling of similar risk
• Law of large numbers
• The past forms a guide to the future
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41
COSTING THE RISK
• Mortality
• Expenses
• Investment returns
• Tax
• Other factors
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42
COSTING THE RISK
• Mortality
Standard Mortality Tables
• Expenses
Initial
Renewal
Termination
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43
COSTING THE RISK
Investment returns Taxation Other factors
Financial costs Reinsurance costs Bonus Loading
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44
PREMIUM RATE CALCULATIONS
RISK PREMIUM
Basic cost of death risk
LEVEL PREMIUM
Risk increases with passages of time
NET PREMIUM
Cost of mortality & interest
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45
PREMIUM RATE CALCULATIONS
Net premium
Loading for expenses
Loading for profit & contingencies
PLUS
PLUS
=
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46
SATISFACTORY PREMIUM RATE STRUCTURE
• ADEQUATE
• COMPETITIVE
• EQUITABLE
• CONSISTENT
• PROFITABLE
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47
ADJUSTMENT TO GROSS PREMIUMS IN THE RATEBOOK
• MODE OF PAYMENT
• ADJUSTMENT OF SUM ASSURED
• HEALTH & OCCUPATIONAL EXTRAS
• FEMALE LIVES
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NUMERICAL RATING SYSTEM
Particulars Percentage extraAge:30 (basic rating)+100%Height: 5’4”
+100%Weight: 210 lbsBlood pressure: 140/85- normal +0%Medical history: Nil+0%
---------Total rating:
+200%Less basic rating:
- 100%
---------Extra mortality:+100%
---------
Yields overWeight debit
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49
PRACTICE OF LIFE INSURANCE-
MONITORING THE INSURANCE
FUND
AT & D- Center for Learning Excellence
CHAPTER 26
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50
THE PURPOSE OF A VALUATION
• To test insurance company’s solvency• To determine the amount of surplus
(if any) • To test the adequacy of existing premium scales• To determine the company’s operations• To comply with the statutory requirements
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51
VALUATION OF LIABILITIES
The Present Value Of The Benefit Payable
The Present Value Of Expenses
The Present Value Of The Future Premiums Receivable
Plus
Less
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52
VALUATION OF ASSETS
E.g. of assets:
Cash Investment Shares Loans
Properties Furniture Office Equipments
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53
SURPLUS
Sources of surplus include:
• INTEREST
• MORTALITY
• EXPENSE
• MISCELLANEOUS
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54
METHODS OF DISTRIBUTION SURPLUS
• Simple Reversionary Bonus• Compound Reversionary Bonus• Cash Bonus• Maturity Bonus or Terminal Bonus• Interim Bonus• Guaranteed Bonus
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55
PRACTICE OF LIFE INSURANCE
- POLICY DOCUMENTS
AT & D- Center for Learning Excellence
CHAPTER 27
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56
SOURCES OF INFO FOR RISK ASSESSMENT
• PROPOSAL FORM
• MEDICAL REPORT
• ATTENDED PHYSICIAN’S STATEMENT
• AGENT’S REPORT
• PREVIOUS RECORDS
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57
THE PROPOSAL FORM
• Personal particulars
• Details of insurance
• Occupation, residence, travel & hazardous
pursuits
• Personal & family history
• Declaration & authorization
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58
THE MEDICAL REPORT/SPECIAL EXAMINATIONS
• Height & Weight
• Pulse & blood pressure readings
• Chest & abdomen measurements
• Condition of the:
•Heart
•Lungs
•Nervous system
•Urine analysis
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59
ATTENDING PHYSICIAN’S STATEMENT
• Consent of the applicant is required before hand
• Attending physician is required to give specific
answers to queries related to the treatment
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60
THE AGENT’S REPORT
• Applicant’s habits
• Appearance
• Character
• Financial status
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61
THE PROPOSAL FORM
• Personal particulars
• Details of insurance
• Occupation, Residence, Travel & hazardous pursuits
• Personal & Family history
• Declaration & Authorization
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62
POLICY FORM & STRUCTURE
• THE HEADING• THE PREAMBLE• THE OPERATIVE CLAUSE• THE PROVISO• THE SCHEDULE• ATTESTATION• CONDITIONS & PRIVILEDGES
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63
ENDORSEMENTS
• Endorsements can be done either at the:
–Time of issue of the policy
–After issue of the policy
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64
ENDORSEMENTS- Time if issue of policy
• Premium / Frequency of Payment
• Sum Assured / Mode of Payment
• Special Benefit
• Special Restrictions
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65
ENDORSEMENTS- After policy issue
• Mode of payment
• Alterations to the form of the contract
• Imposition / Removal of extra premium
• Surrender of bonus
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66
PRACTICE OF LIFE INSURANCE- CLAIMS
AT & D- Center for Learning Excellence
CHAPTER 28
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67
CLAIM ARISE
• On the death of the insured
• On maturity of the insurance policy
• Sickness or Disability benefit claims
• Claims arising under supplementary contracts
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68
DEATH CLAIMS
• NOTIFICATION OF DEATH
–Policy holder’s name & identity card number
–Policy number
–Address
–Date & cause of death
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69
DEATH CLAIMS
• PROOF OF DEATH–A death certificate–A coroner’s report–An order pronouncing a statutory presumption of death–Certificate showing death at sea–Medical certificate by last medical attendant–A certificate evidencing the death of service personnel and war death
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70
DEATH CLAIMS
• PROOF OF AGE–Birth certificate–School leaving certificate–Certified extract from baptism register–IC by Malaysian Government–Passport–Statutory declaration (for the elderly)
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71
DEATH CLAIMS
• PROOF OF TITLE & SETTLEMENT–A deed of assignment–A probate of will obtained from the court of law
–A letter of administration issued by a court of law
–For a policy effected under Sec 23 of the Civil Law act, the money would be payable to the trustees
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72
MATURITY CLAIMS
• NOTIFICATION TO POLICYHOLDER
–Identity form–Survival form–Discharge form
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73
MATURITY CLAIMS
• PROOF OF CLAIMS
–Proof of age–Proof of survival–Completion of discharge voucher–The policy document
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74
MATURITY CLAIMS
• SETTLEMENT OPTIONS
–By maturity proceeds
–Convert to annuities
–Leave proceeds of maturity as a deposit with insurer at
a pre-determined interest rate
–Draw cash by installments over a number of years
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75
LIFE INSURANCE :
SOME MATHEMATICS
AT & D- Center for Learning Excellence
CHAPTER 29
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76
CALCULATION
• AGE
• PREMIUM
• INTEREST
• GUARANTEED SURRENDER VALUE
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77
CALCULATION
• AGE–Last Birthday–Next Birthday–Nearest Birthday
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78
CALCULATION
• PREMIUM–Age–Sex–State of Health–Type of policy–Sum assured–Policy term–Mode of payment
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79
CALCULATION
• INTEREST
–Outstanding Premium Charges
–Policy Loan Repayment
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80
CALCULATION
• GUARANTEED SURRENDER VALUE–Incorporate value table in the schedules
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81AT & D- Center for Learning Excellence
PRACTICE OF INSURANCE
CHAPTER 30
“ETHICS & CODE OF CONDUCT”
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82
• Rebating
• Twisting
• Misrepresentation
• Attitude towards competition
CODE OF ETHICS
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83
• The practice of sharing an agent’s commission
with the policyholder may be viewed as
discrimination, and the implication of it clouds
the legality of the contract
REBATING
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84
• Persuading a policy holder to discontinue or
lapse a present policy in order to buy a new
policy
TWISTING
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85
• Constitute telling something that is NOT TRUE.
This statement holds true both when the agent
is representing the insurer to the prospect and
when the agent is representing the applicant to
the company
MISREPRESENTATION
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86
• Nothing is gained by casting doubt upon any
company, in which a prospect may have
insurance, or underlying motive of any other
salesman who may at the moment be attempting
to sell to the prospect
ATTITUDE TOWARDS COMPETITION
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87
• 7 PRINCIPLES OF THE CODE OF ETHICS &
CONDUCT
•AVOID conflict of interest
•AVOID misuse of position
•PREVENT misuse of information
•ENSURE completeness & accuracy
GUIDELINES ON THE CODE OF CONDUCT
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88
• 7 PRINCIPLES OF THE CODE OF ETHICS &
CONDUCT
•ENSURE confidentiality of communication
•ENSURE fair & equitable treatment
•CONDUCT business with utmost good faith &
integrity
GUIDELINES ON THE CODE OF CONDUCT