M9 Training Slides

CMFAS Module 9: CMFAS Module 9: Life Insurance andLife Insurance and

Investment Linked Policies Investment Linked Policies

1

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

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

CMFAS M9 Question TypesType of Questions

1. The majority of exam questions test the ability to recall materials from the textbook.

2. Application questions.

4

2. Application questions.

3. Questions that test the understanding of:i. the underlying insurance principles and concepts;ii. products

Chapter 1Risks and Insurance

5

Risks and Insurance

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

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

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

Risks and Insurance

3 Types of Personal Risk Premature death Outliving resources Poor health (sickness/disability)

Pg 5

9

Poor health (sickness/disability)

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

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

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

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

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

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

15

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

Risks and Insurance

Information Revealed Information Not Revealed

Non Disclosure

Concealment

Pg 14-16

Innocent Misrepresentation

Negligent Misrepresentation

Fraudulent

Misrepresentation

16

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

17

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

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

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

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.

Risks and Insurance

Structure of the Singapore Insurance Market Buyers, Sellers (Reinsurers) Intermediaries

Pg 21-24

21

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

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.

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

23

companies and intermediaries. Examples of such members are: Association of Financial Advisers [AFA(S)] Life Insurance Association of Singapore (LIA) Singapore Reinsurers Association (SRA)

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

24

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

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

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

26

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

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

27

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

Chapter 2

Setting Life Insurance Premium

28

Premium

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

29

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)

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

Quiz Time!

QUESTION: Name any 3 factors actuaries must take note of when setting life insurance premiums1) Mortality and Morbidity Rates2) Investment Income3) Expenses

31

3) Expenses4) Gender5) Smoking Status6) Sum Assured7) Frequency of Premium PaymentsCan be found on Pg 30

Quiz Time!

QUESTION: How is Gross Premium Calculated?ANSWER: Gross Premium = Net Premium + Loading (Expenses)

QUESTION: Policy owners need only pay

32

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

Chapter 3

Classification of Life Insurance Products

33

Insurance Products

Classification of Life Insurance Pdts

Hmm, how do Iclassify

soooo many products?

34

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)

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

36

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

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


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

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

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


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

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


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

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


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

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.


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

Characteristics of Group Life Insurance Experience Rating Usually underwritten based on past

claims experience.

Cost Effective Many life insured. Only one master contract,


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

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


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

Group Life InsuranceNormally Group Life Insurance can be written as: 1) Term Life Insurance2) Whole Life Insurance


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

Group Term Life Insurance Yearly Renewable Term Insurance Policy

Premiums varies with the size and experience of Group on yearly basis


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

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


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

Group Term Life Insurance (Features)3) Riders

Allows for the provision of riders such as:1) Critical Illness 2) Accidental Death & Dismemberment


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

Group Term Life Insurance (Features)5) PremiumsPaid on annual basis. Grace period is usually 30/31 days from annual premium due date.


49

annual premium due date.

Premium Payment

Non-Contributory

(Company pays premiums in full)

Contributory

(Members pay premiums in part

or in full)

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


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

Group Term Life Insurance (Features)9) Termination of Coverage

c) Employee transferred to work overseas during which he is no longer under Company payroll


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

Group Term Life Insurance (Features)10) Claims procedure

Documentation needed: Death claim form (1 by employer and 1 by attending


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)

Group Term Life Insurance (Features)10) Claims procedure

Documentation needed: TPD claim forms (1 by employer and 1 by attending


53

TPD claim forms (1 by employer and 1 by attending physician)

Copy of payslip Copy of NRIC (certified by employer)

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

Quiz Time!

QUESTION: Name the 2 kinds of contribution plans for GTL Policies

ANSWER: Contributory & Non-contributory

55

QUESTION: How are the sum assured for GTL Policies determined?

ANSWER: According to rank, according to number of times of basic monthly salary

Chapter 4

Traditional Life Insurance Products

56

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


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

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.


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

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


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.


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


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?


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?

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

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


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


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

Suitability of Term InsuranceTerm Insurance is suitable either the need for protection is: Purely Temporary Permanent, but the insured cannot temporarily afford the


68

premiums for permanent insurance

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

Definition of Total & Permanent DisabilityAn insured is said to be suffering from TPD if he cannot everperform any work, occupation or profession.


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

Whole Life Insurance Plans Features of WL Insurance

1) Covers against death, for whole of insureds life


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

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


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

Pg 61-63

Policy Endows Here


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


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.



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.



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.

S$300,000(Sum assured)

$66,000(Cash Values)

Cash Values


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

Criteria Ordinary Whole

Life Insurance

Limited Premium

Payment Whole

Life Insurance

Premiums Lower Higher


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


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


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


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


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


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


Endowment Insurance Plans Types of Endowment Insurance

1) Pure Endowment Insurance

Pg 67-72

85

2) Anticipated Endowment Insurance


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)


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.


Suitability of Endowment Insurance Plans Childrens Education

Saving/Investing Purposes

Pg 72

89

1) Childrens Education2) Savings/ Investment Purposes

(Such as retirement planning, etc)


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

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


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


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.


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


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.


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,


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

$200K Whole Life Policy with 50%

Acceleration

Death/ TPD

$200K Whole Life Insurance Policy with

50% Acceleration Rider

Critical Illness


106

$100K payout

$100K payout

Death/TPD

Acceleration Rider

$200K payout

$100K Whole Life Policy with 200K

Acceleration Rider


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


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


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


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.

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


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.



Refer to the Examples written on the white board for INTERIM BONUSES:

123



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.


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


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


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

M9 Training Slides

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