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PCE – Part C Life Insurance

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  1. PCE – Part C Life Insurance Revision 01 (25/11/2011)

  2. LIFE INSURANCE PRELIMINARIES CHAPTER 21

  3. LIFE INSURANCE PRELIMINARIES • Characteristics of Life Insurance Products • Basic Principles of Insurance as Applied to Life Insurance • Risk Covered by Life Insurance

  4. CHARACTERISTICS OF LIFE INSURANCE PRODUCTS • Long Term Contracts • Principle of Uberrima Fides • Aleatory Contracts

  5. CHARACTERISTICS OF LIFE INSURANCE PRODUCTS • Insurable Interest • Payment of a Claim Terminates a Life Insurance Contract • The Risk to be Insured Increases with Time

  6. RISKS COVERED BY LIFE INSURANCE POLICIES • Premature Death • Permanent Disability • Temporary Disability • Retirement Benefits • Financial Guarantee

  7. LIFE INSURANCE PRODUCTS & FAMILY TAKAFUL BUSINESS CHAPTER 22

  8. Categories ofLifeInsurance Products Types of Life Policies Ordinary Life Insurance : Term, Whole Life (WL) and Endowment Insurances Home Service Insurance Group Insurance LIFE INSURANCE PRODUCTS

  9. Other Contracts : Permanent Health Insurance (PHI), Dread Disease Covers and Investment-Linked Policies Supplementary Benefits (Riders) Miscellaneous Policies : Children’s Insurances and Joint-Life Insurance Family Takaful Business LIFE INSURANCE PRODUCTS

  10. CATEGORIES OF LIFE INSURANCE PRODUCTS Participating Contracts (Par) Non-participating Contracts (Non-par)

  11. TYPES OF LIFE POLICIES Ordinary Home Service Group Insurance

  12. Term Insurance Whole Life (WL) Endowment Annuities ORDINARY LIFE INSURANCE

  13. ORDINARY LIFE INSURANCE Term Insurance Level Term Insurance Renewable and Convertible Decreasing Term Insurance

  14. ORDINARY LIFE INSURANCE Whole Life (WL) Ordinary Life Policy Limited Payment WL Policy WL Endowment Policy

  15. ORDINARY LIFE INSURANCE Endowment Anticipated Endowment Insurance Uses of Endowment Insurances

  16. ORDINARY LIFE INSURANCE Annuities : Level Life Annuity Contracts Single Life Joint Life Guaranteed Immediate Last Survivor Deferred Annuity Reversionary Deferred Annuity

  17. HOME SERVICE INSURANCE 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

  18. GROUP INSURANCE Characteristics: • Insure lives in large groups at low rates for some purpose. E.gemployess 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

  19. OTHER CONTRACTS Permanent Health Insurance (PHI) Dread Disease Covers Investment-Linked Policies

  20. SUPPLEMENTARY BENEFITS (RIDERS) Accidental Death Benefits Disability Benefits Sickness Benefits

  21. Children’s Insurance Joint Life Insurance Children’s Deferred Assurance Protected Educational Policies MISCELLANEOUS POLICIES

  22. FAMILY TAKAFUL BUSINESS Types Operation Benefits Participant’s Accounts (PA) and Participant’s Special Account (PSA)

  23. POLICY CONDITIONS CHAPTER 23

  24. POLICY CONDITIONS Definition of a Policy Privileges and Conditions Privileges Restrictive Conditions Conditions Explaining the Contract Policy Transactions Policy Alterations

  25. DEFINITION OF A POLICY Contract • Intangible • Legally Binding Agreement Policy • Tangible • Agreement is in Concrete Form

  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 PRIVILEGES

  27. PRIVILEGES AND CONDITIONS RESTRICTIVE CONDITIONS • Suicide Clause • Foreign Travel & Residence • Occupation & Dangerous Hobbies • Incontestability Clause

  28. PRIVILEGES & CONDITIONS CONDITIONS EXPLAINING THE CONTRACT • Admission of Age • Misrepresentation of Age • Understated of Age • Overstated of Age

  29. POLICY TRANSACTIONS Duplicate Policy Assignment of a Life Policy (Absolute and Conditional) Reassignment

  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

  31. PRACTICE OF LIFE INSURANCE:NEW BUSINESS-SELECTION OF LIVES AND OTHER ISSUES CHAPTER 24 AT & D- Center for Learning Excellence

  32. RISK MANAGEMENT PROCESS Identifying the Risk Factors Selection of Lives to be Insured Quantifying Risk Costing Risk Monitoring the Insurance Fund

  33. THE RISK FACTORS -MORTALITY • Age • Sex • Occupation • Social Status • Ethnicity • Geographical Location • Marital Status • Personal Habits and Family History • Avocation • Foreign Residence

  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

  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

  36. TAXATION OF LIFE INSURANCE PREMIUMS • Objectives: • To Encourage National Thrift • Promote Individual Financial Independence • Total Relief: • RM6000 (Life Insurance and EPF)

  37. TAXATION OF LIFE INSURANCE PREMIUMS Taxable / Assessable Income: Salary, Leave Pay, Commissions, Bonuses/Dividends, Gratuity, Fees and Allowances Income Tax Rates and Relief: Subject to Annual Review & Income Tax Act 1967 Personal Income Tax Basics Assessment Year: 1 January – 31 December. Income for the Year of Assessment shall be the Income for the Year Preceding the Year of Assessment Allowable Deductions: EPF, Life Insurance Premiums, Approved Charity Organization, Personal Relief, Dependent Children/Relatives’ Support

  38. TAXATION OF LIFE INSURANCE PREMIUMS Chargeable Income = Assessable Income less Allowable Deductions Chapter 19

  39. PRACTICE OF LIFE INSURANCE- NEW BUSINESS-PREMIUM RATING CHAPTER 25 AT & D- Center for Learning Excellence

  40. QUANTIFYING THE RISK • Pooling of similar risk • Law of large numbers • The past forms a guide to the future

  41. COSTING THE RISK • Mortality • Expenses • Investment returns • Tax • Other factors

  42. COSTING THE RISK • Mortality • Standard Mortality Tables • Expenses • Initial • Renewal • Termination

  43. COSTING THE RISK • Investment returns • Taxation • Other factors • Financial costs • Reinsurance costs • Bonus Loading

  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

  45. = GROSS PREMIUM PREMIUM RATE CALCULATIONS Net premium PLUS Loading for expenses PLUS Loading for profit & contingencies

  46. SATISFACTORY PREMIUM RATE STRUCTURE • ADEQUATE • COMPETITIVE • EQUITABLE • CONSISTENT • PROFITABLE

  47. ADJUSTMENT TO GROSS PREMIUMS IN THE RATEBOOK • MODE OF PAYMENT • ADJUSTMENT OF SUM ASSURED • HEALTH & OCCUPATIONAL EXTRAS • FEMALE LIVES

  48. Particulars Percentage extra Age:30 (basic rating) +100% Height: 5’4” +100% Weight: 210 lbs Blood pressure: 140/85- normal +0% Medical history: Nil +0% --------- Total rating: +200% Less basic rating: - 100% --------- Extra mortality: +100% --------- Yields over Weight debit NUMERICAL RATING SYSTEM

  49. PRACTICE OF LIFE INSURANCE- MONITORING THE INSURANCE FUND CHAPTER 26 AT & D- Center for Learning Excellence

  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