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PCE – Part C Life Insurance. Revision 01 (25/11/2011). LIFE INSURANCE PRELIMINARIES. CHAPTER 21. LIFE INSURANCE PRELIMINARIES. Characteristics of Life Insurance Products Basic Principles of Insurance as Applied to Life Insurance Risk Covered by Life Insurance.

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pce part c life insurance

PCE – Part C Life Insurance

Revision 01 (25/11/2011)

slide3

LIFE INSURANCE PRELIMINARIES

  • Characteristics of Life Insurance Products
  • Basic Principles of Insurance as Applied to Life Insurance
  • Risk Covered by Life Insurance
characteristics of life insurance products
CHARACTERISTICS OF LIFE INSURANCE PRODUCTS
  • Long Term Contracts
  • Principle of Uberrima Fides
  • Aleatory Contracts
characteristics of life insurance p roducts
CHARACTERISTICS OF LIFE INSURANCE PRODUCTS
  • Insurable Interest
  • Payment of a Claim Terminates a Life Insurance Contract
  • The Risk to be Insured Increases with Time
risks covered by life insurance policies
RISKS COVERED BY LIFE INSURANCE POLICIES
  • Premature Death
  • Permanent Disability
  • Temporary Disability
  • Retirement Benefits
  • Financial Guarantee
slide8

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

slide9

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

categories of life insurance products
CATEGORIES OF LIFE INSURANCE PRODUCTS

Participating Contracts (Par)

Non-participating Contracts (Non-par)

types of life policies
TYPES OF LIFE POLICIES

Ordinary

Home Service

Group Insurance

ordinary life insurance

Term Insurance

Whole Life (WL)

Endowment

Annuities

ORDINARY LIFE INSURANCE
slide13

ORDINARY LIFE INSURANCE

Term Insurance

Level Term

Insurance

Renewable and

Convertible

Decreasing Term

Insurance

slide14

ORDINARY LIFE INSURANCE

Whole Life (WL)

Ordinary Life Policy

Limited Payment

WL Policy

WL Endowment

Policy

slide15

ORDINARY LIFE INSURANCE

Endowment

Anticipated

Endowment Insurance

Uses of

Endowment Insurances

slide16

ORDINARY LIFE INSURANCE

Annuities :

Level Life Annuity Contracts

Single Life

Joint Life

Guaranteed Immediate

Last Survivor

Deferred Annuity

Reversionary

Deferred Annuity

slide17

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
slide18

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
other contracts
OTHER CONTRACTS

Permanent Health Insurance (PHI)

Dread Disease Covers

Investment-Linked Policies

supplementary benefits riders
SUPPLEMENTARY BENEFITS (RIDERS)

Accidental Death Benefits

Disability Benefits

Sickness Benefits

miscellaneous policies

Children’s

Insurance

Joint Life

Insurance

Children’s

Deferred Assurance

Protected

Educational Policies

MISCELLANEOUS POLICIES
family takaful business
FAMILY TAKAFUL BUSINESS

Types

Operation

Benefits

Participant’s Accounts (PA) and

Participant’s Special Account (PSA)

policy conditions1

POLICY CONDITIONS

Definition of a Policy

Privileges and Conditions

Privileges

Restrictive Conditions

Conditions Explaining the Contract

Policy Transactions

Policy Alterations

definition of a policy
DEFINITION OF A POLICY

Contract

  • Intangible
  • Legally Binding Agreement

Policy

  • Tangible
  • Agreement is in Concrete Form
privileges and conditions
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

slide27

PRIVILEGES AND CONDITIONS

RESTRICTIVE

CONDITIONS

  • Suicide Clause
  • Foreign Travel & Residence
  • Occupation & Dangerous Hobbies
  • Incontestability Clause
slide28

PRIVILEGES & CONDITIONS

CONDITIONS

EXPLAINING

THE CONTRACT

  • Admission of Age
  • Misrepresentation of Age
    • Understated of Age
    • Overstated of Age
policy transactions
POLICY TRANSACTIONS

Duplicate Policy

Assignment of a Life Policy

(Absolute and Conditional)

Reassignment

policy alterations
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
practice of life insurance new business selection of lives and other issues
PRACTICE OF LIFE INSURANCE:NEW BUSINESS-SELECTION OF LIVES AND OTHER ISSUES

CHAPTER 24

AT & D- Center for Learning Excellence

risk management process
RISK MANAGEMENT PROCESS

Identifying the Risk Factors

Selection of Lives to be Insured

Quantifying Risk

Costing Risk

Monitoring the Insurance Fund

the risk factors mortality
THE RISK FACTORS -MORTALITY
  • Age
  • Sex
  • Occupation
  • Social Status
  • Ethnicity
  • Geographical Location
  • Marital Status
  • Personal Habits and Family History
  • Avocation
  • Foreign Residence
selection of livesto be insured
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
modes of acceptingsub standard lives
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
taxation of life insurance premiums
TAXATION OF LIFE INSURANCE PREMIUMS
  • Objectives:
      • To Encourage National Thrift
      • Promote Individual Financial Independence
  • Total Relief:
      • RM6000 (Life Insurance and EPF)
taxation of life insurance premiums1
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

taxation of life insurance premiums2
TAXATION OF LIFE INSURANCE PREMIUMS

Chargeable Income

=

Assessable Income

less

Allowable Deductions

Chapter 19

practice of life insurance new business premium rating

PRACTICE OF LIFE INSURANCE- NEW BUSINESS-PREMIUM RATING

CHAPTER 25

AT & D- Center for Learning Excellence

quantifying the risk
QUANTIFYING THE RISK
  • Pooling of similar risk
  • Law of large numbers
  • The past forms a guide to the future
costing the risk
COSTING THE RISK
  • Mortality
  • Expenses
  • Investment returns
  • Tax
  • Other factors
costing the risk1
COSTING THE RISK
  • Mortality
      • Standard Mortality Tables
  • Expenses
      • Initial
      • Renewal
      • Termination
slide43

COSTING THE RISK

  • Investment returns
  • Taxation
  • Other factors
      • Financial costs
      • Reinsurance costs
      • Bonus Loading
slide44

PREMIUM RATE CALCULATIONS

  • RISK PREMIUM
      • Basic cost of death risk
  • LEVEL PREMIUM
      • Risk increases with passages of time
  • NET PREMIUM
      • Cost of mortality & interest
slide45

=

GROSS PREMIUM

PREMIUM RATE CALCULATIONS

Net premium

PLUS

Loading for expenses

PLUS

Loading for profit &

contingencies

satisfactory premium rate structure
SATISFACTORY PREMIUM RATE STRUCTURE
  • ADEQUATE
  • COMPETITIVE
  • EQUITABLE
  • CONSISTENT
  • PROFITABLE
adjustment to gross premiums in the ratebook
ADJUSTMENT TO GROSS PREMIUMS IN THE RATEBOOK
  • MODE OF PAYMENT
  • ADJUSTMENT OF SUM ASSURED
  • HEALTH & OCCUPATIONAL EXTRAS
  • FEMALE LIVES
numerical rating system

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
practice of life insurance monitoring the insurance fund

PRACTICE OF LIFE INSURANCE- MONITORING THE INSURANCE FUND

CHAPTER 26

AT & D- Center for Learning Excellence

the purpose of a valuation
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
valuation of liabilities
VALUATION OF LIABILITIES

LIABILITY =

The Present Value Of The Benefit Payable

Plus

The Present Value Of Expenses

Less

The Present Value Of The Future Premiums

Receivable

valuation of assets

E.g. of assets:

  • Cash
  • Investment
  • Shares
  • Loans
  • Properties
  • Furniture
  • Office Equipments
VALUATION OF ASSETS
surplus
SURPLUS

Sources of surplus include:

  • INTEREST
  • MORTALITY
  • EXPENSE
  • MISCELLANEOUS
methods of distribution surplus
METHODS OF DISTRIBUTION SURPLUS
  • Simple Reversionary Bonus
  • Compound Reversionary Bonus
  • Cash Bonus
  • Maturity Bonus or Terminal Bonus
  • Interim Bonus
  • Guaranteed Bonus
practice of life insurance policy documents

PRACTICE OF LIFE INSURANCE - POLICY DOCUMENTS

CHAPTER 27

AT & D- Center for Learning Excellence

sources of info for risk assessment
SOURCES OF INFO FOR RISK ASSESSMENT
  • PROPOSAL FORM
  • MEDICAL REPORT
  • ATTENDED PHYSICIAN’S STATEMENT
  • AGENT’S REPORT
  • PREVIOUS RECORDS
the proposal form
THE PROPOSAL FORM
  • Personal particulars
  • Details of insurance
  • Occupation, residence, travel & hazardous pursuits
  • Personal & family history
  • Declaration & authorization
the medical report special examinations
THE MEDICAL REPORT/SPECIAL EXAMINATIONS
  • Height & Weight
  • Pulse & blood pressure readings
  • Chest & abdomen measurements
  • Condition of the:
    • Heart
    • Lungs
    • Nervous system
    • Urine analysis
attending physician s statement
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
the agent s report
THE AGENT’S REPORT
  • Applicant’s habits
  • Appearance
  • Character
  • Financial status
the proposal form1
THE PROPOSAL FORM
  • Personal particulars
  • Details of insurance
  • Occupation, Residence, Travel & hazardous pursuits
  • Personal & Family history
  • Declaration & Authorization
policy form structure
POLICY FORM & STRUCTURE
  • THE HEADING
  • THE PREAMBLE
  • THE OPERATIVE CLAUSE
  • THE PROVISO
  • THE SCHEDULE
  • ATTESTATION
  • CONDITIONS & PRIVILEDGES
endorsements
ENDORSEMENTS
  • Endorsements can be done either at the:
      • Time of issue of the policy
      • After issue of the policy
endorsements time if issue of policy
ENDORSEMENTS- Time if issue of policy
  • Premium / Frequency of Payment
  • Sum Assured / Mode of Payment
  • Special Benefit
  • Special Restrictions
endorsements after policy issue
ENDORSEMENTS- After policy issue
  • Mode of payment
  • Alterations to the form of the contract
  • Imposition / Removal of extra premium
  • Surrender of bonus
practice of life insurance claims

PRACTICE OF LIFE INSURANCE- CLAIMS

CHAPTER 28

AT & D- Center for Learning Excellence

claim arise
CLAIM ARISE
  • On the death of the insured
  • On maturity of the insurance policy
  • Sickness or Disability benefit claims
  • Claims arising under supplementary contracts
death claims
DEATH CLAIMS
  • NOTIFICATION OF DEATH
      • Policy holder’s name & identity card number
      • Policy number
      • Address
      • Date & cause of death
death claims1
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
death claims2
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)
death claims3
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
maturity claims
MATURITY CLAIMS
  • NOTIFICATION TO POLICYHOLDER
      • Identity form
      • Survival form
      • Discharge form
maturity claims1
MATURITY CLAIMS
  • PROOF OF CLAIMS
      • Proof of age
      • Proof of survival
      • Completion of discharge voucher
      • The policy document
maturity claims2
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
life insurance some mathematics

LIFE INSURANCE :SOMEMATHEMATICS

CHAPTER 29

AT & D- Center for Learning Excellence

calculation
CALCULATION
  • AGE
  • PREMIUM
  • INTEREST
  • GUARANTEED SURRENDER VALUE
calculation1
CALCULATION
  • AGE
      • Last Birthday
      • Next Birthday
      • Nearest Birthday
calculation2
CALCULATION
  • PREMIUM
      • Age
      • Sex
      • State of Health
      • Type of policy
      • Sum assured
      • Policy term
      • Mode of payment
calculation3
CALCULATION
  • INTEREST
      • Outstanding Premium Charges
      • Policy Loan Repayment
calculation4
CALCULATION
  • GUARANTEED SURRENDER VALUE
      • Incorporate value table in the schedules
slide81

CHAPTER 30

PRACTICE OF INSURANCE

“ETHICS & CODE OF CONDUCT”

AT & D- Center for Learning Excellence

code of ethics
CODE OF ETHICS
  • Rebating
  • Twisting
  • Misrepresentation
  • Attitude towards competition
rebating
REBATING
  • 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
twisting
TWISTING
  • Persuading a policy holder to discontinue or lapse a present policy in order to buy a new policy
misrepresentation
MISREPRESENTATION
  • Constitute telling something that isNOT 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
attitude towards competition
ATTITUDE TOWARDS COMPETITION
  • Nothing is gained by castingdoubtupon 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
guidelines on the code of conduct
GUIDELINES ON THE CODE OF CONDUCT
  • 7 PRINCIPLES OF THE CODE OF ETHICS & CONDUCT
    • AVOIDconflict of interest
    • AVOIDmisuse of position
    • PREVENTmisuse of information
    • ENSUREcompleteness & accuracy
guidelines on the code of conduct1
GUIDELINES ON THE CODE OF CONDUCT
  • 7 PRINCIPLES OF THE CODE OF ETHICS & CONDUCT
    • ENSURE confidentiality of communication
    • ENSURE fair & equitable treatment
    • CONDUCTbusiness with utmost good faith & integrity