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CEILLI (Investment-linked Examination). 1. INTRODUCTION TO INVESTMENT-LINKED LIFE INSURANCE. 1. Chapter 1: Introduction to Investment-Linked Life Insurance. Policyholder. pay premium. Fund Managed By Insurer. Protection. Capital Gain. Protection. Investment. - PowerPoint PPT Presentation
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WEALTH MANAGEMENTR139G155B147
AIA confidential and proprietary information. Not for distribution.
AIA.COM
WEALTH MANAGEMENTR139G155B147
CEILLI(Investment-linked Examination)
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AIA confidential and proprietary information. Not for distribution. AIA confidential and proprietary information. Not for distribution. 2
1 INTRODUCTION TO INVESTMENT-LINKED LIFE INSURANCE
2
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WEALTH MANAGEMENTR139G155B147
3
Chapter 1: Introduction to Investment-Linked Life Insurance
PolicyholderPolicyholder
Fund ManagedFund ManagedBy InsurerBy Insurer
ProtectionProtection InvestmentInvestment
Pro
tect
ion
Capital G
ain
pay premium
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Special unitised fund
Investment Performance
Linked
Value fluctuates
Value of policy
Directly linked
UNITSUNITS
Chapter 1: Introduction to Investment-Linked Life Insurance
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Investment-Linked
Unit-Linked Variable Life
United Kingdom U.S.A.Malaysia
Refers to the same thing
Chapter 1: Introduction to Investment-Linked Life Insurance
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2 KEY CONSIDERATIONS IN INVESTMENT
6
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2.1 Investment Objectives
2.2 Funds Available
2.3 Risk or Security
2.4 Investment Horizon
2.5 Accessibility of Funds2.6 Taxation Treatment
2.7 Performance of the Investment
2.8 Diversification
Chapter 2 Key Considerations in Investment
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Why do people invest?
Retirement income
Education & up-bringing
Funds for dependents
Improve financial position
Comfortable standard of
living
Pay expenses & taxes upon
death
2.1 Investment Objectives
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What should I invest in?
Depends on what you want!
orRegular Income Flow
2.1 Investment Objectives
Capital Gains
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More free funds
Wider choice of investment
Level or Amount of Funds Available Fixed surplus
current income set aside
Certain types of investment e.g.
insurance policies or unit trusts
Source of Available Funds
2.2 Funds Available
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2.3 Risk or Security
1.Individual’s Need for Security
Investment Risk
Loss of Initial
Investment
Rate of Return is Not Up to Expectation
3 Considerations in Investment
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Risk Tolerance
Low Risk,Low Potential Return
2.3 Risk or Security
2. Attitude Towards Risk
3 Considerations in Investment
High Risk,High Potential Return
Risk Adverse Risk TakerRisk Neutral
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3. Type of Investment with Certain Inherent Risk
Risk
Capital and income growth
potential
Investments
Higher risk & uncertainty
Higher potential for
capital & income growth
2.3 Risk or Security
3 Considerations in Investment
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Match your investment horizon with the maturity of the investment asset
Investment Objectives
Investor’s Age
Current Financial Condition
ImportantImportant
2.4 Investment Horizon
How long are you willing to
lock into an investment?
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2.5 Accessibility of Funds
Earlywithdrawal
cost or penalty ? Initial cost in setting or buying the investment ?
Liquidity : short term
vs.long term investment ?
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Different types of investment
Different tax treatment
The tax statusof investment
linked life insurance is the
same as traditional with
profit life insurance
To be discussed in Chapter 10
2.6 Taxation Treatment
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Performance depends on
Competencies & capabilities
of management team
Invested company’s level of costsInvested company’s
past experience & history
Country’s economic factors
Life cycle of investment
2.7 Performance of the Investment
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2.8 Diversification
• Invest in different assets classes and across different market environments
• Spreading of risks
• Effective in reducing risk without sacrificing returns
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3.Shares at different countries
2.Different type of shares
Spreading of risks by :
1. Categories of investment e.g. shares, bonds, money market instruments
2.8 Diversification
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3 TYPES OF INVESTMENT ASSETS
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3.1 Cash and Deposit
3.2 Fixed Income Securities
3.3 Shares
3.4 Unit Trusts
3.5 Investment Trusts
3.6 Properties
3.7 Derivatives
3.8 Exchange Trade Funds
3.9 Sukuk Bonds
3.10 Capital Guaranteed Fund
Chapter 3: Types of Investment Assets
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• Refers to all liquid instruments
• Carry little or no risk of losing principal amount
• Cash
- Not an investment Capital value won’t increase
No additional income
generated
- Only a medium of exchange
3.1 Cash and Deposits
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The definition of cash covers:-
3.1 Cash and Deposits (continue)
Treasury Bills Bank Accounts
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Treasury Bills
Central BankGovernment
Institution
issued at discount rate
discharged at face value
No risk : guaranteed by Government (unless politically unstable) Short term : < 1 year
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Bank Accounts
Place fixed/time deposits
Bank
Pay fixed interests
Public
• Bad inflation hedge• Penalties on early withdrawal
• Low in yield
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Types of Account
Savings Accounts
Current Accounts
Fixed Deposits
Investment Accounts
Time Deposits
Offshore Accounts
Bank Accounts available (continue)
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choices of deposits
prevailing market condition
funds available for investment
how long fundcan remain
in the account
emergency withdrawal
Bank Accounts (continue)
Factors influencing ‘Choice of Deposits’:
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Companies or
government
Public
3.2 Fixed Income Securities
Invest principal by buying securitiesPublic lends money to company or government
Pays fixed periodic interest incomeAt maturity, repayment of principal
Can be bought and sold anytime before maturity
in secondary market
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Government Bonds
Money Market
Instruments
Corporate Bonds
Preference Shares
3.2 Fixed Income Securities (continue)
Types of Fixed
Income Securities
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Government Bonds
• Safest – little or no default or credit risk
• Government guarantees to pay interest and repay principal
• Fixed interest rate
• Issued when government needs money to finance projects
Advantages
• Easily marketable
• Income for future years guaranteed
Disadvantage
• In times of high inflation, capital can be eroded
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Maturity Period
Medium Term
5 to 10 years
Long Term
Above 15 years
Short Term
Below 5 years
Government Bonds (continue)
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Corporate Bonds
Advantages
• Higher return than govt. bonds
• More marketable
• Potential for capital gains
Disadvantage
• More risky
Debenture stocks
Loan stocks
Convertible Stocks
Bonds issued by companies
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Debenture Stocks
• Secured loans [Fixed charge on company’s property or assets
(stocks)]
• Fixed rate and term
• Trustee appoint Supervise interest & capital payment
If default, act for investors
Corporate Bonds (continue)
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• Company can repay earlier if wishes
• No government guarantee (riskier)
• Interest rate higher
How it differs from Government Bonds
Corporate Bonds (continue)
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Loan Stocks
• Unsecured loans• Fixed interest rate
and term• Risk losing capital• Less secure than
debenture stocks. Therefore, higher interest rate
Risk-Return
Government Bonds
Debenture Stocks
Loan Stocks
Risk
Return
Corporate Bonds (continue)
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Convertible Stocks
Can be converted to ordinary shares of a company on a fixed date
Become part owner and entitled to profits through
dividends declared
Corporate Bonds (continue)
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Corporate Bonds (continue)
• Factors affecting decision to convert: (i) Dividend income
(ii) Capital appreciation in share price
Whether are better than fixed interest given
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Corporate Bonds (continue)
Government Bonds
Debenture Stocks
Loan Stocks
Return
Risk-Return
Risk
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• Shareholder = part owner of a company
• Not liable for company’s debt
• Can attend Annual General Meeting (AGM) vote for major issues and
appointment of directors
3.3 Shares
• Share certificate = evidence of title
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Company
Private companyPublic Company
•Shares quoted on KLSE•Available to ordinary investors
•Not listed on stock exchange•Not available to ordinary investors
3.3 Shares (continue)
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Market’s view on compan
y
Currency performanc
e
Inflation rate
Country’s economy
Company’s earning
Interest rate levels
Share price influenced
by:
3.3 Shares (continue)
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Ordinary Share Preference Share
• May or may not receive dividends
• Right to a fixed dividend provided that enough profit has been made
• Dividend is fixed• Ranks ahead of
ordinary shareholders when company winds up
• Dividend rates fluctuates according to company’s profits
3.3 Shares (continue)
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3.4 Unit Trusts
• Purchase in units
• Buy at Offer Price (selling price)
• Sell back at Bid Price
(buying price)
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3.4 Unit Trusts (continue)
• Funds managed by professional fund managers in well diversified range
• Unit trust are authorized & supervised by the Securities Commission
• Value of units based on performance of investment
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• Open-ended fund
• No fixed redemption date
• Fund manager can create units if required, and cancel units if encashment exceeds new purchases
3.4 Unit Trusts (continue)
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• If too many investors cash-in, may have to sell fund’s assets
• All unit trusts are required to state investment objectives in prospectus
• Medium to long term investment (> 3 years)
3.4 Unit Trusts (continue)
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Advantages
• Spread of investments
• Lower risk compared to shares
• Professional service from fund managers
• Minimises paperwork of investors
• Income from dividend can be reinvested
Disadvantages
• Bewildering array of funds
• Extra costs for switching
3.4 Unit Trusts (continue)
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“Three Way Arrangement”
Investors
TrustDeed
FundManager Trustee
Invest capital
Select & Manage fund
Hold pool of money in trust on behalf investors
3.4 Unit Trusts (continue)
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Trust deed sets out:
• Fund manager’s investment powers
• Price structure
• Registration of unit-holders
• Remuneration of fund managers
• Accounting and auditing rules
3.4 Unit Trusts (continue)
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Investment Trustcompany
Investment fund
managed by specialist fund
manager
Shares value fluctuate according to whether loss or profit made from the investment fund
3.5 Investment Trusts
sharesInvestor
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Purchasing shares in company
Purchase units in trust, not shares in company
Closed-end funds Open-ended fund
No asset disposals if large numbers of investors cash-in
Disposes assets when large numbers of investors cash-in
Investment Trust Unit Trust
Registered Under Companies’ Act
Formed by Trust Deed
3.5 Investment Trusts (continue)
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AdvantageFlexible –
investors can borrow to finance
purchases of investment trusts
DisadvantageGreater risk
exposures due to price volatility
Higher risk/reward profile than unit trusts
3.5 Investment Trusts (continue)
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3.6 Properties
3 types
Price depends on:
• Quality of land – profitability of crops
• Location of land
• Value of buildings on land
Agricultural Property
Commercial/ Industrial Property
Domestic Property
Price depends on location and types of buildings on the land
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Advantages
• Good capital appreciation
• Steady flow of income
• Low risk
Disadvantages
• Difficult to be disposed off during recession
• By mortgaging, capital can be free
3.6 Properties (continue)
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3.7 Derivatives
What are derivatives?
Two popular
derivatives are stock options and financial futures
Financial instruments whose values are linked to
the price of underlying instruments in the
cash markets
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3.7 Derivatives (continue)
Stock Options Financial Futures
Options Warrants Futures
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Options
• Duration usually 3, 6 or 9 months
• To purchase or sell security within a specified time period
• A right, not an obligation
• At a fixed price
Call(A right to buy)
Put(A right to sell)
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Options (continue)
Call options are bought in hope of price increase. Sellers want reverse to happen
Put options are bought in anticipating a decline in price. Sellers want reverse to happen
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Call Option
Share Price = RM10,000 per lot
Price of Call Option = RM200 (expires after 6 months)
January: Share Price = RM10,000 per lot
February: Share Price = RM11,000 per lot
Gain = RM1,000 - RM200 = RM800
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Put Option
Share Price = RM10,000 per lot
Price of Put Option = RM300 (expires after 6 months)
January: Share Price = RM10,000 per lot
February: Share Price = RM9,000 per lot
Gain = RM1,000 - RM300 = RM700
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• Transferable Subscription Rights (TSR)
• Holder has right to subscribe shares in the company
• At pre-determined ratio (conversion ratio)
• At pre-determined subscription price (exercise price)
• Within a specified time period (fixed at beginning)
• Corporate-created option
Warrants
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Warrants (continue)
Corporationissues warrants Investors
• Similar to call option
• Option to purchase,within a specified time,
a stated number of shares at a specified
price
• Attach free with loan stock or rights
• Often issue free
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Advantages
• Small initial outlay – buy warrant, pay exercise price later, and convert warrant to the underlying share
• Capital gains from sale of warrants
Disadvantages
• On expiry, warrants not exercised lose value completely – no chance for price recovery
• No interests or dividends
• Carry no voting rights
Warrants (continue)
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Futures
Physical commodities & financial
instruments
Future markets
Traded in cash market
Cannot be cancelled
unless both parties agree
Forward markets
Price of an item for deferred
delivery
Current market price of item available for immediate delivery
Spot markets
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Future markets
Futures exchange determines:
• Contract size• Delivery date• Conditions
Trader determines:
• Price• Number of
contracts
Set price today for an instrument that will be delivered on a specified future date
Obligation, not an option
E.g. Stock index
futures
Futures (continue)
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Stock index futures• Based on a particulars share price index
• Settlement Made in cash without the actual delivery of the
securities covered by the index
• Profit Derived from price difference of original
contract value and value at time of settlement
Futures (continue)
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Advantages
• Enable investors to protect their investments (hedging)
• Shifts risk of price fluctuations to those who are willing
• Price discovery – futures price reflects current expectations
• Speculative trading – potential large gains
• High risk – may face huge losses if wrongly speculated
Disadvantages
Must have clear understanding of
hedging
Futures (continue)
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3.8 Exchange Trade Funds
• Also known as Exchange-trade product (ETP)
• Traded in Stock exchanges
• Underlying asset ie stocks, bonds and trades
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3.8 Exchange Trade Funds
• Attractive as an investments instrument : Low costs
Tax efficiency
Stock like features
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3.8 Exchange Trade Funds
• Traditionally an index funds
• An actively managed fund since 2008
• ETFs - USA since 1993 - Europe since 1999
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• Index ETFs• Commodity ETFs or ETCs• Bond ETFs• Currency ETFs or ETCs• Actively managed ETFs• Exchange-traded grantor trusts• Leveraged ETFs
Types of ETFs
3.8 Exchange Trade Funds
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3.9 SUKUK BONDS
- An Arabic name equivalent of Bonds
- Structured to comply with Islamic Law and its investment principles
- Over $ 1.2 Trillion of asset are managed according to the Islamic Investment Principles
- Not a Bond because it isn’t based on debt
- Regards as commercial paper that give ownership to investor
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3.9 SUKUK BONDS
Characteristics of Sukuk :
1. Pooled of funds2. Based on hard assets that generate steady income and expectations3. Maybe guaranteed or not by their originators4. Investors received a fee equal to the income5. Issued by Special Purpose Vehicles (SPV)6. Sukuk issued in dollars7. Different from conventional bonds as its based on tangible asset that debt8. 14 types of Sukuk – Sukuk Al Ijara and Sukuk Al Mucharaka
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3.10 Capital Guaranteed Fund
Definition
- Guaranteed the investor’s capital investment from losses
- Didn’t redeem investment before maturity date
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3.10 Capital Guaranteed Fund
Features
- High asset allocation – 80% to 90% of total fund size
- Benchmark against Fixed Deposit
- Investment Horizon 3 to 5 years
- Offered during an offer period. Once closed, no new investors
- Normal unit – RM 1
- Higher initial investment then Unit Trust. Minimum RM 5,000
- Lower Front end. Service charge id 1.5%
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3.10 Capital Guaranteed Fund
Features (Con’t)
- Redemption fee before maturity ranging from 03% to 1.5%
- Guaranteed capital preservation
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4 INVESTMENT-LINKED LIFE INSURANCE PRODUCT: WORLD SCENARIO
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Chapter 4: Investment-Linked Life Insurance Product - A World Scenario
4.1 In United Kingdom
4.2 In USA
4.3 In Singapore
4.4 In Malaysia
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4.1 In United Kingdom
1957• First investment-linked life
insurance contract in UK
• Individual retirement annuity for self-employed
• By London & Manchester Assurance Company Limited
• Linked to an external unit trust
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4.1 In United Kingdom (continue)
Investment-linked life insurance business has been transacted for more than 30 years
Allow the policyowner total flexibility to alter his needs for investment and protection in accordance to his wishes
In 1986 approximately 130 companies were writing investment-linked life insurance business
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4.2 In the United States of America
More commonly called ‘Variable Life Insurance’ in USA
Offered for sale to the general public in the US in 1976
Only after the product had been successfully marketed in the Netherlands, United Kingdom and Canada
Very much affected by regulations
• State insurance laws and regulations
• Federal Securities laws (Securities & Exchange Commission)
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4.3 In Singapore
The first single premium investment-linked policy introduced in Singapore was in 1973
Enhanced Investment Scheme (EIS) was introduced by the Central Provident Fund (CPF) in 1993
This contributed to the expansion of the life insurance industry, including investment-linked life insurance business
Allowed CPF members to invest 80% of the excess of S$50,000 in their ordinary account in eligible investment instruments
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4.4 In Malaysia
Investment-linked life insurance products are very new in Malaysia
Syarikat Takaful Malaysia Sdn Bhd (now Syarikat
Takaful Malaysia Bhd) was first to sell a simplified product to the public in August 1985
In July 1997, Berjaya Prudential Assurance Bhd became the first traditional insurance company to launch the investment-linked life insurance product
Then onwards Mayban Life Assurance Bhd was given approval in February 1998, followed by Malaysian Assurance Allied Bhd
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Single Premium/ Top-up
Life Office
Units which belong to policyowner
Unallocated premium
(To meet marketing and set-up expenses)
Allocated premium used to buy units from investment-linked funds at offer price
Surrender claim
Withdrawals
Death claim
(Pay value of units)
(Pay value of units withdrawn)
(Pay value of units and/ or sum assured)
OrTop-up
Cancel unit (To pay mortality charge & policy fee)
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5 TYPES OF INVESTMENT-LINKED LIFE INSURANCE PRODUCTS
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Chapter 5: Types of Investment-Linked Life Insurance Products
5.2 Comparing Investment-Linked and Traditional With-Profit Life Insurance
5.3 Definitions
5.4 Characteristics of Investment-Linked Life Insurance Policies
5.1 How do Investment-Linked Life Insurance Policies Work?
5.5 Types of Investment-Linked Life Insurance Policies5.6 Loans and Withdrawals
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• Operate on similar principle as Unit Trusts
• Returns not guaranteed
• Linked to performance of investment fund
• Unit price depends on net asset value of the fund
• Value fluctuates as market prices rise and fall – lacks smoothing process
5.1 How do Investment-Linked Life Insurance Policies Work?
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Investment Used to purchase
units in fund managed by life
office
Mortality Protection
PREMIUMS
5.1 How do Investment-Linked Life Insurance Policies Work? (cont)
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Single premium/Top-Up
Life office
marketing &set-up expenses
Policyowner’s units
Surrender
Withdrawals
Death ClaimCancel unitsMortality charge& policy fee
5.1 How do Investment-Linked Life Insurance Policies Work? (cont)
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Policy charges and investment content are more identifiable
Potential for higher returnsbut higher risk (equity funds)
Traditional With-Profit Life Insurance
Investment-linked
Produce steady return by smoothing out short term market fluctuationCharges not specifically detailed in the policy
5.2 The Fundamental Differences
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Traditional With-Profit Life Insurance
Investment-linked
Offers more choice of investment funds
Choice of Investment is Insurer’s discretion
Benefit & risks immediately passedto policyowner
5.2 The Fundamental Differences
Most of risk passedto insurer
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Traditional With-Profit Life InsuranceInvestment-linked
Investment element is made known to policyowner at outset
Investment element is NOT made knownto policyowner at outset
Value of policy fluctuate depends on value of units held
Never reduce in value provided life office is solvent
5.2 The Fundamental Differences
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Charges levied on investment-linked life insurance policies:- Policy fees- Annual fund management fee- Bid-offer spread- Reduction in allocation of units - Unallocated
premiums- Initial units- Mortality charges- Surrender charges
5.3 Definitions
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Policy Fee
• Administrative expenses of setting up the policy
Annual Fund Management Fee
• Investment management charges.
• Deduction of between 0.5% to 2% per year from fund accumulated
5.3 Definitions (continue)
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Offer Price
• Selling price of units by the life office
Bid Price
• Price at which the units are cashed when the policy matures, or surrendered, or used to pay charges
• Bid price is always lower than offer price at the published date
5.3 Definitions (continue)
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Bid-Offer Spread
Bid-Offer Spread
Initial charge 5% to 6% on every premium made to cover expenses in
setting up the policy
Offer price Bid PriceMinus (-)
5.3 Definitions (continue)
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Reduction in Allocation of Units – Unallocated Premiums
• Not all of a policyowner’s premium is allocated to buying investment units
• Unallocated premium used to meet marketing and setting-up expenses of the policy
• Some insurers make nil allocation to units until expenses recouped
5.3 Definitions (continue)
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Initial Units
• All of a policyowner’s premium allocated to buy investment units
• Units allocated in early years known as “initial units” – have higher annual management charges, e.g. 6% p.a., throughout term of the policy contract
• Bears heavy discontinuance charges
• Cash value much lower than face value for years
• Less common nowadays
5.3 Definitions (continue)
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Mortality Charges
• Dependent on age
• Covers mortality cost of the policy
• Can be a recurrent charge (e.g. monthly) – funded by cancellation of units on a regular basis
• Allows policyowner to vary sum assured over time
5.3 Definitions (continue)
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Surrender Charges
• Charge deducted from value of units at surrender
• Represents initial expenses incurred but yet to be recovered
5.3 Definitions (continue)
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5.4 Characteristics of Investment-Linked Life Insurance Policies
Can have larger exposure to
equity
Investment
Protection• Life cover• TPD• PA benefit• Health
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Investment performance of
underlying assets
Prices of the units
Reflects
Protection benefits
Cash value
AffectsAffects
5.4 Characteristics of Investment-Linked Life Insurance Policies
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• Protection costs are explicit
Met by cancellation of units
For single premium plan, met by flat initial charge
• Commission and office expenses are met explicitly
May vary, but must give 6 months notice prior to change
5.4 Characteristics of Investment-Linked Life Insurance Policies
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Cash Value
Value of units allocated to policyowner, calculated at bid price
5.4 Characteristics of Investment-Linked Life Insurance Policies
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5.5 Type of Investment-linked Life Insurance Policies
1. Single Premium investment-Linked Whole Life Insurance Plan
2. Regular Premium Investment-linked Whole Life Plan
4. Investment-linked Permanent Health Insurance
5. Investment-linked Dread Diseases Insurance
3. Investment-Linked Individual Pension Plan
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Single Premium Investment-Linked Whole Life Insurance Plan
‘One-off’ premium contribution
Protection is 125% of total single premium paid, subject to a minimum of RM5,000
Minimum premium is RM3,000
Emphasize on long-term savings and investment – offers only nominal life protection
5.5 Type of Investment-linked Life Insurance Policies (continue)
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Top up or single premium injection is allowed
Policy fees
Other admin
charges
Mortalitycharges
Admin and
insurance charges
Investmentmanagementfee (0.5% to
2% p.a)
Single Premium Investment-Linked Life Insurance Plan
5.5 Type of Investment-linked Life Insurance Policies (continue)
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Features
• Premium holidays
• Top-ups
• Withdrawals
• Surrenders
Regular Premium Investment-Linked Whole Life Insurance Plan
Regular Premiums
• Monthly
• Quarterly
• Annually
Purpose
• Life protection (main)
• Investment
Regular Premiums
Purpose
5.5 Type of Investment-linked Life Insurance Policies (continue)
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Investment-Linked Individual Pension Plan
High allocation of premium to investments
Accumulate fund to retirement
Upon retirement Use fund to
purchase annuity
Basic Plan • Conventionally, no life cover other than return of investment funds on death
• Cancelling investments to fund life cover
• Conversion to traditional with-profit life
New Feature
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Investment-Linked Permanent Health Insurance
• Provides health coverage such as disability income
• Contains cash value- Traditional health products don’t have cash value
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Investment-Linked Dread Disease Insurance
Advances whole of face amount upon diagnosis with dread diseases such as heart attack, stroke, coronary artery by pass, end stage renal failure or total permanent disablement
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Loans may be limited to some percentage of the
cash value
5.6 Loans and withdrawals
Partial surrender and withdrawal
can be met by cashing the sufficient units at
the bid price
Reason:Cash value fluctuates on a daily
basis
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5.7 Risk Base Capital Guidelines
Implementation of Risk Based Capital Framework for Insurers
- Came into effect 1st Jan 2009
- better align regulatory capital requirement
- Improve transparency of prudential buffers
- allow greater flexibility for insurers to operate at different risk level
- Are more granular and risk sensitive
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5.7 Risk Base Capital Guidelines
Example :
- Insurers with asset portfolios on high risk assets are required to hold more capital
- Insurers with high risk profiles will have higher Capital Adequacy Ratios (CAR)
- Investment strategies are rebalanced to response to prevailing market conditions
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5.7 Risk Base Capital Guidelines
- RBC expected to raise the overall level of resilience
- Improvement of quality and depth of statutory
- Have strong capital adequacy, liquidity positions and risk management practices
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5.7 Risk Base Capital Guidelines
Investment of Insurance Funds
Investment Strategy:
- Investment Objectives, both at Company and fund specific Level
- Risk and Liability of Insurer
- Strategic asset allocation i.e long term asset mix main investment categories
- Extent holding of certain types of assets is restricted or disallowed
- overall policy of usage of derivatives and structured products
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5.7 Risk Base Capital Guidelines
Requirement of Insurers :
- Established adequate internal controls of management of approved asset
- Put in place rigorous audit procedures
- Install effective monitoring and managing asset and liability
- Put in place suitable plans to mitigate effect arising from deteriorating market conditions
- Undertake regular stress testing
- Ensure key staffs are Skills, Experience, Expertise and integrity
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Conclusion
Popularity of Investment-Linked Life Insurance Policies will continue because:
4) performance of the funds can be monitored
in daily newspapers
1) Its contracts are easier to understand2) the charges are more transparent3) It is much more flexible
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6 STRUCTURE OF INVESTMENT-LINKED FUNDS
119
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Chapter 6: Structure of Investment-Linked Funds
6.1 Accumulation Units & Distribution Units
6.2 Types of Investment-linked Funds
6.3 Risk-return Profile
6.4 Fund Switching
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6.1 Accumulation and Distribution Units
- 2 ways to structure investment-linked funds
Unit price unchanged
Distribution
Fund Investment
Capital
Income
Purchase more units
Accumulation
Fund Investment
Capital
Income
In long term
Unit price
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6.2 Types of Investment-Linked Funds
Types of Funds
Cash Funds
Equity Funds
Bond Funds
Property Funds
Specialised Funds
Balanced Funds
Managed Funds
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Equity Funds• Invest in stock, shares• Higher risk – equity prices volatile
• Aim for capital appreciation• Magnitude of change of unit price
depends on quality of equities held
Cash Funds• Invest in cash and bank deposits
• Safe, low risk
6.2 Types of Investment-Linked Funds (continue)
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Bond Funds (IOUs)• Fixed income instruments (government/
corporate bonds)• Income-producing
Property Funds
• Invest in properties e.g. real estate and property shares
• Safer than equity, but have lower liquidity• Provision allows fund manager to defer
redemption of units up to 12 months
6.2 Types of Investment-Linked Funds (continue)
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Specialised Funds
• ASEAN• Emerging Markets• International Bond
Geographical Region
• China Fund• US Fund
Particular Country
• Commodities• Mining• Plantation• Public utilities
Industry Specialised
Offers exposure to different markets, regions and currencies
6.2 Types of Investment-Linked Funds (continue)
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Managed Funds
• Invest in wide variety of assets
• Asset allocation depends on fund manager’s view
Balanced Funds
• Invest in fixed proportion of specified assets
e.g
70% 30%
Equity Fixed Securities
6.2 Types of Investment-Linked Funds (continue)
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6.3 Risk-Return Profile
Risk
Return
Cash Funds Bond Funds
Balanced Funds
Managed Funds
Equity FundsHigher return, higher risk
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6.4 Switching
Fund A Fund B
Free for limited no. of switches within a
given period, subsequently
charges imposed
Free
Switching part or all investment from one fund to another
Useful for financial planning
Specific charge for each and every switch
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7 HOW INVESTMENT-LINKED INSURANCE PRODUCTS WORK
129
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•Create new units•Add investment
monies to the
fund
Unit Price
No. of Units
• Lump sum (Single premium) • Regular payment (Regular premium)
7: How Investment-linked Insurance products Work
Premium
Value Value of the of the policypolicy
At any time, policyowner may choose to
• Top up – to purchase additional units (subject to minimum amount)
• Withdrawal – sell some units
• Surrender – sell all the units
determined bydetermined by
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7: How Investment-linked Insurance products Work
• Single Pricing• One quoted price• Policyowner buy or sell
units at the same quoted price
• Dual Pricing• Offer Price• policyowner buys units• Bid Price• Policyowner sell units
131
• Bid price is always lower than offer price.• Bid-offer spread – the difference in the bid and offer price
(explained in chapter 5)
• Charges normally deducted are• Policy fee • Administrative charge• Mortality charge
Methods of Calculating Benefits
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Number of Units purchased
= Premium – Charges imposed Unit Price
Cash Value = (Number of Units x Unit Price) – (Mortality
charges + Policy Fee)
Annual Yield On Gross Premium
= (RGP)1/n - 1; n = No. of Years
Return on Gross Premium (RGP)
= Ending Value of Investment Beginning Value of Investment
Single Pricing Method
7: How Investment-linked Insurance products Work
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Sample Calculations: Single Pricing Method
Premium = RM 4,000
Unit Price = RM 1
Charges = 5% (from total premium)
Mortality Charge = 1% (of fund value)
Policy Fee = RM100
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= RM 4,000 - (RM4,000 x 5%)
RM 1
= RM 4,000 – RM 200
RM 1
= RM 3, 800
RM 1
= 3,800 units
Sample Calculations: Single Pricing Method
Number of Units purchased
= Premium – Charges imposed Unit Price
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= (3,800units x RM1) – [(3800 x RM 1) 1%+RM100]
= RM 3,800 - (RM 38 + RM 100)
= RM 3,800 - RM 138
= RM 3,662
Sample Calculations: Single Pricing Method
Cash Value = (Number of Units x Unit Price) –
(Mortality charges + Policy Fee)
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Annual Yield On Gross Premium Suppose Unit Price after 10 Years = RM 1.97
Sample Calculations: Single Pricing Method
Annual Yield On Gross Premium
= (RGP)1/n - 1; n = No. of Years
Return on Gross Premium (RGP)
= Ending Value of Investment Beginning Value of Investment
End Value of Investment
= (Number of Units x Unit Price) – (Mortality charges + Policy Fee)
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= (3,800 units x RM1.97) – [(3800 x RM1.97) 1% + RM100)]= RM 7,486 - (RM 74.86 + RM 100)= RM 7311.14
Sample Calculations: Single Pricing Method
End Value of Investment
= (Number of Units x Unit Price) – (Mortality charges + Policy Fee)
Return on Gross Premium (RGP)
= Ending Value of Investment Beginning Value of Investment
= RM 7311.14 = 1.828 RM4000
The annual yield = (1.828)1/10 -1 = 1.062 - 1 = 0.062 or 6.2%
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Number of Units purchased
= Premium Offer Price
Cash Value = (Number of Units x Bid Price) – (Mortality
charges + Policy Fee)
Annual Yield On Gross Premium
= (RGP)1/n - 1; n = No. of Years
Return on Gross Premium (RGP)
= Ending Value of Investment Beginning Value of Investment
Dual Pricing Method
7: How Investment-linked Insurance products Work
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Sample Calculations: Dual Pricing Method
Premium = RM 4,000
Offer Price = RM 1
Bid-Offer Spread = 5% (from total premium)
Mortality Charge = 1% (of fund value)
Policy Fee = RM100
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= RM 4,000 RM 1
= 4,000 units
Number of Units purchased
= Premium Offer Price
Cashed in or Claim
= No. of Unit Bid Price
Bid Price = RM 1 x 95% (bid offer spread = 5%) = RM 0.95
Claim amount = RM 3,800 (4,000 units x RM0.95)
If unit price increased to RM 1.20, bid price = RM 1.14 (RM 1.20x95%)Claim amount = RM 4,560 (4,000 units x RM1.14)
Sample Calculations: Dual Pricing Method
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= (4,000 units x RM0.95) – [(4000 x RM0.95) 1% + RM100]
= RM 3,800 - (RM 38 + RM 100)
= RM 3,800 - RM 138
= RM 3,662
Cash Value = (Number of Units x Bid Price) – (Mortality
charges + Policy Fee)
Sample Calculations: Dual Pricing Method
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Suppose Offer Price after 10 Years = RM 1.97
Bid Price = RM 1.97 x 95% = RM 1.8715
Annual Yield On Gross Premium
= (RGP)1/n - 1; n = No. of Years
Return on Gross Premium (RGP)
= Ending Value of Investment Beginning Value of Investment
Sample Calculations: Dual Pricing Method
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= (4000 units x RM1.8715) – [(4000 x RM 1.8715) 1% + RM100]
= RM 7,486 - (RM 74.86 + RM 100)
= RM 7,486 - RM 174.86
= RM 7311.14
End value of investment
= (Number of Units x Bid Price) – (Mortality charges + Policy Fee)
Beginning value of investment = RM 4,000 (4,000 units x RM 1)
= RM 7,311.14 RM 4,000= RM 1.828
Return on Gross Premium (RGP)
= Ending Value of Investment Beginning Value of Investment
Annual Yield = (RM 1.828) 1/10 -1= 1.062 – 1= 0.062 or 6.2%
Sample Calculations: Dual Pricing Method
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Withdrawal Option
No. of UnitsMoney receive = No. of units x
Unit/ Bid Price
Fixed MonetaryUnits Cancel = Fixed Monetary
Unit/ Bid Price
Eg: •No. of Unit = 500•Unit/ Bid Price= RM 2Money receive = 500 units x RM 2= RM 1,000
Eg: Fixed Monetary = RM 3,000Unit/ Bid Price = RM 2Units cancel = RM 3,000
RM 2 = 1,500 units
7: How Investment-linked Insurance products Work
Withdrawal Benefits
*Surrender value calculation is similar to withdrawal
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2 types of Death Benefit
Unit Value + Sum AssuredUnit Value or Sum Assured
(Whichever is higher)
7: How Investment-linked Insurance products Work
Death Benefits
Death Cover / Sum Assured
Value of Unit
Death Benefit
Years
RM
Value of Units
Death Cover / Sum Assured
Years
RM
Time t
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Single Pricing Death Benefits = (No. of Units x Unit Price) + Sum Assured
E.g: Suppose Sum assured = RM 5,000; Unit price = RM 1.22 at the time of deathDeath Benefits = 3,800 unit x RM 1.22 + RM 5,000
= RM 9,636
7: How Investment-linked Insurance products Work
Death Benefits Unit Value + Sum Assured
Dual Pricing = (No. of Units x Bid Price) + Sum Assured
E.g: Suppose Sum assured = RM 5,000; Offer price = RM 1.22 at the time of deathBid price = RM 1.159 (RM 1.22 x 95%) Death Benefits = 3,800 unit x RM 1.159 + RM 5,000
= RM 9,636
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Single Pricing Death Benefits = (No. of Units x Unit Price)
Dual Pricing = (No. of Units x Bid Price)
Death Benefits for both calculation = RM 4,636
Death Benefits payable will be RM 5,000 (Death Cover / Sum Assured)
7: How Investment-linked Insurance products Work
Death Benefits Unit Value or Sum Assured, (Whichever is higher)
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7: How Investment-linked Insurance products Work
Regular Premium Policies
Policyowner:•Are required to pay premiums regularly but enjoy the flexibility of:
• Being able to vary the level of premium• Doing single top up• Taking premium holidays
•May surrender all or part of his unit •May vary the sum assured without changing his premium•May also increase or reduce his regular premium
*Note: Check out more scenarios from The MII text book
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8 BENEFITS AND RISKS OF INVESTING IN INVESTMENT-LINKED FUNDS
149
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8: Benefits and Risks of Investing In Investments-Linked Funds
Investment-linked Insurance Plan
Protection Investment
Premium to be allocated to
protection or investment
to invest in the funds that you choose
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8: Benefits and Risks of Investing In Investments-Linked Funds
Policyowner can access to a pooled or diversified portfolio of investment.
Policyowner can easily change the level of his premium payment.
The funds are managed by professional fund managers in accordance with the investment objectives.
Policyowner can get access to a well diversified investment-linked funds.
Policyowner is relieved of the day-to-day administration of his investment, just has to keep track through the unit statement provided regularly.
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8: Benefits and Risks of Investing In Investments-Linked Funds
• Cash and maturity values will rise and fall based on the fund invested
• With equity fund, policyowner may expect to achieve higher return than traditional product over long term
• The administrative fee, insurance charge, fund management fee etc are usually not guaranteed
• They are subject to regular review and can be changed by insurance company
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9 COMPARISON BETWEEN INVESTMENT-LINKED LIFE INSURANCE AND TRADITIONAL WITH PROFIT LIFE INSURANCE PRODUCTS
153
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Comparison Criteria
Investment Returns and Risks
Premium Computation
Surrender Value
Death Benefit Option to Top-up
9: Comparison between Investment-linked and Traditional with Profit Life Insurance Products
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9: Comparison between Investment-linked and Traditional with Profit Life Insurance Products
Traditional Guaranteed without Profit Products
Traditional with-profit Products
Investment-linked Products
• Guaranteed a fixed rate of return
• E.g: Term Insurance, non participating insurance
• Similar to without profit insurance but ‘profit’ are added to the sum assured
• E.g: whole life, endowment insurance
• Wholly or partly determined by reference to the value of invested property/ index
Introduction
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9: Comparison between Investment-linked and Traditional with Profit Life Insurance Products
Traditional Guaranteed without Profit Products
Traditional with-profit Products
Investment-linked Products
• A fixed amount is made when the insured dies within the term or period of assurance
• The amount payable does not depend on the investment performance of the company
• No investment risks except he risk of insolvency of the company
• Bonuses can be allocated as an addition to the sum assured
• Bonus are not directly linked to the investment performance, it has been smoothened by the life office
• E.g: Cash bonus, reversionary bonus, terminal bonus
• Policy values vary according to the values of the underlying assets that the policy tied to.
• The investment returns and risk are directly transferred to the policyowners.
Investment Returns and Risks
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9: Comparison between Investment-linked and Traditional with Profit Life Insurance Products
Traditional Guaranteed without Profit Products
Traditional with-profit Products
Investment-linked Products
• Premium is determined and fixed at inception
• Life company may not alter the terms and conditions without the agreement of policyowner
• Sum assured driven
• Premium is determined and fixed at inception
• Life company may not alter the terms and conditions without the agreement of policyowner
• Sum assured driven
• Policyowner has the flexibility in changing their premium payments, top up or take premium holiday
• Life office may also retain certain right to alter charges, like monthly policy fees
• Account driven
Premium Computation
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9: Comparison between Investment-linked and Traditional with Profit Life Insurance Products
Traditional Guaranteed without Profit Products
Traditional with-profit Products
Investment-linked Products
• Death benefit (sum assured) is determined at inception
• Life company may not alter the terms and conditions without the agreement of policyowner
• Death benefits is fixed sum assured plus accumulated bonuses less any outstanding policy loans and automatic premium loans (inclusive of interest)
• Maturity benefits is fixed sum assured plus bonuses accumulated less any outstanding policy loans and automatic premium loans (inclusive of interest)
• Single Premium plans
• Minimum sum assured or value of units at bid price, whichever higher
• Minimum sum assured plus value of units
• Regular Premium Plans
• Sum assured or value of units at bid price
• Sum assured plus value of units at bid price
Death Benefits
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9: Comparison between Investment-linked and Traditional with Profit Life Insurance Products
Traditional Guaranteed without Profit Products
Traditional with-profit Products
Investment-linked Products
• No surrender value except plan with terms more than 20 years
• Cash surrender value includes surrender value reversionary bonus
• Usually higher than the without profit policy
• Surrender value is market price x unit / bid price
• Depends on policies
• Sum assured can be increased each year by a set percentage of the original sum assured
• Very few with profit policies allow the option to top up
• Similar to the without profit policies
• Allow policyowner to buy additional number of units without taking out a new policy
Surrender Value & Option to Top up
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10 TAXATION AND LAW COVERING INVESTMENT-LINKED LIFE INSURANCE PRODUCTS
160
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Taxation are treated same manner as other Insurance policies
Companies Act 1965
Contract Act 1950
Insurance Act 1996
CommonLaw
10: Taxation And Law Covering Investment-Linked Life Insurance Products
•Investment-linked business governed by
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The premium is allowable for tax relief whenthe life Insurance or deferred annuity is:
a. on the individual’s lifeb. on the life of the spouse of the individualc. on the joint lives of the individual and his/her spouse
10: Taxation And Law Covering Investment-Linked Life Insurance Products
Income Tax Act 1967
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+All life insurance premiums
All life insurance premiums
Approved Fund (e.g. EPF)
Approved Fund (e.g. EPF)
Education and medical insurance premium
Education and medical insurance premium
Total Relief Allowable RM6000 per year
Additional Tax ReliefRM3000
From 1996 budget
10: Taxation And Law Covering Investment-Linked Life Insurance Products
* No longer subject to 7% limit
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Insurance companies
Taxed at 8% of chargeable income and realized capital gain of a life
fund
10: Taxation And Law Covering Investment-Linked Life Insurance Products
Proceeds distributed to policyowners are tax-free
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The main purposes of regulation included:-I) The protection of public interest
II) The promotion of fairness and equity
III) The fostering of competence
IV) The playing a developmental role
Insurance act, 1996 & regulations
Ensuring the insurer is financially solvent and able to meet its obligations
Ensuring that the insurers, insurance brokers adjusters are fair and equitable in their dealings with clients and claimants
By insisting a high level of professionalism competence and integrity
To in the take an active part economy development of the country
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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Investment-Linked Insurance Business
Section 7(2)(b) defines as
Effecting and carrying out of a contract of insurance on human life or annuity where the benefits are, wholly or partly, to be determined by reference to the value of, or the income from, property of any description or by reference to fluctuations in, or in an index of, the value of property of any description
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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Insurance Act 1996 Section 7(1)(b)
To carry out the investment-linked life insurance business:
1)Prior written approval by Bank Negara Malaysia
2)Detailed business plan to be submitted to BNM
Insurers are also required to maintain separate funds in respect each inv link funds
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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Investment Limits
BNM Circular JPI:1/1997
Specification of Assets for the purpose of a Licensed Insurer Margin of
Solvency which specifies that Investment-linked funds :
•are not applicable to licensed insurer’s margin of solvency
•could be invested 100% in equity
•are subject to the general restrictions to reduce the risk exposure to any
once company
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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Investment in securities in any one investee should not exceed:•5% paid up capital of the investee Company•5% of the total value of the assets of the fund
whichever is lower
Investment Limits – general restriction
Investment in loans or debentures to anyone borrower or group of borrowers should not exceed 5% of the total value of the assets of the fund
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At least 18 years old
Policyowner may cancel the policy and get premium refunded within 15 days after delivery of policy
Age limit of Policyowner
Free Look provision
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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RM5,000 or 125% of single premium, whichever is higher
At least RM3,000 payment
Minimum Death Benefits & Premium Payment for Single Premium
Minimum Death Benefits
Minimum Premium Payment
• Basic qualification: CEILLI exam• Specifically trained & equipped with the
product knowledge
Intermediation
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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Disclosure of Information
Sales Materials/Illustrations must contain
1) General description of the investment policy and objective of the fund and the manner investment income distributed
2) Policy benefit based on the performance the funds and factors affecting the policy Benefits
3) Investment risks solely borne by policyowner must clearly informed
4) Max amount of initial charge, management
fee, mortality cost and any other charges must be stated
10: Taxation And Law Covering Investment-Linked Life Insurance Products
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Disclosure of Information (Continued)
5) The basis of computation for benefits, bid and offer price, units allocation and unit cancellation
6) The basis and frequency of valuation of underlying assets
7) All guarantees and non guarantees facts and benefits
8) Statement of fund performance for past 5 years
9) Clear worded warning that policy value may rise or fall, results shown for illustration, fund performance is not guaranteed
10)Any information Bank Negara deemed necessary
Disclosure of Information
Sales Materials/Illustrations must contain
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• Statement to policy owners• Fund performance report to policyowners
Refer to the book
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11 IDENTIFYING AND SATISFYING CUSTOMERS’ NEEDS
175
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11: Identifying And Satisfying Customers’ Needs
a) Establishing Relationship with the Client
b) Gathering all relevant Financial Data
c) Establishing current Financial Position and Goals
d) Developing plans and strategies to meet the goals
e) Discuss possible recommendations
f) Implementation of the agreed recommendation
g) Monitoring the portfolio
The process of providing advice involves 7 stages :
Structured approach is important for an effective advice
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Stage 1 Establishing Relationship with the Client- Convince client that he is able to assist the client to fulfil financial goals- Do a preliminary screening of client’s financial objectives and goals
11: Identifying And Satisfying Customers’ Needs
Stage 2 Gathering all relevant financial dataTo obtain all relevant information about the
•customer in order to do an analysis
•Customer’s Personal and Dependents details
•Life and Financial Priorities and Goals
•Risk Profile
•Net Worth Analysis
•Cash Flow Analysis
•Recommendations and Record of Advice
The process of providing advice
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Stage 3 Establishing Current Financial Position and Goals- After gathering all relevant data, agents to analyse and establish client’s
financial position and also future goals- This will allow agents to come up with a blue print for a recommendation
11: Identifying And Satisfying Customers’ Needs
The process of providing advice
Stage 4 Developing Plans and Strategies to meet the Goals
Adequate Insurance Coverage for Liability cancellation, basic Protection and medical cover, disability
cover, dread diseases cover etc
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Explaining the recommendations
Provides options and alternatives
open
Reviews Recommendations
Stage 5 Discuss Possible Recommendations
11: Identifying And Satisfying Customers’ Needs
The process of providing advice
Stage 6 Implementation of the agreed recommendations
- Once agreed, agents put into effect all recommendations
- Implementation is done
- Any changes must be communicated with client before putting it through
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Step 7 Monitoring the portfolio
- Regular monitoring of clients portfolio
- Ensure clients are informed of the progress of their policy
- Ensure client get quarterly or half year report by Insurer
- Assist client to make necessary switching and adjustment to ensure the clients gets the best returns from the policy
-Ensure policy review is done half year or yearly basis, adhoc review can be done if there is a special need
- Allow agents to obtain quality referrals and cross sell
11: Identifying And Satisfying Customers’ Needs
The process of providing advice
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12 •MARKETING AND AFTER SALES SERVICES, ETHICS & CODE OF CONDUCT
181
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12.1 Marketing
• In the past, role is strictly to sell company developed products
• hard sales technique are frequently used to stimulate customers’ interest
• Customers do not understand, meet their needs, or not afford to pay
12: Marketing And After Sales Services, Ethics And Code of Conduct
Definition: the management process responsible for identifying, anticipating satisfying customers requirements profitably
Sales Orientated
Sales Orientated
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12.1 Marketing
12: Marketing And After Sales Services, Ethics And Code of Conduct
• Role of the sales & marketing dept is to determine the needs of customers and satisfying these needs by dev and distributing appropriate policies
Market Orientated
Market Orientated
Generally functions• Planning & control – dev marketing plan and controling its results
against the plan by making necessary changes• Market identification – selection of segments of the market• Product development – develop appropriate policies to meet the
needs of the segments• Selection of distribution channel – identify and select the suitable
channel for distributing the policies to the customers• Promotion – suitable promotional activities including advertisement,
sales promotion etc
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12.2.1 A Market Oriented Agent
• Objectives: To satisfying customers' requirements and needs, and at the same time earn an income for himself
• Sales Plan which allows planning and controlling
12: Marketing And After Sales Services, Ethics And Code of Conduct
Objectives: Target market
Strategy
Implementation and control
Sales goal
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1. Problem recognition
2. Information search
3. Evaluation of alternative policies
4. Purchase
5. Post- purchase evaluation
12.2.2 Customer Buying Decision Process
12: Marketing And After Sales Services, Ethics And Code of Conduct
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1.Locating prospective customer
2. Create sales presentation
3. Conducting sales interview4. Handling
objections
5. Closing the sales
12.2.3 The Selling Process
12: Marketing And After Sales Services, Ethics And Code of Conduct
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Agents role after closing the sale:
a. Application is complete and all the proposer's answers have been recorded accurately clearly;
b. Providing timely response to any applicant or company questions or requests.
12: Marketing And After Sales Services, Ethics And Code of Conduct
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Delivery of a policy gives the agent an opportunity to perform the following :-
a)Dispel the customer's cognitive dissonance
b)Provide a basis for future sales by reminding the policyowner about any currently unmet or future financial needs or expectations;
c)Re-emphasize the insurance agent's commitment to providing the policyowner quality service;
d)Encourage the policyowner to call the agent
e)Explain the policy's provisions, terms and conditions
f)Obtain names of referred leads and other prospects
g)Strengthen the customer relationship and help encourage persistency
12: Marketing And After Sales Services, Ethics And Code of Conduct
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Ethics & Conducts
Ethics should include :-
a)Behaving with Complete Integrity in an Insurance Agent's Professional Lifeb)Complying with the Law and with the Best Principles and Practice relating to Financial Advicec)Behaving in a Professional and Honourable Manner towards client, customer and whoever the Isurance Agent is in Contact in Businessd)Observing and Applying the Relevant Codes of Good Practices
12: Marketing And After Sales Services, Ethics And Code of Conduct
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12.3.1 LIAM’S GUIDELINES ON THE CODE OF CONDUCT
Part I - Guidelines on the Code of Conduct.Part II – Life Insurance Selling.Part III Statement of Life Insurance Practice.
Part I - Guidelines on the Code of Conduct.
• Statement of Philosophy.• Coverage.• Monitoring Devices.• Seven Principles of the Guidelines.• Code of Conduct.
12: Marketing And After Sales Services, Ethics And Code of Conduct
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12.3.1 LIAM’S GUIDELINES ON THE CODE OF CONDUCT
Part II – Life Insurance Selling.•Introduction.•General Sales Principles.•Explanation.•Disclosure of Underwriting Information.•Accounts and Financial Aspects.
12: Marketing And After Sales Services, Ethics And Code of Conduct
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General Sales Principles
The intermediary shall : Produce Registered Intermediary Authorization Card Ensure the policy proposed is suitable to the needs Give advice only Treat all information as completely confidential Make comparisons with other types of policies, make
clear different characteristics of each policy Render continuous service to the policy holder
12: Marketing And After Sales Services, Ethics And Code of Conduct
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× Make inaccurate or unfair criticism of any insurers
× Attempt to persuade a prospective policy holder to cancel any existing policies unless these are clearly unsuited to the policy holder’s needs
The intermediary shall not:
TwistingTo discontinue a policy or to have a policy made paid-up and replace a new one in another company or the same company
General Sales Principles
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12.3.1 LIAM’S GUIDELINES ON THE CODE OF CONDUCT
Part III Statement of Life Insurance Practice.•Introduction.•Claims.•Proposal Forms.•Policies and Accompanying Documents.•Sales Materials/Advertisements.
12: Marketing And After Sales Services, Ethics And Code of Conduct
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Important Chapters in Exam
Focus on..
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Exam Questions Analysis
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Thank You