PCE A Chapter21 - 30

AIA confidential and proprietary information. Not for distribution.

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PCE – Part C Life Insurance

• Revision 01 (25/11/2011)


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LIFE INSURANCE PRELIMINARIES

CHAPTER 21


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• Characteristics of Life Insurance Products

• Basic Principles of Insurance as Applied to Life

Insurance

• Risk Covered by Life Insurance

LIFE INSURANCE PRELIMINARIES


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CHARACTERISTICS OF LIFE INSURANCE PRODUCTS

Long Term Contracts

Principle of Uberrima Fides

Aleatory Contracts


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• Insurable Interest

• Payment of a Claim Terminates a Life

Insurance Contract

• The Risk to be Insured Increases with Time

CHARACTERISTICS OF LIFE INSURANCE PRODUCTS


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RISKS COVERED BY LIFE INSURANCE POLICIES

Premature Death

Permanent Disability

Temporary Disability

Retirement Benefits

Financial Guarantee


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LIFE INSURANCE PRODUCTS &

FAMILY TAKAFUL BUSINESS

CHAPTER 22


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LIFE INSURANCE PRODUCTS

Categories ofLife Insurance Products

Group Insurance

Home Service Insurance

Ordinary Life Insurance :Term, Whole Life (WL)

andEndowment Insurances

Types of Life Policies


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Family Takaful Business

Miscellaneous Policies :Children’s Insurances and Joint-Life Insurance

Supplementary Benefits (Riders)

Other Contracts :Permanent Health Insurance (PHI),

Dread Disease Coversand Investment-Linked Policies

LIFE INSURANCE PRODUCTS


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CATEGORIES OF LIFE INSURANCE PRODUCTS

Participating Contracts (Par)

Non-participating Contracts (Non-par)


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TYPES OF LIFE POLICIES

Home Service

Group Insurance

Ordinary


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ORDINARY LIFE INSURANCE

Term Insurance Whole Life (WL)

AnnuitiesEndowment


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Term Insurance

Level TermInsurance

Decreasing TermInsurance

Renewable andConvertible


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Ordinary Life PolicyLimited PaymentWL Policy

WL EndowmentPolicy

Whole Life (WL)


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AnticipatedEndowment Insurance

Uses ofEndowment Insurances

Endowment


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Annuities :Level Life Annuity Contracts

Deferred Annuity

Guaranteed Immediate

Reversionary

Last Survivor

Joint LifeSingle Life

Deferred Annuity


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Characteristics:• For the lower income class • Premium payments at more frequent intervals,

usually weekly & small amount• Home services representatives collecting the

premium• Whole life & endowment insurances with low sum

assured are the most popular products

HOME SERVICE INSURANCE


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GROUP INSURANCE

Characteristics:• Insure lives in large groups at low rates for some

purpose. E.g employess of industrial or commercial establishment or other organization

• A stipulated percentage of all the lives in the group must be included, to enable a average mortality experience in accordance with the basis of calculation

• The group must consist of a minimum number of lives if medical examination is to be exempted/waived.

• The lives assured must be in the regular employment of the assured employer


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OTHER CONTRACTS

Permanent Health Insurance (PHI)

Dread Disease Covers

Investment-Linked Policies


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SUPPLEMENTARY BENEFITS (RIDERS)

Accidental Death Benefits

Disability Benefits

Sickness Benefits


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MISCELLANEOUS POLICIES

Children’sInsurance

Protected

Educational P

oliciesC

hildren’s

Deferred A

ssuranceJoint LifeInsurance


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FAMILY TAKAFUL BUSINESS

Types

Participant’s Accounts (PA) andParticipant’s Special Account (PSA)

OperationBenefits


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POLICY CONDITIONS

CHAPTER 23


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POLICY CONDITIONS

• Definition of a Policy

• Privileges and Conditions

– Privileges

– Restrictive Conditions

– Conditions Explaining the Contract

• Policy Transactions

• Policy Alterations


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DEFINITION OF A POLICY

Contract

• Intangible

• Legally Binding

Agreement

Policy

• Tangible

• Agreement is in Concrete

Form


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PRIVILEGES AND CONDITIONS

• Days of Grace• Surrender Value• Policy Loans• Paid-up Policy• Non-forfeiture Conditions•Automatic Premium Loan•Paid-up Policy•Extended Term Assurance

• Reinstatement Condition


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• Suicide Clause

• Foreign Travel & Residence

• Occupation & Dangerous

Hobbies

• Incontestability Clause

PRIVILEGES AND CONDITIONS


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• Admission of Age• Misrepresentation of Age•Understated of Age•Overstated of Age

PRIVILEGES & CONDITIONS


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POLICY TRANSACTIONS

Duplicate Policy

Assignment of a Life Policy(Absolute and Conditional)

Reassignment


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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

AIA confidential and proprietary information. Not for distribution. 31

PRACTICE OF LIFE INSURANCE:

NEW BUSINESS-SELECTION OF LIVES AND

OTHER ISSUES

AT & D- Center for Learning Excellence

CHAPTER 24


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RISK MANAGEMENT PROCESS

Identifying the Risk Factors

Selection of Lives to be Insured

Quantifying Risk

Costing Risk

Monitoring the Insurance Fund


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THE RISK FACTORS -MORTALITY

• Age• Sex• Occupation• Social Status• Ethnicity• Geographical Location• Marital Status• Personal Habits and Family History• Avocation• Foreign Residence


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SELECTION OF LIVESTO BE INSURED

• Financial Underwriting• Medical Underwriting• Non-medical Underwriting• The Role of Agent in the Underwriting Process of

Non-medical Insurance• Objectives of Selection

–Standard Life–Sub-standard Life–Deferred–Declined


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MODES OF ACCEPTINGSUB-STANDARD LIVES

• Classification of Extra Risks:–Increasing Extra Mortality–Level Extra Mortality–Decreasing Extra Mortality

• Treatment of Sub-standard Lives:–Increasing Premium–Decreasing Death benefit–Bonus Adjustment–Alternative Policy Plan–Exclusion of a Particular Hazard


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TAXATION OF LIFE INSURANCE PREMIUMS

• Objectives:

–To Encourage National Thrift

–Promote Individual Financial Independence

• Total Relief:

–RM6000 (Life Insurance and EPF)


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PersonalIncome Tax Basics

Income Tax Rates and Relief:Subject to Annual Review &Income Tax Act 1967

Assessment Year:1 January – 31 December.

Income for the Year of Assessment shall be the Income for the Year Preceding the Year of Assessment

Taxable / Assessable Income:Salary, Leave Pay, Commissions,Bonuses/Dividends, Gratuity,Fees and Allowances

Allowable Deductions:EPF, Life Insurance Premiums,Approved Charity Organization,Personal Relief,DependentChildren/Relatives’ Support


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Chargeable Income =

Assessable Income less

Allowable Deductions

Chapter 19


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PRACTICE OF LIFE INSURANCE-

NEW BUSINESS-PREMIUM RATING


CHAPTER 25


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QUANTIFYING THE RISK

• Pooling of similar risk

• Law of large numbers

• The past forms a guide to the future


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COSTING THE RISK

• Mortality

• Expenses

• Investment returns

• Tax

• Other factors


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COSTING THE RISK

• Mortality

Standard Mortality Tables

• Expenses

Initial

Renewal

Termination


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COSTING THE RISK

Investment returns Taxation Other factors

Financial costs Reinsurance costs Bonus Loading


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PREMIUM RATE CALCULATIONS

RISK PREMIUM

Basic cost of death risk

LEVEL PREMIUM

Risk increases with passages of time

NET PREMIUM

Cost of mortality & interest


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PREMIUM RATE CALCULATIONS

Net premium

Loading for expenses

Loading for profit & contingencies

PLUS

PLUS

=


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SATISFACTORY PREMIUM RATE STRUCTURE

• ADEQUATE

• COMPETITIVE

• EQUITABLE

• CONSISTENT

• PROFITABLE


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ADJUSTMENT TO GROSS PREMIUMS IN THE RATEBOOK

• MODE OF PAYMENT

• ADJUSTMENT OF SUM ASSURED

• HEALTH & OCCUPATIONAL EXTRAS

• FEMALE LIVES

AIA confidential and proprietary information. Not for distribution. 48

NUMERICAL RATING SYSTEM

Particulars Percentage extraAge:30 (basic rating)+100%Height: 5’4”

+100%Weight: 210 lbsBlood pressure: 140/85- normal +0%Medical history: Nil+0%

---------Total rating:

+200%Less basic rating:

- 100%

---------Extra mortality:+100%

---------

Yields overWeight debit


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PRACTICE OF LIFE INSURANCE-

MONITORING THE INSURANCE

FUND


CHAPTER 26


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THE PURPOSE OF A VALUATION

• To test insurance company’s solvency• To determine the amount of surplus

(if any) • To test the adequacy of existing premium scales• To determine the company’s operations• To comply with the statutory requirements


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VALUATION OF LIABILITIES

The Present Value Of The Benefit Payable

The Present Value Of Expenses

The Present Value Of The Future Premiums Receivable

Plus

Less


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VALUATION OF ASSETS

E.g. of assets:

Cash Investment Shares Loans

Properties Furniture Office Equipments


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SURPLUS

Sources of surplus include:

• INTEREST

• MORTALITY

• EXPENSE

• MISCELLANEOUS


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METHODS OF DISTRIBUTION SURPLUS

• Simple Reversionary Bonus• Compound Reversionary Bonus• Cash Bonus• Maturity Bonus or Terminal Bonus• Interim Bonus• Guaranteed Bonus


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PRACTICE OF LIFE INSURANCE

- POLICY DOCUMENTS


CHAPTER 27


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SOURCES OF INFO FOR RISK ASSESSMENT

• PROPOSAL FORM

• MEDICAL REPORT

• ATTENDED PHYSICIAN’S STATEMENT

• AGENT’S REPORT

• PREVIOUS RECORDS


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THE PROPOSAL FORM

• Personal particulars

• Details of insurance

• Occupation, residence, travel & hazardous

pursuits

• Personal & family history

• Declaration & authorization


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THE MEDICAL REPORT/SPECIAL EXAMINATIONS

• Height & Weight

• Pulse & blood pressure readings

• Chest & abdomen measurements

• Condition of the:

•Heart

•Lungs

•Nervous system

•Urine analysis


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ATTENDING PHYSICIAN’S STATEMENT

• Consent of the applicant is required before hand

• Attending physician is required to give specific

answers to queries related to the treatment


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THE AGENT’S REPORT

• Applicant’s habits

• Appearance

• Character

• Financial status


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THE PROPOSAL FORM

• Personal particulars

• Details of insurance

• Occupation, Residence, Travel & hazardous pursuits

• Personal & Family history

• Declaration & Authorization


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POLICY FORM & STRUCTURE

• THE HEADING• THE PREAMBLE• THE OPERATIVE CLAUSE• THE PROVISO• THE SCHEDULE• ATTESTATION• CONDITIONS & PRIVILEDGES


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ENDORSEMENTS

• Endorsements can be done either at the:

–Time of issue of the policy

–After issue of the policy


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ENDORSEMENTS- Time if issue of policy

• Premium / Frequency of Payment

• Sum Assured / Mode of Payment

• Special Benefit

• Special Restrictions


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ENDORSEMENTS- After policy issue

• Mode of payment

• Alterations to the form of the contract

• Imposition / Removal of extra premium

• Surrender of bonus


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PRACTICE OF LIFE INSURANCE- CLAIMS


CHAPTER 28


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CLAIM ARISE

• On the death of the insured

• On maturity of the insurance policy

• Sickness or Disability benefit claims

• Claims arising under supplementary contracts


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DEATH CLAIMS

• NOTIFICATION OF DEATH

–Policy holder’s name & identity card number

–Policy number

–Address

–Date & cause of death


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DEATH CLAIMS

• PROOF OF DEATH–A death certificate–A coroner’s report–An order pronouncing a statutory presumption of death–Certificate showing death at sea–Medical certificate by last medical attendant–A certificate evidencing the death of service personnel and war death


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DEATH CLAIMS

• PROOF OF AGE–Birth certificate–School leaving certificate–Certified extract from baptism register–IC by Malaysian Government–Passport–Statutory declaration (for the elderly)


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DEATH CLAIMS

• PROOF OF TITLE & SETTLEMENT–A deed of assignment–A probate of will obtained from the court of law

–A letter of administration issued by a court of law

–For a policy effected under Sec 23 of the Civil Law act, the money would be payable to the trustees


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MATURITY CLAIMS

• NOTIFICATION TO POLICYHOLDER

–Identity form–Survival form–Discharge form


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MATURITY CLAIMS

• PROOF OF CLAIMS

–Proof of age–Proof of survival–Completion of discharge voucher–The policy document


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MATURITY CLAIMS

• SETTLEMENT OPTIONS

–By maturity proceeds

–Convert to annuities

–Leave proceeds of maturity as a deposit with insurer at

a pre-determined interest rate

–Draw cash by installments over a number of years


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LIFE INSURANCE :

SOME MATHEMATICS


CHAPTER 29


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CALCULATION

• AGE

• PREMIUM

• INTEREST

• GUARANTEED SURRENDER VALUE


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CALCULATION

• AGE–Last Birthday–Next Birthday–Nearest Birthday


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CALCULATION

• PREMIUM–Age–Sex–State of Health–Type of policy–Sum assured–Policy term–Mode of payment


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CALCULATION

• INTEREST

–Outstanding Premium Charges

–Policy Loan Repayment


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CALCULATION

• GUARANTEED SURRENDER VALUE–Incorporate value table in the schedules


81AT & D- Center for Learning Excellence

PRACTICE OF INSURANCE

CHAPTER 30

“ETHICS & CODE OF CONDUCT”


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• Rebating

• Twisting

• Misrepresentation

• Attitude towards competition

CODE OF ETHICS


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• The practice of sharing an agent’s commission

with the policyholder may be viewed as

discrimination, and the implication of it clouds

the legality of the contract

REBATING


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• Persuading a policy holder to discontinue or

lapse a present policy in order to buy a new

policy

TWISTING


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• Constitute telling something that is NOT TRUE.

This statement holds true both when the agent

is representing the insurer to the prospect and

when the agent is representing the applicant to

the company

MISREPRESENTATION


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• Nothing is gained by casting doubt upon any

company, in which a prospect may have

insurance, or underlying motive of any other

salesman who may at the moment be attempting

to sell to the prospect

ATTITUDE TOWARDS COMPETITION


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• 7 PRINCIPLES OF THE CODE OF ETHICS &

CONDUCT

•AVOID conflict of interest

•AVOID misuse of position

•PREVENT misuse of information

•ENSURE completeness & accuracy

GUIDELINES ON THE CODE OF CONDUCT


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• 7 PRINCIPLES OF THE CODE OF ETHICS &

CONDUCT

•ENSURE confidentiality of communication

•ENSURE fair & equitable treatment

•CONDUCT business with utmost good faith &

integrity

GUIDELINES ON THE CODE OF CONDUCT

Documents

PCE A Chapter21 - 30