06. Selling Life Insurance

Question 1

1. Under Part 7.7 of the Corporations Act, what must providing entities do?

Answer 1

• prepare and provide a FSG
• provide the general advice warning if only general advice is provided
• if personal advice is provided, ensure the advice is suitable, provide an SOA and where the advice is incomplete or uses inaccurate information warn the client of this

Question 2

2. What is personal advice?

Answer 2

It is any financial product advice given or directed to a person where the provider has considered one or more of the clients objectives, financial situation or needs or where a reasonable person would have expected given the circumstances for the adviser to have considered these

Question 3

3. What is the purpose of the FSG?

Answer 3

To ensure that retail clients are given sufficient information to enable them to decide whether to obtain financial services from the providing entity.

Question 4

4. When should an FSG be supplied to the client?

Answer 4

Before providing financial services to them (there are some exceptions)

Question 5

5. What are the three key documents provided by an adviser to a client and what are their purposes?

Answer 5

• FSG - what financial service am I getting?
• SOA - What personal advice am I getting?
• PDS - What financial product am I buying?

Question 6

6. Under s945A all personal advice must comply with the ‘suitability’ or ‘reasonable basis for advice’ rule. This means the providing entity must do what?

Answer 6

• Make reasonable inquiries about the clients personal circumstances
• Reasonably consider and investigate the subject matter of the advice
• ensure the advice is appropriate to the client.

Question 7

7. What must an SOA include?

Answer 7

• the advice
• the reasoning that lead to the advice
• all conflicts of interest that may affect the advice.

Question 8

8. Why is it important for the adviser to understand the client’s needs, objectives and personal preferences prior to making insurance product information?

Answer 8

Only after finding out this information will the adviser be able to advise the client of the appropriate level of insurance cover and products best suited.

Question 9

9. What information about existing policies held by a client should an adviser obtain prior to making insurance recommendations?

Answer 9

1. The types of policies held
2. The sum insured / benefit amount / cash value
3. Expiry dates, premium payable, length of time the policies have been in place
4. What company is the insurance policy with
5. Is it a personal, employer or super policy
6. Any exclusions or variations that apply
   7 Any policies that have been applied for and declined

Question 10

10. Underwriting is the process of assessing the risk and ascertaining what?

Answer 10

• whether the risk falls within the ‘standard’ range and therefore a normal premium is charged
• the risk is unacceptable and unlikely to improve so decline the application
• the risk is currently unacceptable so either defer, establish exclusions or higher premiums

Question 11

11. What are the areas of risk assessment for a life insurance application?

Answer 11

• health
• occupation
• hobbies and pursuits
• financial, and
• moral

Question 12

12. Why is the adviser often referred to as the field underwriter?

Answer 12

• they choose who applies to the insurance company

* they gain the first impression of the various areas of risk assessment

Question 13

13. What areas do applicants not have a duty of disclosure?

Answer 13

• anything that diminishes the risk to the insurer
• anything that is of common knowledge
• anything the insurer already knows (or ought to know), and
• if the insurer has waived the duty of disclosure

Question 14

14. What must the adviser ensure they do with regard to the duty of disclosure?

Answer 14

• Ensure that they fully understand it
• Point it out to the client
• Ensure it is fully understood by the client.

Question 15

15. An adviser should always follow a set routine and script in completing an application form, what does this include?

Answer 15

• Inform of and ensure duty of disclosure is understood
• Go through questions carefully
• Allow client to fill out
• Review questions making notes of anything additional in adviser’s writing
• Explain declaration and ensure they have reviewed and comfortable before signing
• Keep a copy for records

Question 16

16. Why would an adviser want to have a set routine for the insurance application process?

Answer 16

So if their conduct is ever challenged, other clients can testify as to the adviser’s standard procedures

Question 17

17. Should the adviser tell the client how to answer any particular question?

Answer 17

No, this is directive advice. The pros and cons of each option should be explained, but to protect the adviser, they should not be directive.

Question 18

18. What are the options for completing an online insurance application?

Answer 18

• Personally (interview presented by adviser)
• Remotely (by phone or video link presented by adviser)
• Remotely (answered by applicant to tele-underwriting service)
• Through an online application by applicant without assistance and submitted directly.

Question 19

19. What is a wet signature?

Answer 19

A physical signature by the client

Question 20

20. Having a basic understanding of underwriting risk will assist the adviser to be more effective in their role, this will enable them to do what?

Answer 20

• ensure all documentation is fully completed
• know when additional info is required
• identify if a client is not making full disclosure
• identify whether the client is unlikely to be a standard risk.

Question 21

21. How does an adviser develop a basic underwriting understanding?

Answer 21

• discussion with other advisers
• discussion with underwriters
• reviewing of underwriting assessment material
• experience over time.

Question 22

22. How does the adviser gaining an understanding of the underwriting process benefit the client?

Answer 22

• minimises delays in application completion
• ensures client receives most favourable assessment
• minimises the chances of becoming involved in a client’s fraud or avoid misrepresentation.

Question 23

23. Why should advisers maintain good records?

Answer 23

• Enable adviser to ‘know their client’ and provide appropriate advice
• Enable the adviser to defend themselves if a complaint is made
• Improve the market value of the business
• Requirement of Part 7.7 of corps act and the ASIC Reg Guide 175.

Question 24

24. What should records contain as a minimum?

Answer 24

• client information that has been collected
• research and analysis undertaking in formulating a recommendation
• recommendations made by the adviser
• disclosures made and warnings provided by the adviser
• actions taken by the client including any waivers when the client has not taken a specific recommendation
• any miscellaneous actions or conversations taken apart from the recommendation process.

Question 25

25. What is a summary file note?

Answer 25

A record of only the critical facts, treating the file note as a memory jogger in case details need to be recalled.

Question 26

26. What is a literal file note?

Answer 26

These record as much information as possible. They might include the noting of details of a conversation or the circumstances surrounding an event. Useful if they feel they could be being set up.

Question 27

27. What is a focused file note?

Answer 27

These can form an important part of regular business practices and are used to record details of repetitive situations and can be used in the case of a dispute to clarify information.

Question 28

28. What would a complaints service or court look to understand with a new complaint against an adviser?

Answer 28

* was this a deliberate or careless act on the part of the life insured? * was the adviser responsible because of poor interview practices?

Question 29

29. What questions would the complaints service or court look to answer in order to resolve the dispute?

Answer 29

* who completed the application * where the duty of disclosure and consequences of non-disclosure explained and understood? * were application questions explained? * was the client given the opportunity to review prior to signing? * why does the adviser believe the client understood the duty of disclosure? * why does the adviser believe the client had the opportunity to review prior to signing? * How much time was taken to answer the application? * Was anyone else present? * What was the date, time and place the application was completed?

Question 30

30. What are the two contrasting industry opinions in regards to the adviser's role in the application and management of claims

Answer 30

1. That they are not qualified with matters of claims and therefore should not get involved 2. The adviser knows the client and are uniquely qualified to act as an intermediary

Question 31

31. If an adviser is to become involved in the management of a claim, what are the essential two prerequisites?

Answer 31

1. Undertake some formal training to gain understanding of claims process 2. Aim always to act in the literal role of intermediary, rather than presenting the opinion of only one party.

Question 32

32. What key functions can the adviser assist with in the management of a claim?

Answer 32

* Communication * Arbitration * General assistance

Question 33

33. What is the general process associated with a death claim?

Answer 33

* receipt of advice of death * confirmation of date of birth (passport etc) * confirmation of the death (death cert) * obtaining proof of title (policy documentation) * completion of a claim form * calculation of the benefit amount by assessor * payment of the benefit

Question 34

34. If the policy owner is the same as the life insured, then where is the insurance payment made?

Answer 34

To the deceased's estate

Question 35

35. What are some complications with some death benefits?

Answer 35

* death without a known cause - require coroner's inquest * death occurs at sea - registered at next port * person disappears longer than 7 years - presumption of death may be granted by courts * death occurs in remote area and body not recovered - declarations and evidence are reqd * age misstated - benefit may be proportionately reduced.

Question 36

36. What are the three different versions of TPD contracts relating to the life insured's occupation?

Answer 36

* Own occupation * Any occupation reasonably suited by training, education and experience * any occupation at all

Question 37

37. What is the claims process for TPD and trauma claims?

Answer 37

* Submission of claim form * Obtaining medical information by insurer * Assessment of the claim * Payment of any validated claim

Question 38

38. What additional information may be required by the claims assessor in determining the claim?

Answer 38

* medical reports * independent specialist examinations * workers compensation and Veterans Affairs reports * financial information * interviews, and * surveillance.

Question 39

39. Why should the claimant notify the insurer early in the case of a disability income insurance claim?

Answer 39

* Gives insurer time to retrieve policy and request any additional information * Insurer can assess policy conditions prior to end of waiting period and advise if benefit is applicable * Reduce risk that the assessment is rushed

Question 40

40. What is on a disability income insurance claim form?

Answer 40

* whether the claim is for sickness or injury * what caused the sickness or injury * the impact on the claimant's ability to work and to earn * the name and contact details of the attending doctor

Question 41

41. What is the principle role of the claims assessor?

Answer 41

* gather information to enable an objective assessment * what other evidence is required and when * calculation of the claim amount

Question 42

42. What are the two basic types of business expense insurance policy?

Answer 42

* reimbursement | * indemnity

Question 43

43. The Life Insurance Act 1995 and Insurance Contract Act 1984 influence the claims process. In Particular they require

Answer 43

* duty of utmost good faith * duty of disclosure * privacy * duty to avoid misrepresentation * duty to act promptly and professionally.