Chapter 1 - Life insurance products

Question 1

What is a paid-up benefit

Answer 1

It is when the client stops paying premiums, but the policy continues at a reduced benefit amount

Question 2

What is lapse

Answer 2

This is when no benefit is payable when the premiums cease before the contractual time

Question 3

What is a surrender

Answer 3

This is when the policyholder fails to pay all of the premiums required under the contract, and receives a lump sum in compensation for the premiums paid to date

Question 4

The Product cycle

Answer 4

Product design
Pricing
Marketing sales
Underwriting
Claims management
Experience monitoring (Which feeds back into pricing)
Valuations

Question 5

Where can group products arise?

Answer 5

• The employer pays for the whole premium on behalf of the employees
• Where the costs are shared between the two parties
• Where the employer facilitates the payroll deduction but the employee pays all costs
• Where the group is not employment based but linked to club memberships

Question 6

Term of group products

Answer 6

Short. Typically one or two years

Question 7

How does endowment assurance meet the needs of consumers

Answer 7

• It pays a benefit on survival to a known date and hence operates as a savings vehicle
• It can also pay a significant benefit on the death of the life insured before that date, and hence provides protection for dependants

Question 8

What causes new business strain?

Answer 8

• Large costs occur at the start of the policy because of items such as marketing, underwriting, setting up the policy on the computer systems
• Paying commission
• Reserves
• Solvency margins

Question 9

What are the forms of with-profit policies

Answer 9

• Cash payments
• Sum assured enhanced by bonuses
• Reduction in future premiums

Question 10

Is anti-selection risk reduced on group contracts?

Answer 10

Yes

Question 11

What is the capital needed to write a contract depend on?

Answer 11

DIPS F

• DESIGN of the contract
• level of INITIAL expenses
• the relationship between PRICING and supervisory reserving requirements
• the additional SOLVENCY requirements
• the FREQUENCY of payment of the premium