chap1-5 Flashcards
(30 cards)
- What are the factors that have contributed to the steady growth of the life insurance industry
in Malaysia since 2000?
I The Malaysian Government granting more flexibility to life insurance companies to
run business operations based on their own management philosophies and at their
own prudent discretion
II Malaysia’s dynamic economic growth experience
III Life insurers designing and offering customer-centric plans
IV The introduction of investment-linked insurance and the steady growth of this product
c) III and IV
- Which of the following is the correct description of an investment-linked life policy?
A policy offering protection while also investing in funds which form the basis for
returns to the policy owner
An investment-linked life insurance policy is also known as the following in some parts
of the world:
I Mutual fund-linked policy.
II Unit-linked policy.
III Variable life policy.
IV Universal life policy.
II and III
Investment-linked funds are managed by
I the insurer’s own professional managers in its internal investment department.
II fund managers/fund houses appointed by the insurer through outsourcing.
III outsourcing to the funds of unit trust companies since investment-linked funds are
similar to unit trust funds.
IV the insurer’s board of directors who can make special decisions on the types of
investment vehicles to offer to policy owners.
c) I and II
Since investment-linked insurance has an investment element, a prospective policy owner
is allowed to opt for
I a nominal amount of sum assured of his selection.
II no life protection at all.
III at least the minimum amount of sum assured according to age, basic premium paid
and a formula set by the relevant regulator.
IV the sum assured offered by the insurer concerned based on its internal underwriting
guidelines in relation to the financial status and circumstances of the intended policy
owner.
III
Which of the following statements are correct?
I Policy owners of investment-linked plans should be made to understand that they
wholly bear the gains or losses from the investment portion of their policies.
II As responsible corporations, life insurers are obliged to be partly responsible for any
drastic drop in prices of funds under their custody; thus, they have to bear part of the
losses suffered by policy owners if such incidents occur.
III For investment-linked policies, an individual can invest in a diversified portfolio with
a sum as low RM1,200 per year. This is possible as the overall collected premiums
contributed by investment-linked policy owners form a sufficiently large pool for spreading over varied stocks or securities in the market.
IV An average income earner may not possess ready sufficient liquidity
a) I, III and IV
- Which options are open to policy owners of a regular premium investment-linked plan?
I A policy owner may opt for higher a sum assured than the minimum amount
stipulated by the Sum Assured Multiple rule.
II A policy owner can pay top-up premium to accelerate the accumulation of the
account value in the policy.
III A prospective policy owner can apply to combine a single premium plan with a
regular premium plan into one policy.
IV A prospective policy owner can select the death benefit based on either the sum
assured or the account value, whichever is higher.
a) I and II
Which of the following statements are correct?
I Top-up premiums can either be paid on a regular basis or at any time.
II Most insurers impose a minimum amount for both regular top-ups and ad hoc topups.
III Most insurers allow ad hoc top-ups once a year and impose a maximum amount.
IV An upfront charge, normally around 5 per cent, is deducted from each top-up.
b) I, II and IV
A female, aged 30 years, has budgeted to set aside RM3,000 a year for a basic regular
premium investment-linked plan with a Unit-Deducting Hospitalization Rider. According
to the SAM formula, the multiple factor for her age is 50 times. How would you calculate
the minimum sum assured for the basic plan?
a) RM3,000 minus the notional premium for the rider, multiply by 50.
Which of the statements below are correct?
I All life insurers impose an early partial withdrawal charge and an early surrender charge.
II High partial withdrawals may cause the future account value to be insufficient to
cover the higher cost of insurance at older ages. Therefore, it is prudent for a policy
owner to make ad hoc top-ups to replenish the units and the account value.
III Depending on the practices instituted by individual life insurers, all fund switches may be processed free of charge, or be free for the first switch or first few switches within a policy year and a fee is charged for subsequent switches.
IV The investment risk profile of a young investor or policy owner may likely change from the aggressive category to the conservative category as he advances in age;hence, he may want to progressively shift more of his equity assets to fixed income
or bond fund until he gets close to retirement age.
d) II, III and IV
- Identify the correct statements from those given below.
I The free-look period is 15 days commencing from the date of delivery of policy contract to the policy owner.
II The no-lapse guarantee clause stipulates that as long as premiums are paid without fail by the grace period and there was no previous premium holiday or partial
withdrawal, the regular premium investment-linked policy will never lapse over the
entire policy tenure although the account value may be insufficient to cover the cost
of insurance at any point in time.
III The no-lapse guarantee clause stipulates the regular premium investment-linked policy will not lapse in the first few years (e.g. 2 years) even though the account
value is not sufficient to cover the cost of insurance, provided:
MECHANISMS AND FEATURES OF REGULAR PREMIUM INVESTMENT-LINKED LIFE INSURANCE 25
• All premiums were paid during the period.
• No premium holiday was exercised during the period.
• There was no partial withdrawal or fund switching during the period.
IV As the basic death benefit of a regular premium investment-linked policy is basic sum assured plus account value, the life insurer will continue to deduct the cost of insurance for the basic coverage as long as the policy remains in force.
a) I, III and IV
- Select the correct statements from the following.
I The Dollar Cost Averaging phenomenon leverages the long term or the acquisition of more fund units when prices are down and the appreciation of units already acquired when prices go up.
II Some assets in a fund may perform well in a given short period while some may not, but the overall impact is the averaging effect due to the spreading out of risk. With prudent management by fund managers, the unit price is likely to be higher in the longer run.
III The maximum tax relief for a qualified regular premium investment-linked medical plan and an education plan is RM3,000 a year. If a policy owner has both, the combined limit is also RM3,000.
IV Whether a policy owner has a qualified regular premium investment-linked medical plan or an education plan, or both, he qualifies for a tax relief of up to RM6,000 a year.
b) I, II and III
- Single premium investment-linked insurance is said to be more inclined towards investment than protection because
b) the policy owner has the discretion to opt out of any protection coverage so that no
cost of insurance will be deducted from the account value.
Mrs A, aged 45, signs up for a single premium investment-linked plan by paying an initial RM100,000. Six months later, she pays another RM100,000 as top-up. The total sum assured in her policy after payment of the top-up is
b) RM125,000.
- Which of the statements below are correct regarding single premium investment-linked insurance?
I Most insurers set their minimum basic single premium as ranging from RM5,000 to RM20,000, depending on product design.
II All insurers set the minimum basic single premium at RM5,000.
III Top-up premiums, if any, also bear the same normal upfront or unallocated premium charge ratio of around 5% as the basic single premium.
IV Cost of insurance will be deducted regardless of whether the account value is above or below the basic sum assured at any point in time.
b) I and III
- Which statement/s relate(s) to the application of cost of insurance (COI) in single premium investment-linked insurance?
I COI is based on the sum assured or account value, whichever is higher.
II When the account value of a single premium investment-linked policy is still below the sum assured, the shortfall gap between the two levels is called sum at risk.
III Deduction of COI is based on the shortfall amount from the account value level to the sum assured level.
IV COI is based on the difference between the sum assured and account value at any point in time.
c) II and III
- Top-ups for single premium investment-linked plans are encouraged when
I the market is on the upturn and unit prices are rising.
II a market downturn sets in not long after policy inception, thus causing the sum at
risk to prolong longer than expected, based on the initial premium outlay.
III the nation is experiencing a period of strong economic or GDP growth.
IV the policy owner believes in the impact of Dollar Cost Averaging and wants to leverage
that to boost the account value instead of relying on just one single outlay.
c) II and IV
- The few mechanisms and features of single premium investment-linked plans which differ
from regular premium investment-linked plans are:
I The sum assured formula for single premium plans is different than that for regular
premium plans.
II The death benefit formula for single premium plans is not guided by the same
minimum Sum Assured Multiple rule applicable to regular premium plans.
CERTIFICATE EXAMINATION IN INVESTMENT-LINKED LIFE INSURANCE
32
III The allocated premium ratio for single premium plans is different from that for regular
premium plans.
IV While the policy is kept in force, the cost of insurance deductions for single premium
plans may not be continuous because the formula is based on sum at risk, unlike
regular premium plans which are based on sum assured.
b) I, II, III and IV
- The benefits of an investment-linked policy are:
I It provides access to a diversified investment portfolio. Thus, it has better risk characteristics than a non-diversified portfolio.
II It offers flexibilities.
III Fixed nominal charges are levied on the policy.
IV The life insurer insulates the policy owner against market risks.
a) I and II
- When an investment-linked policy reaches maturity, the maturity value will be
b) the account value.
- What are two similarities between a regular premium investment-linked plan and a whole
life participating plan?
I Both plans provide lifetime coverage up to maximum age 100.
II Both plans allow the addition of riders without additional premium.
III Both are entitled to the same income tax relief treatment for premiums paid.
IV The minimum age for an individual to apply on own life, and not as juvenile
application arrangement, is age 16 for both products.
c) I and III
- Which of the following statements are correct?
I The minimum age for applying a regular investment-linked policy on own life is age
18 last birthday.
II A minor aged 16 last birthday who is applying for an investment-linked policy on own life needs parental consent.
III A minor aged 16 last birthday can apply for a whole life participating policy without
parental consent.
IV Minors aged 10 to 15 last birthday can apply for a whole life participating policy with parental consent.
d) I, III and IV
- As the sales illustration document printed by any life insurer is meant for reference and view by a prospect, a sales intermediary is expected to observe certain rules. These are: The sales intermediary must
I get the new policy owner to sign the illustration as acknowledgement of having
understood the contents.
II get the new policy owner to sign the policy disclosure sheet and also to sign it himself
to declare that proper presentation has been carried out and the non-guaranteed
elements have been explained.
III highlight that all investment risks are borne by the policy owner, that all fees and
charges may be changed by the insurer giving 3 months’ notice, and that the cost of
insurance increases with attained age.
IV explain that the projected returns may be deemed likely returns of the selected funds
based on the past 5 years’ historical performance.
b) I, II and III
- Which of the following statements regarding a life insurer’s sales illustration/quotation
document are correct?
I The projection of future returns is based on the past 5 years’ performance experience
of a specific fund or funds proposed to the prospect.
II Projected returns are based on assumed rates for the high and low scenarios of the
specific fund/s.
III Normally, the actual historical returns of the various offered funds in the past 5 years
are also shown for the purpose of transparency.
IV Projection of values is based on assumed rates of return up to 20 years.
d) II and III
