M9 - Chapter 6 (Participating Life Insurance Policies)

"Guide to Participating Policies" are provided to consumer at the point of sale on request. It contains: A. Description of what happens on early termination of the policy B. Description of how the assets for the plan are being invested C. Description of how the insurer actually carries out risk sharing for that particular par product group D. Surrender penalties and use of market value reduction when the plan is surrendered early

A. Description of what happens on early termination of the policy

The difference between "Value of Premiums Paid To date" and Total Surrender Value in the Benefit Illustration represents: A. Effect of deductions to date B. volatility of the investment C. the total costs insurer expects to incur D. effect of premiums paid to date at the projected investment rate of return

A. Effect of deductions to date

Risk sharing rules cover the way in which key factors or risks that affect the performance of the participating fund are shared by each participating policy. Which of the following factors has the highest risk affecting performance of the Participating Fund? A. Investment Risk B. Mortality Risk C. Expense Risk D. Business Risk

A. Investment Risk

Mr. Sim bought a $50,000 Whole Life Policy which pays a compound reversionary bonus of $10 per $1000 sum assured. What is the death benefit at the end of the 3rd year? A. $51,000 B. $51,515 C. $52,000 D. $52,030

B. $51,515 end of Year 1: (10 / 1000) x 50000 = 500 - total SA = 50,000 + 500 = 50,500 end of Year 2: (10 / 1000) x 50500 = 505 - total SA = 50500 + 505 = 51005 end of Year 3: (10 / 1000) x 51005 = 510.05 - total SA = 51005 + 510.5 = 51515.05

Under MAS Notice 320 which document is not compulsory, but have to be made available to consumers upon their request at the point of sale? A. Your Guide To life Insurance B. Your Guide to Participating Policies C. Product Summary D. Benefit Illustration

B. Your Guide to Participating Policies

What kind of information is/are contained in the "Your Guide to Participating Policy" document, often structured in Q & A format? A. Company specific information. B. How bonuses are smoothed over time. C. Describe the common types of bonuses. D. All of the above

C. Describe the common types of bonuses.

Under MAS 320, insurers should establish an Internal Governance Policy (IGP) on participating fund management. What is Not True of the IGP? A. Insurers are not required by MAS to disclose IGP to the consumers. B. IGP is approved by its board of directors. C. IGP is for enhancing internal governance and management of the par fund, hence it cannot be too technical for the layperson to understand. D. Par fund is managed according to the rules and principles set out in the IGP.

C. IGP is for enhancing internal governance and management of the par fund, hence it cannot be too technical for the layperson to understand.

Policies that can be issued on a participating basis include: A. Term insurance, whole life insurance, endowment insurance only B. whole life insurance, annuities, term insurance, endowment insurance and riders only C. whole life insurance, endowment insurance, and annuities only D. whole life and endowment insurance only

C. whole life insurance, endowment insurance, and annuities only

The Annual Report Update to be given to existing participating policy owners annually contains A. Past and best performance B. Updated Sales Benefit Illustration C. Your Guide to Participating Policies D. Revised projected maturity values or surrender values

D. Revised projected maturity values or surrender values A. purpose of annual bonus update B. past performance and future outlook C. bonus allocation D. update on changes in future non-guaranteed bonuses (If there is or will be a change in bonus rates, state revised maturity/surrender value figures, and impact of the bonus rate revision to these figures)

Which of the following are additions to the sum assured A. Interim Bonus B. Cash dividends C. Terminal bonuses D. Revisionary bonuses

D. Revisionary bonuses Types of Non-guaranteed Benefits (Bonuses) 1. Revisionary - Bonus is in the form of an addition to the sum assured, irrespective of age of the insured, or period that policy has been in force - Addition is in proportion to the sum assured (e.g. $10 per $1000 sum assured) - Amount of bonus is declared annually and credited to each policy on its anniversary date (bonus "vesting") - Once declared, it becomes a guaranteed amount in addition to the sum assured and is payable when there is a claim on the policy 1) Simple Revisionary Bonus - yearly addition is based on sum assured only 2) Compound Revisionary Bonus - yearly addition allocated in proportion to the sum assured + any existing bonuses attached to the policy - Both SRB and CRB can be surrendered for their cash equivalent (actuarial present value), while policy continues to be in force 2. Terminal - TB is added on top of regular revisionary bonus when policy is terminated - Typically only applicable to participating policies that terminate after having in force for a certain number of years - Bonus usually declared as a % (50%) of the revisionary bonus already attached to the policy or as a % of the basic sum assured - TB is not added to the sum assured of the participating policies that remain in force (Only added on termination in the circumstances described above) - Designed to fine tune the fairness of smoothing of bonuses for policies that are terminating in a particular year - likely to fluctuate more than reversionary bonuses 3. Cash dividends - Provide non-guaranteed benefits in the form of cash dividends (rather than additions to sum assured) - Although these bonuses are declared as immediate cash payments, most insurers allow them to be A. converted to additional sum assured (paid-up addition) or B. to be applied toward reduction of future premiums 4. Interm - In Singapore, actual bonus declaration typically take place only in March/April following the end of the financial year for which audited financial statements of the participating fund has been completed, after the Board of Directors has approved bonuses to be allocated - Bonuses allocated may not be vest (attach to the policy legally) immediately - Typically, allocated bonuses are vested only upon policy anniversary for which the bonus is due after the premiums due have been paid - based on the prevailing bonus rates or bonus rates used in the reserves for future bonuses or results from an interim bonus investigation report

(T/F) Bonuses are declared on an annual basis and paid out depending on the type of bonuses

T

(T/F) Participating products can be paid by single premium, regular premium, and limited premium

T

Term Insurance has the following features: a) Non-forfeiture option b) Grace period c) Policy loan d) None of the above

b) Grace period

The insurer's surplus could arise due to the followings: a) higher rates of investment returns b) lower rates of mortality c) lower expenses d) All of the above

d) All of the above

Board of Directors in an insurance company are discussing how much of the $10m surplus should go the policy owners as bonus in the participating fund? A. $10m B. $9m C. $5m D. $1m

B. $9m

Which of the following statement is true on Bonus Vesting? A. Vesting and allocation of bonus means the same thing B. Bonuses allocated may not be vested immediately C. Bonus allocated are vested when the insurer declared them yearly D. Allocation of bonuses must be vested fairly among all policyholders

B. Bonuses allocated may not be vested immediately Vesting vs. Allocation of Bonuses - Bonus allocated may not vest (attach to the policy legally) immediately - Typically, allocated bonuses are vested only upon policy anniversary for which bonus is due and after having paid premiums due

A man bought an insurance policy that pays bonuses. It is paid in proportion to the sum assured plus any existing bonuses attached to the policy. What kind of bonus is that? A. Simple reversionary bonus B. Compound reversionary bonus C. Cash Bonus D. Terminal Bonus

B. Compound reversionary bonus

"Your Guide to Participating Policies" covers the following salient points except: A. Describe the aim of a participating policy B. How much does the Fund Manager charges as fees C. Describe the common type of bonuses D. Describe what happens on early termination of policy

B. How much does the Fund Manager charges as fees "Your Guide to Participating Policies" A. explain what a participating policy is, by covering its key features B. describe the aim of a participating policy C. differentiate a participating policy from investment-linked policy D. state the factors that will affect non-guaranteed bonuses received E. highlights considerations that insurers have to take into account when determining bonuses F. describe common types of bonuses G. set out disclosure documents that policy owners should receive at point of sale, and expect to receive after purchasing a participating policy H. highlight existing key safeguard or insurance regulatory requirements that will protect interest of participating policy owners

Which of the following item found in the Benefit Illustration, the agent need not explain to the client? A. Projection of rates B. Mechanism of fund switch C. Distribution Cost D. Effect of deduction

B. Mechanism of fund switch

Terminal Bonus (TB) are different from revisionary bonus (RB) in that A. TB is guaranteed B. TB is paid only if the policy is in force for a minimum number of years C. TB is paid only on the maturity of the insured D. TB are flat amounts paid out

B. TB is paid only if the policy is in force for a minimum number of years

Which one of the following statements is FALSE? A. Terminal bonuses are typically not applicable to policies that terminate during the initial years B. Terminal bonuses are always applicable to all policies regardless when they terminate C. Terminal bonuses may sometimes not always be equal to the assets backing the maturing policies D. Terminal bonuses are bonuses allocated to terminating policies particularly upon maturity and death

B. Terminal bonuses are always applicable to all policies regardless when they terminate Terminal Bonus - TB is added on top of regular revisionary bonus when policy is terminated - Typically only applicable to participating policies that terminate after having in force for a certain number of years - TB Bonus is the bonus which insurers pay to a participating policy that has been kept in force until maturity, death (or TPD if included in policy coverage), or surrender, usually provided the policy has been in force for a minimum period - terminal bonuses allocated to each maturing participating policy may not always be equal to assets backing the maturing policies (Because participating policy objective of providing stable returns, such that returns, including terminal bonuses, to maturing policy owners do not fluctuate excessively between different groups of maturing participating policies from year to year)

What is the objective of giving out the Guide to Life Insurance to Clients? A. To provide clients with a better understanding of what general insurance is all about. B. To give the client the basic information that they need to know in order for them to discuss intelligently their life insurance needs with their representive. C. To allow client to sue the representative if he/she did not explain to the client. D. To allow client to know all about life insurance so that he/she can make recommendations to their friends.

B. To give the client the basic information that they need to know in order for them to discuss intelligently their life insurance needs with their representive.

Under which circumstances is Interim Bonuses given? A. For policy in force for a long time. B. Pay out as cash dividends. C. For participating policies that terminate in the early part of the year before finalisation of bonus allocation. D. For participating policies and which are additions to the sum assured every year.

C. For participating policies that terminate in the early part of the year before finalisation of bonus allocation.

What is the main purpose of the Table of Deductions in the Policy Illustration? A. Highlight the total cost of distribution insurer expects to incur in relation to the policy. B. Highlight how much premium insured has paid to date. C. Highlight the cost of surrendering the policy early. D. Highlight which year the insured will lose the most if he terminates his policy.

C. Highlight the cost of surrendering the policy early.

LIA Disclosure Guidelines prescribes that I. Both client and the agent are required to sign on every page of the illustration II. The basis for computing some of the figures used in the benefit illustrations III. All insurers must adhere to a standardized formats for illustration of benefits IV. Only companies offering the critical year option are allowed to provide supplementary illustration A. I, II only B. I, III only C. I, II & III D. I, II, III & IV

C. I, II & III Point of Sale Disclosure (Policy Illustration) - Document (computer printout) which illustrates clearly the premiums and benefits payable under the policy every year - LIA Disclosure Guidelines prescribe basis for computing some of the figures used in policy illustration to prevent abuse as a sales presentation tool - all life insurers to adhere to standardised formats for illustrating benefits - Both client and representatives are required to sign on every page of policy illustration

Participating policies that terminate in the early part of the year before the allocation of bonuses may be given, are termed as: A. Revisionary bonus B. Terminal bonus C. Interim bonus D. Cash bonus

C. Interim bonus Interim Bonus - Participating policies that terminate in the early part of the year before the finalisation of bonus allocation may be given interim bonus Revisionary Bonus - Bonus is in the form of an addition to the sum assured, irrespective of age of the insured, or period that policy has been in force Terminal Bonus - TB is added on top of regular revisionary bonus when policy is terminated - insurers pay to a participating policy that has been kept in force until maturity, death (or TPD if included in policy coverage), or surrender, usually provided the policy has been in force for a minimum period Cash Bonus - Provide non-guaranteed benefits in the form of cash dividends (rather than additions to sum assured)

Which of the following has the highest risk affecting performance of a par fund? A. Mortality Risk B. Business Risk C. Investment Risk D. Expense Risk

C. Investment Risk

Most insurers adopt the policy of allocating stable annual bonuses. Under this approach, how does the insurer allocate annual bonuses in a particular year? A. Pay policy owner whatever profit it made from the participating fund B. Bonuses are directly dependant on the performance of the participating fund. C. Pay the same annual bonuses for both good year and bad year. D. It adopts the 90:10 Rule to apply bonus allocation.

C. Pay the same annual bonuses for both good year and bad year.

Which document is not one of the 3 compulsory documents which the representative must provide and explain under LIA's disclosure guidelines, A. Product Summary B. Policy Benefits Illustration C. Policy Brochure Illustration D. Guide To Life Insurance

C. Policy Brochure Illustration Disclosure Requirements Relating to Participating Life Insurance Policies 1. Cover Page 2. Product Summary 3. Policy Illustration 4. Bundled Product Disclosure Document 5. Product Highlights Sheet 6. "Your Guide to Life Insurance"

What kind of bonus is in the form of an addition to the sum assured, irrespective of the age of the insured, or the period that the policy has been in force? A. Cash Bonus B. Terminal Bonus C. Reversionary Bonus D. Interim Bonuses

C. Reversionary Bonus

Under the Internal Governance Policy on Participating Fund Management, as set out in MAS Notice 320, it is not necessary for the insurer to ensure: A. The Internal Governance Policy is approved by its board of directors B. The Internal Governance Policy is reviewed annually C. The Internal Governance Policy is made available on its corporate website. D. The participating fund is managed according to the rules and guiding principles as set out in the Internal Governance Policy.

C. The Internal Governance Policy is made available on its corporate website.

Participating policies provide A. guaranteed benefits only B. non guaranteed benefits only C. combination of guaranteed and non guaranteed benefits D. no cash value at all

C. combination of guaranteed and non guaranteed benefits

Which of the following is/are method(s) that a life insurer may employ as a method of distributing divisible surplus for a participating policy i. Simple Revisionary Bonus ii. Automatic premium loan (APL) iii. Interim bonus A. i only B. i and ii C. i and iii D. all of the above

C. i and iii Types of Non-guaranteed Benefits (bonuses) 1. Revisionary Bonus 2. Terminal Bonus 3. Cash Dividends 4. Interim Bonus - Automatic premium loan: type of non-forfeiture option to keep a policy in force in the event of a default of premium payment by a policy owner - Once policy acquired cash value, APL will be effected and policy will not lapse as long as there is sufficient cash value to cover premiums due

The insurer is not required to disclosure its Internal Governance Policy to consumers or existing policy owners because A. it is confidential B. it is approved by the insurer's Board of Directors C. it can be technical and may not easily understood by a layperson D. it has nothing to do with people outside the insurance company

C. it can be technical and may not easily understood by a layperson

In a product summary, which of the following is NOT included A. description of different types of bonuses payable, and the frequency in which the bonuses are determined and allocated to the participating policy owner B. description of how the smoothing of the annual and terminal bonuses will be carried out during the policy term C. the projected investment rate of return D. explanation of the free look period

C. the projected investment rate of return Product Summary (Point of Sale) - provides more information about how insurer actually carries out risk sharing, investment, and smoothing for that particular product group - shall include the following information in the product summary for its participating policies A. provider of the plan B. nature and objective of the plan C. benefits under the plan D. investment of assets E. type of risks affecting the level of bonuses, F. sharing of risks G. smoothing and bonuses H. fees and charges I. adjustments in premium rates J. impact of early surrender K. update on performance L. conflict of interests M. related party transactions N. free look period

The regulatory safeguard to ensure that the insurer does not deliberately under-declare bonuses is the ___ rule A. 80:20 B. 70:30 C. 50:50 D. 90:10

D. 90:10

Insurers are required to have in place the following to enable proper exercise of discretion in determining bonuses, except: A. Bonus allocation process B. Risk sharing mechanism C. Reserving for future non guaranteed bonuses D. Ad hoc declaration of company profits

D. Ad hoc declaration of company profits

Under LIA's disclosure guidelines, Product Summary must consist of the following information: I. Benefits and features of the product and the explanation of the 'kink' effect. II. The terms and conditions, the potential risk, the volatility of returns and the financial commitment required. III. The illustration or projection of bonus conforming to the guidelines for benefit illustrations. IV. The bonus rates and the terminal bonus rates A. I & II B. II & III C. I, II & III D. I, II, III & IV

D. I, II, III & IV Point of Sale (Product Summary) - Help consumers understand practical aspects of high-level concepts mentioned in consumer guide "Your Guide to Participating Policies" A. provider of the plan B. nature and objective of the plan C. benefits under the plan D. investment of assets E. type of risks affecting the level of bonuses, F. sharing of risks G. smoothing and bonuses H. fees and charges I. adjustments in premium rates J. impact of early surrender K. update on performance L. conflict of interests M. related party transactions N. free look period

Under MAS No: MAS 320, an Annual Bonus Updates given out to existing participating policyholders does not contain what information? A. Update on changes in future non-guaranteed bonuses B. Purpose of the annual bonus update C. Bonus Allocation D. None of the above

D. None of the above

Which of the following is NOT an example of Company Specific Information found in the Product Summary? A. Related party transactions B. Fees and charges C. Free Look Period D. None of the above

D. None of the above

A man who bought a Participating Policy is concerned with when he will get his bonus. Which of the following is true? A. Immediately upon purchase. B. After the 3rd year of the policy. C. Upon policy anniversary when the insurer allocate them. D. When he has paid the premium upon policy anniversary year.

D. When he has paid the premium upon policy anniversary year.

Which of the following is NOT a compulsory document when making a recommendation for a life policy A. Policy Summary B. Benefit Illustration C. Your Guide to Life Insurance D. Your Guide to Participating Policies

D. Your Guide to Participating Policies

For the purpose of determining the bonus of each par product group, items that are product specific, such as premium income, commissions and maturity benefits, the practice is to allocate to the particular participating product. A. appropriate amount B. pro-rated amount C. estimated amount D. actual amount

D. actual amount

Reserves for future bonuses is A. not allowed. B. allowed for annual bonuses. C. allowed for terminal bonuses. D. allowed for annual and terminal bonuses.

D. allowed for annual and terminal bonuses.

The difference between the "Value of Premiums Paid To-Date" and the "Total Surrender Value" is the A. Projected investment rate of return B. total distribution cost C. total cost of benefits D. effect of deductions to-date

D. effect of deductions to-date

Participating policies are: A. Life insurance products that participate in the performance of the participating fund of the life insurer B. Life insurance products that participate in the performance of the investment linked funds of the insurer C. Life insurance products that participate in the performance of the investment linked funds of the fund manager D. Life insurance products that participate in the performance of the market price of the industry

A. Life insurance products that participate in the performance of the participating fund of the life insurer Participating Policies - life insurance products that participated in the performance of the participating fund of the life insurer

Jamie bought a whole life policy with compound reversionary bonus the amount of bonus credited to a policy depends . A. basic sum assured and attaching bonus. B. surrender value. C. how long the policy has been in force. D. the amount of existing bonus attached to the policy.

A. basic sum assured and attaching bonus. Compound Reversionary Bonus (CRB) - Yearly addition is allocated in proportion to the sum assured + any existing bonuses attached to the policy Simple Revisionary Bonus (SRB) - Yearly addition is based on sum assured only

Participating policies A. provide guaranteed and non-guaranteed benefits B. are invested in equities only to give a higher return to the participating fund C. are specifically suited to those who want to save D. are not suitable for those with time horizion which are less than 20 years

A. provide guaranteed and non-guaranteed benefits Participating Policies - Provide combination of guaranteed and non-guaranteed benefits

What is NOT found in the Annual Bonus Update? A. the rate of bonus to be declared in the coming year B. past performance and future outlook C. bonus allocation D. update on changes in future non-guaranteed bonuses

A. the rate of bonus to be declared in the coming year Information to be contained include: A. purpose of annual bonus update B. past performance and future outlook C. bonus allocation D. update on changes in future non-guaranteed bonuses

Insured will receive Bonus Update from the insurer A. yearly B. half yearly. C. when there is a change in medium, to long term investment return. D. at policy anniversary and premium due is paid.

A. yearly

For non-participating policy without cash value will have the followings: a) Guarantees the payment of the sum assured upon death/TPD b) Non-forfeiture option c) Automatic premium loan d) None of the above

a) Guarantees the payment of the sum assured upon death/TPD

Under the Waiver of premium rider on TPD, there is a waiting period for the waiver of premium payable in order to make sure the disability meets the rider's definition. Choose the correct answer below: a) 90 days b) 6 months c) 9 months d) 1 year

b) 6 months Waiver of premium rider - Keep a policy in force in the event that life insured is not able to pay premiums when he is totally and permanently disabeled or is suffering from one of the critical illnesses cover under his policy 1. TPD - Some insurers issue Waiver of Premium Rider as an integral part of the policy (i.e. it is "folded in" their policies) - No additional premium required as it has already been costed in gross premium for basic policy - waiting period of 6 months before insurer waives premium payable - Some insurers refund monthly premiums during waiting period once disability is confirmed 2. CI - rider should not be recommended if underlying coverage (in the form of a basic policy and rider) provides 100% acceleration of death benefit on Critical Illness (Because in the event of a critical illness, sum assured would be paid out and policy would terminate, so there would be no premiums to wave) - Duration is dependent on: a) basic policy it is attached to b) type of CI rider that policy owner opted for (Endowment --> follows term) (Whole Life --> usually for life or premium-paying term if it is a limited premium policy)

Which of following insurance premium payments stop a few years before expiry of policy? a) Term Insurance b) Decreasing Term Insurance c) Increasing Term Insurance d) None of the above

b) Decreasing Term Insurance Decreasing Term Insurance - diminishing amount of cover over the term of the policy - e.g. Mortgage Insurance, Credit Life Insurance, Family Income Insurance, etc. - Premium is usually level and ceases a few years before expiry of the policy to prevent the policy owner from terminating the policy (Because coverage towards end of policy term will be reduced considerably, and policy owner may find it not worth paying premium for low coverage)

Bonus usually declared as a percentage of the reversionary bonuses already attached to the policy of the basic sum assured is known as: a) Interim bonus b) Terminal bonus c) Cash bonus d) Simple bonus

b) Terminal bonus Types of Non-guaranteed Bonuses 1. Revisionary (Annual) Bonus - addition to sum assured (can be surrendered for cash equivalent) - declared every year (guaranteed once declared and credited to policy, aka vesting) 2. Terminal Bonus - added on top of revisionary bonus - % of revisionary bonus or summed assured - maturity, surrender, death, TPD (in force for a minimum period) 3. Cash Dividends - immediate cash payment - can covert to additional sum assured (paid-up addition) or reduce future premiums 4. Interm Bonus - between declaring and vesting of bonuses - based on prevailing bonus rate

Hospital Cash (Income) Benefit Rider will be not be payable except occurs as follows: a) Attempted suicide, while sane or insane b) Pregnancy, miscarriage, childbirth and their complications c) Hospitalization as a result of both sickness and accident d) All of the above

c) Hospitalization as a result of both sickness and accident

Benefits under the Critical Illness rider are only payable if: I) Meet the definition of the particular dread disease II) Basic Policy must be in force III) No waiting period IV) All of the above a) I,II&III b) II&III c) I&II d) IV

c) I&II CI Rider - Provides for a lump sum to be paid in the event that the life insured is diagnosed to be suffering from one of the covered critical illness - Can be attached to Whole Life, Endowment, Term, and ILPs - only one covered critical illness claim can be made on a policy (rider sum assured is paid out only once) - waiting period (90 days) - cap on sum assured (to minimize risk of moral hazard) - level premium (either guaranteed for the whole policy period or subject to change by insurer) - flexibility: no restriction on how CI benefit paid is to be used (can be attached to ILP policy or traditional policy) - no cash value - automatically terminated once basic policy terminates (cover may expire at max age of 65 years before basic policy terminates) - provide 24 hour a day, worldwide coverage

Whole Life has the following features: I) Fixed maturity date II) Automatic premium loan III) Permanent Insurance IV) All of the above a) I&III b) I&II c) II&III d) IV

c) II&III Whole Life Insurance - Provides for the payment of policy's face value (plus bonus if applicable) upon the death of the insured, regardless of when death occurs - often has TPD benefit as part of the basic policy or attached to policy as a supplementary benefit - emphasis protection but also has some form of savings element ("cash value") in addition to the death benefit - riders usually allowed to be attached to the policy - premium higher than that of a similar Term Insurance policy - Offers Lifetime Coverage - Contains A Cash Value Element - Since all participating policies acquire cash value, policy owners are entitled to the following benefits 1. Non-forfeiture options 2. Automatic premium loan (APL) 3. Policy loan

Both the Additional and Acceleration Benefits of Critical Illness Rider have the following common features except: a) Can be attached to a life or investment-linked policy b) Automatically terminated once the basic policy is converted into an extended term policy c) No assignment is allowed d) There is a minimum and maximum sum assured restriction

c) No assignment is allowed CI Rider Features - benefit paid out in a lump sum in the event life insured is diagnosed with a CI covered under the policy - can be attached to Whole Life, Endowment, Term, ILPs - 2 types: Acceleration & Additional - for benefit payment, CI needs to fulfill eligibility criteria and cannot fall under the list of exclusions set out by insurer - All riders do not have any cash value and will automatically be terminated once basic policy is converted into paid-up or extended Term Insurance policy - Acceleration: max amount payable = basic sum assured + bonus (if any) - Additional: max amount payable = basic sum assured + bonus (if any) + rider sum assured

Convertible option of a Term Insurance allows the insured to enjoy the followings: a) Right to change into a permanent policy with evidence of insurability b) The sum assured of the new policy can be greater or equal to that of the Term policy c) Premium of the new policy based on the insured's new attained age d) All of the above

c) Premium of the new policy based on the insured's new attained age Increasing Term Insurance (Renewable and Convertible Bonds) - may want to continue their insurance coverage beyond length of policy's original term Renewable - Gives life insured the right to renew his policy at end of policy term, without evidence of insurability - Offer this type of policy on a short-term basis - Renewal allowed as long as expiry date of policy does not exceed specified age (60 years) - Automatically renewed as long as the life insured pays the increased premium - Upon renewal, policy will have same policy term and death benefit as original benefit - Life insured required to pay higher premium based on his attained age (age at which he renews his policy) - protect the insurability of the life insured, so that he is able to enjoy insurance coverage in the future - premium becomes much higher in proportion to the insurance coverage in the later years Convertible Options - right to change or to convert Term Insurance policy into a permanent policy (Whole Life Insurance policy) - Suited for clients who prefer Whole Life Insurance, but do not have budget at the time of purchase - Evidence of insurability is not required at the time of conversion - Most insurer allow policy owners to convert Term Insurance at any time during policy term, or before the life insured reaches a specified age (60 years) depending on whichever is earlier - Insurers charge higher premium rate of convertible Term Insurance policy than non-convertible Term Insurance policy (to prevent anti-selection) - Conditions a) request for conversion must be done in writing on a form as prescribed by insurer, and accompanied by the premium payment for the new policy based on life insured's attained age (assuming attained age conversion) b) sum assured for new policy must be equal to or less than that of the existing Term Insurance policy c) new policy will include all the limitations and exclusions as originally applicable to the Term Insurance policy

Cash bonus is generally allocated to each policy in proportion to the premium paid during the valuation period and can be used either as follows: a) Cash out b) Converted to additional sum assured c) Reduce future premium d) All of the above

d) All of the above

Policy with Renewable option has the following features: a) Right to renew at the end of policy term without evidence of insurability b) Expiry date to the policy does not exceed the specified age c) Insured is required to pay his premium based on his attained age d) All of the above

d) All of the above

Some policyholders prefer participating insurance because of the following benefits: a) Enjoy some investment returns with insurance protection b) Serve as a hedge against inflation c) Cash values accumulated can be used to meet emergency fund d) All of the above

d) All of the above

The policy-owners of participating policies is entitled to the following benefits: a) Non-forfeiture options b) Automatic Loan c) Policy loan d) All of the above

d) All of the above

The accumulation of policy cash value is due to the following reasons: a) Premium collected in the initial years is more than the cost of insurance b) Investment returns on the assets that back the cash values further increases the cash value c) Lower mortality experience also contribute to increase in cash value d) All of the above

d) All of the above - Because premiums are paid for these policies, an accumulated savings amount (policy's cash value) gradually builds up - Cash values earn interest at a declared rate which may change over time

Common features of Pure Endowment: a) Death within term, no payment b) Face amount paid when insured survives to the end of the specified period c) Usually offered for sub-standard life d) All of the above

d) All of the above Endowment Insurance - Designed to pay out the death benefit when life insured dies during policy term, or the maturity value (equal to the death benefit) if he survives to the end of the policy term - combines insurance protection with a savings element for the policy owner. - unlike a Whole Life Insurance policy, an Endowment Insurance policy has a fixed maturity date (when the policy term expires and the full maturity value will be paid out to the policy owner if he survives to maturity.)

What are the features of the participating insurance policy? a) It guarantees the payment of the sum assured when an insured event happens. b) It shares in the profits of the insurer c) Insurance Act stipulates at least 90% of the insurer's surplus to be distributed to policyholder d) All of the above

d) All of the above Participating Policies - life insurance products that participated in the performance of the participating fund of the life insurer - "with-profit policies": share in the profits or surplus of the participating funds - Premiums are pooled together with those of other participating policies in a specially designated participating fund - Provide combination of guaranteed and non-guaranteed benefits (Both guaranteed and non-guaranteed benefits (or bonuses) are paid out of the assets of the participating fund) - Insurer has the obligation to pay guaranteed benefits regardless of performance of participating fund - In the extreme event that participating fund has insufficient assets to meet guaranteed benefits, insurer is required to make good the shortfall by injecting additional capital into participating fund 90:10 Rule (Insurance Act) - Since determination of bonuses is at discretion of insurer, there is a regulatory safeguard to ensure that insurer does not deliberately under declare bonuses in order to retain more profit for itself - 90% of any surplus determined to be distributable, as bonuses go to policy owners in the participating fund, and 10% goes to insurers

The features of the Additional Benefit of Critical Illness Rider is as follows: a) Payment under the policy on diagnosis of critical illness affects the basic sum assured. b) Critical Illness Rider sum assured must not exceed the basic sum assured c) Critical Illness rider follows the basic plan and coverage can be for life d) None of the above

d) None of the above Acceleration Benefit - payment under policy on diagnosis of a covered CI affects the basic sum assured - may cause policy to be terminated upon payment of a covered CI claim if it is a 100% acceleration benefit CI Rider - max amount payable under policy = basic sum assured + bonus (if any) - sum assured must not exceed that of the basic sum assured - term usually follows basic plan and coverage can be for life - can be bundled or packaged (instead of attaching as a rider) with Whole Life, Endowment, Term, and ILPs to provide cover for death, TPD, and critical illness Additional Benefit - payment under policy on diagnosis of a covered CI does not affect the basic sum assured - will not cause policy to be terminated upon payment of a covered CI claim if it is a 100% acceleration benefit CI Rider - max amount payable under policy = basic sum assured + bonus (if any) + rider sum assured - sum assured can be up to a certain number of times of the basic sum assured (subject to insurer's guidelines) - term must not exceed that of the basic plan and usually expires when life insured reaches specified age - like having a separating policy covering critical illness only (with no death cover)