1

The following chart is a consolidated figure on the percentage (%) of

multiple choice questions derived from respective chapters :
Chapter 30
Chapter 29
Chapter 28
Chapter 27
Chapter 26
Chapter 25
Chapter 24
Chapter 23
Chapter 22
Chapter 21
Chapter 13
Chapter 12
%
Chapter 11
Chapter 10
Chapter 9
Chapter 8
Chapter 7
Chapter 6
Chapter 5
Chapter 4
Chapter 3
Chapter 2
Chapter 1
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Hot exam topics 2

Chapter 1
Introduction to Insurance

3
• What is Insurance?
• How does Insurance work?
• Why is Insurance
important?
• Functions of Insurance
• Classes of Insurance
• A brief history
• What is your role as an
Insurance agent?

4
 Fortuitous events

Insurance, as an
organisation, seeks to
provide protection Insurance

against financial loss

caused by fortuitous
events e.g. death,
disability
Fortuitous: Happening by chance; coming or occurring by accident, or without any known
cause.

5
An arrangement where individual losses are shared by members
of a group facing similar risk exposures. This loss-sharing
arrangement is called insurance.

Accumulate An economic
funds for claims institution

Only certain risks Principle of

are insurable mutuality

6
 Claim
People with the
same risk Pooling of Risks
exposure

Life Fund Person facing loss

Law of Large
Numbers

7
 Risks

Financial Unfortunate
Everyone is exposed to losses. loss events

Even sources of income are at

risk of being affected by events
out of our control.

Insurance protects against

financial loss caused by
unfortunate events or risks.

8
 Primary Function
To equitably distribute the financial losses of a few whom
are insured among the many insured

9
 Stimulates business
Cost stabilisation for
enterprise
business enterprise

Provides Secondary
employment Source of capital
Functions of investment
Insurance

Peace of mind
Reduction of losses

Means of saving

10
 Covers Human Life Anything other than human
life
• Premature death Insurance • Loss/damage to
property
• Retirement income
• Legal liability caused by
• Sickness / disability
products sold
• Death/injury (3rd party)
by accident

11
 Financial relief to
aggrieved dependents
Financial
relief for
property loss

Other related services

Inculcate habit
of saving

12
Chapter 2
Nature of Risk and Its Management

13
• Some related concepts
• How do you measure
risk?
• Categories of risk
• Methods of handling
risk
• Risk management
• Characteristics of
Insurance risk

14
 PERIL
Cause of Loss
(Fire)

LOSS
Reduction /
Disappearance of
Economic Value
HAZARD (Property, lives)
Condition that
Increases the
chance of loss RISK
(Wind blowing) Uncertainty regarding Loss
(House on Fire)
15
 Physical Hazard Moral Hazard
A physical chance that A character defect in an
increases the condition of loss. individual that increases the
chance of loss.

Dishonesty,
carelessness,
unreasonableness
Wooden building Car in poor etc.
working condition

16
 Priori Determined when the total number of
Probability possible events is known

Empirical Determined on the basis of historical

Probability data.

Judgmental Based on the judgment of the person

Probability predicting the outcome.

17
Fundamen- Pure
tal
&
& Speculati-
Particular ve
Risk
Risk

18
 Fundamental Risk Particular Risk

Affects the entire economy Affects individuals and not

or large number of person / the entire community or
groups within the economy country.

19
 Pure Risk Speculative Risk

Exists when there is the Exists when there is the

possibility of either loss or possibility of profit, loss or no
no loss. loss.

Pure Risk Speculative Risk

Loss No Loss Loss No Loss

Gain

20
 Severity
High Low

Risk Loss
Probability

High Avoidance Control

Low
Risk Risk
Transfer Retention

21
1. Risk Avoidance
Involves avoiding the property, person or activity which
produces the risk.

22
 2. Loss Control
Aims to reduce the total amount of loss. The frequency and
severity of losses influence the total amount of loss.

Loss Reducing the

Prevention frequency of loss
Loss Control
Loss Reducing the severity
Minimization or amount of loss

23
3. Risk Retention
Losses are borne by the party retaining the risks. When risk
retention is planned, risks are retained deliberately.

24
4. Risk Transfer
Involves transferring risks to an organisation or individual.
Losses will be paid by the organisation or individual to whom
it was transferred.

Insurance Contract
Risk

2 ways to Non Insurance Contract

transfer risk

25
 Identifying loss exposures Evaluating
potential
losses

The Risk Management

Process
Selecting
Implementing the risk techniques of
Controlling the risk management program
management risk handling
program

26
 Financial
Value
Reasonable Large number
premium of similar risks

Legal & not

against public Pure risk
Insurable
policy only
Risk

Insurable No catastrophic
interest No catastrophic
Fortuitous losses
losses
losses
Fortuitous losses

27
Chapter 3
The Basic Principles of Insurance and
An Introduction to Takaful

28
• Principle of Insurance
• Introduction to Takaful
Insurance
• Formation of Takaful
companies
• Syariah supervisory council
• Principles of Takaful
operation
• Aspects of Takaful operation

29
 Insurable Interest
Principle of Utmost
Good Faith Assignment

Indemnity
Principle of
Proximate
Cause Principle of
Principle of Subrogation
Contribution

30
 What? When?

The legal right to insure • General Insurance:

arising from the legitimate Upon entering and at
financial interest which time of loss
an insured has in a • Life Insurance: Only at
subject matter of the inception
insurance. (Subsection 152(1), IA 1996)

31
 My Spouse My Child or ward

“I have insurable
interest in…”

A wholly or partly
My Employee
dependent person

32
 My insurer has Thanks! Now i have all the
consented to this rights and liabilities from
assignment! this contract

Insurance
Contract

Assignor Assignee
(Insured) (New Owner)

33
The insured CANNOT assign his right in the policy to another unless
prior consent from the insurer has been obtained.

Exception to the rule:

• Marine policies
• Life policies
• Transfer by will or operation
of law

34
The insured has to disclose fully and accurately all
material facts, whether asked or not.
Material facts: a fact which will influence a prudent underwriter in deciding the
acceptance of the risk or the premium to be charged

1. Disclose matters that affect the rate,

terms, and acceptability of risk.

2.Disclose matters that a reasonable

person would know to be relevant. INSURER

35
NON-DISCLOSURE MISREPRESENTATION

Breach of Utmost Good

Faith

Voidable
Contract

36
Requires that the insurer restores the insured to the
same financial position as he had enjoyed
immediately before the loss

37
 Insured suffers loss
due to 3rd party and
Insured cannot
claims from insurer
claim from 3rd
Party again Insured

Insurer claims from 3rd Party

3rd Party INSURER

38
An insurer may ask other liable insurers to
pay for the same loss.

2 or more policies Policies cover

of indemnity in common interest
force
Conditions for
Contribution
Involves a common
Policies cover common subject matter
peril (cause of the loss) (covered by the
policies)

39
•It is the dominant cause of loss amongst many causes of
losses
•When a loss occurs, the insured must prove that it was
caused by an insured peril.

DOMINANT cause of
Cause of Cause of loss: Proximate Cause Cause of
Loss Loss Loss

40
 Perils

Insured Perils Uninsured Perils Excluded Perils

Perils are expressly Perils are not mentioned in the Perils have been
covered by a policy policy & are not covered unless expressly excluded
they occur as a result of an from the policy
insured peril

Insurers are NOT LIABLE for uninsured and excluded perils!

41
 Formation of Takaful
Companies
Takaful Syariah Supervisory Council

Insurance based on
Syariah Principles Principle of Takaful
Operation

Family General Aspects of Takaful Operation

Takaful Takaful

42
 Advise on all operations to ensure that Takaful
Syariah Supervisory there are no elements contrary to the
Council Syariah’s approval Company

SYURA Ruling
Decisions of the council must be mutually
agreed by all members.

43
 2 Important Concepts

TABARUK MUDHARABAH

• Means ‘to donate’

• AQAD (agreement) is achieved to • Means ‘Trustee Profit Sharing’
donate contributions into a risk • Contractual agreement between
fund. capital provider and entrepreneur
• Fund is used to assist in financial for business ventures.
losses.

44
 Covers business and
pure risks

Takaful Co. as asset Not a contractual

manager and profit/loss transfer of risk
distributor

Aqad of helping and Contribution as

cooperating donation

45
Chapter 4
The Insurance Industry In Malaysia

46
• The insurance market
• Organization structure
• Centralization vs.
Decentralization
• Insurance related
institutions

47
Main Components of The Insurance Market

Buyers

Intermediaries
The Insurance
Market

Insurance
Brokers
Insurance
Agents Sellers

48
 In Malaysia, most insurance companies are organised on the
basis of functions performed

Administration Agency Sales

Electronic Data Marketing

Processing
Underwriting
Accounting
INSURANCE
COMPANY Claims
Investment

Actuarial Customer Service

49
GENERAL INSURANCE
Motor Insurers Bureau (MIB)
Insurance Mediation Bureau (IMB)
Unplaced Motor Pool
Persatuan Insurans Am Malaysia (PIAM)
Insurance Broker Association of Malaysia (IBAM)
Association of Malaysian Loss Adjusters (AMLA)

50
 Life Insurance Association of Malaysia (LIAM)
• Established 1974
• Promote and represents 18 life insurance companies in
Malaysia

National Association of Malaysian Life Insurance and

Financial Advisors (NAMLIFA)
• Established 1978
• Safeguards the interests of those engaged in life insurance
selling and sales management

51
 Actuarial Society of Malaysia (ASM)
• Founded in 1978
• Promotes the study and research into the Actuarial subjects.

Malaysian Insurance Institute (MII)

• Established in 1985
• Conducts courses and professional examinations in insurance
related discipline.

52
Chapter 5
Consumer Protection and Statutory
Regulation

53
• Insurance industry and
the consumer
• Self regulation
• Statutory regulation
• The Companies Act, 1965

54
The International Consumer Movement says that
customers have the following rights:

To Satisfaction To be Heard

Consumer To Redress
To Information
Rights
To Consumer
To Choose Education
To Basic Goods To a Safe &
& Services Clean
Environment
55
Instill discipline and promote Provides some element of
healthy competition. protection to insurance
consumer.

56
 General Insurance Insurance Brokers
Association of Malaysia Association of Malaysia
(PIAM) (IBAM)

Association of Malaysia Life Insurance

Loss Adjusters (AMLA) Association of Malaysia
(LIAM)
57
 Advantages: Disadvantages:
1. Instill self-discipline 1. No power of law.
2. No need to introduce legislation 2. Insurers view consumer needs from
their own perspective.
3. Bureaucratic back up required to
enforce laws. 3. Laws are interpreted by court.
Statements of practice are
4. Faster response to changing needs
interpreted by insurers.
compared to legislation.

58
 Scope of Regulation:
Insurance Act 1996, Insurance Regulation 1996

Protection of Public Promotion of Fairness

Interest & Equity

Purpose of Regulation

Fostering of Playing a
Competence Developmental Role

59
Chapter 6
The Insurance Contract

60
• Law of contract

61
Intention to Create Legal
Legal Capacity to Contract
Relationship

Offer & Acceptance Consideration

Consent –
Legality of the Contract
Consensus Ad Idem

62
 Defective Contracts

Void Contracts Voidable Unenforceable

Contracts Contracts

Totally invalid Valid until Non compliance

voided with legal
formalities

63
Chapter 7
Law of Agency

64
Table of Contents

• Legal provisions
governing the law of
agency
• Duties of an agent
• Rights of an agent and
obligations of the
principal
• Termination of agency
• Characteristics of
insurance agents

65
 AGENT PRINCIPAL
Person who acts on Person whom the
behalf of another agent represents
person
66
Middlemen – insurance The relationship between the
agents and brokers agent and the principal – the
agent can affect principal’s
relationship with 3rd parties

67
 Express Authority
Apparent / Ostensible
Authority

Implied Authority

Ratification
Usual Authority

AUTHORITY OF AN
AGENT

68
 The THREE classes of agent:
Special Agent General Agent Universal
Agent

Appointed to do a Acts for principal Unlimited authority

specific act within limits of to act for principal
authority
69
70
The relationship may be terminated as follows:

71
Chapter 8
Marketing & After Sales Services

72
• Marketing
• Market-oriented agent
• Consumers buying
decision process
• Selling process
• After-sales services

73
Marketing Defined:
The management process responsible for identifying, anticipating,
and satisfying customer requirements profitably.

What Does the Marketing Department Do?

Planning & Controlling Pricing

Market Identification Select Distribution Channel
Product Development Promotion

74
 Help develop new products

Coordinate
Satisfy
strategies
The Market- customers –
based on
Oriented Agent make profit
market analysis

75
 Product
Knowledge

Knowledgeable Market-
Oriented Agent

Selling Market
Techniques Knowledge

76
77
78
Why provide after-sales service?

 Minimise chance of loss

 Recognise new insurance needs
 Enhance reputation

79
Chapter 9
Introduction to
Medical and Health Insurance

80
• Overview of Medical & Health Insurance
(MHI)
• Principles and Practices Applicable to
MHI
• Guidelines Applicable to MHI
• Duty of Disclosure
• Categories of MHI
• Claim Payment Does Not Terminate
Coverage
• MHI Risk Increases With Time
• Cost Containment Measures
• Cashless Hospital Admission
81
 MHI eases
financial burden

Adverse changes in
health

Administered through the Accident and

Health Department / Group Insurance
Department Of an insurance company
82
Medical Expenses Hospitalization
Critical Illness Cash Benefit

Health Insurance
comprises

Ill Heath Related

Disability Income 83
 Principles Practices

Insurable Interest Offer and Acceptance

Utmost Good Faith Underwriting
Proximate Cause Policy Processing
Indemnity Claim Administration
Contribution Reinsurance
Subrogation

84
 Fraudulently conceal a
Make a statement
material fact
which is
misleading, false
or deceptive,
whether Use sales brochure
fraudulently or or sales illustration
otherwise not authorised by
the insurer

Where a person is induced to enter into a contract in a manner

as described above, the contract shall be voidable & the person
shall be entitled to rescind it!
85
 1 2
Indemnity Policies Benefit Policies

It places the insured in the Pays a pre-determined sum of

same financial position as money if an insured event
before occurs during the policy period

E.g.:- Hospitalisation & E.g.:- Hospitalisation cash

surgical insurance benefit plans, critical illness
insurance & disability income
insurance

86
 Provided the Per Disability Limit, the Overall
Annual Limit or Lifetime Limit is not exhausted,
the contract is not terminated by the payment of
claim, further claims can be made within the period
of the contract for the balance of the sum insured

The payment of a claim does not

terminate a policy, except in the
event of a death claim

87
 The morbidity risks (probability of a disability
resulting from an accident or illness)
Increase with age

Other external factors such as occupation and

environmental factor also affect the risk

88
• Admission to a panel hospital is by the issuance of a letter
of guarantee & the hospital deposit may be eliminated

• The claimant only pays for non-reimbursable charges

89
 Insurers may undertake the following methods
to contain costs

Inner Limits
Co-payment for
upgraded rooms
Schedule of
Surgical Procedures

Deductibles
Maximum Period
of Compensation
Panel of Hospitals

Timeframe during which

expenses are payable
90
Chapter 10
Types of Medical and Health Insurance

91
• Types of Medical & Health
Insurance (MHI)
• Medical Expenses Insurance
• Hospitalisation and Surgical
Insurance
• Major Medical Expenses Insurance
• Basis of Insurance Coverage
• Group Medical & Health Insurance
• Hospitalisation Cash Benefit
Insurance
• Critical Illnesses Insurance
• Disability Income Insurance

92
 Individual policy premiums 
with age

Group Policies issued to

group of 3 or more persons

93
 1 2

Medical Expenses Insurance Hospitalization Cash Benefit Insurance

3 4

Critical Illness Insurance Disability Income

94
 2 Expense Participation Methods

Deductibles Co-payments
• Policyholder to pay a pre-agreed • Sharing of expenses
amount first before the balance between the policyholder
of eligible expenses are reimbursed & the insurer.
or paid by the insurer

• This deductible may be in the form

of A Fixed Amount (RM 300),
A Percentage (10% of eligible
expenses) or A Combination
(10% of all eligible expenses,
subject to a max/min of RM 500)
95
 A stand-alone policy or rider which pays a pre-agreed
amount for each day the insured person is
hospitalised

96
 A stand-alone policy or rider that pays a lump sum to the
insured upon being diagnosed any one of the specified
critical illnesses
 Also known as Dread Diseases Insurance

97
 Also known as Permanent Health Insurance

 A periodic payment is made when the insured

is unable to work as a result of illness, disease or injury

98
 Comprehensive Hospitalisation & Surgical Insurance
called “As Charged” pays the actual amounts charged.

 It imposes Per Disability Limits & Overall Annual Limits.

99
 All eligible members can be covered by a group policy,
regardless of age or physical condition.

Based on group
PREMIUM
characteristics

e.g. average age, degree of

occupational hazard

100
Chapter 11
Underwriting Medical & Health Insurance

101
• Overview of Underwriting
• Risk Selection Process
• Sources of Underwriting
Information
• Underwriting Decision
• Issuing Modified Coverage
• Renewal of MHI
• Payment of Premium
• Termination of a Policy

102
 Determination of
Assessment &
Premium, Terms &
selection of risks
Conditions

Underwriting

103
To ensure sufficient funds to pay for claims, insurer has to:-

Guard against n
ANTI-
Anti-Selection SELECTION

Charge a premium that is commensurate

with the risk transferred

104
 4 Main Categories of Health Insurance’s Risk Selection

Medical Financial
Basic indicators of the Key to determine
probability of the amount & types
future problems of coverage available

Occupational Age & Sex

To determine premium rates on Age ; Medical problems
disability & accident medical Mortality in males &
expense coverage Morbidity in females
Other factors : Aviation Risks, insured’s avocations, moral character & habits

105
Medical Underwriting

Medical History

Current Physical Condition

Family History

Financial Factors

106
 Morbidity rates increase with the increasing of age

 Probability of a person’s injury due to accident & the

Length to recuperate generally increase with age

107
 Application Agent’s
Form Statement

Hospital
Medical or
Medical
paramedical
Records
examinations
Attending
physician
statements (APS)

108
 Underwriting decisions can be
categorized under

Standard Issue Decline

Substandard /
Modified Issue

109
3 methods to address sub-standard risks:-

(A) Exclusion Endorsement

(B) Extra Premium (Premium Loadings)

(C) Change of Benefit (Modified Benefits)

110
• It may be issued on “cash-before-cover” basis or 60 days
premium warranty.

• If the premium is not paid before the end of the warranty

period or the grace period, the policy lapses.

111
• Terminated on the earliest happening of the following
events:-
(i) On the death of an Insured Person
(ii) On the policy anniversary of the insured’s
maximum eligibility age
(iii) Total benefits paid exceed the maximum limit

112
Chapter 12
Policy Administration

113
• Overview of Policy
Administration
• Proposal Form
• Policy Form
• Endorsements
• Renewal Notices
• Documents for Tax Relief

114
 Documents used in the conduct of insurance business :-

Proof of
MHI
Premium
Renewal Payment
Endorsement Notice for Tax
Policy
Proposal Relief
Form
Form

115
Chapter 13
Medical and Health Insurance Claims

116
• Notification & Proof of Loss
• Checking Coverage &
Investigation of a Claim
• MHI Claim Forms
• Repudiation of Liability by
Insurers
• Disputes

117
OCCURRENCE OF Write to Insurer Produce PROOF
LOSS within 30 days of LOSS / CLAIM

DISABILITY BENEFITS HOSPITAL & MEDICAL BENEFIT

Written proof of loss within
stipulated time Affirmative proof of hospital
confinement within timeframe of
the date of loss

118
Chapter 21
Life Insurance Preliminaries

119
• What is a life insurance
contract?
• History
• Characteristics of Life
Insurance Products
• Risks Covered by Life
Insurance

120
 Aleatory
Contract

Long term Rely on Principle

contract with of Good Faith
level premium

Cease upon
Can’t be cancelled payment of
by insurer claim

121
 Covered Risks

Premature Death
Permanent Disability
Temporary Disability
Retirement Benefits

Financial Guarantees

122
Chapter 22
Life Insurance Products

123
• Introduction
• Description of Contracts
• Family Takaful Business
• Types of Family Takaful
Business
• How It Works

124
 Insurer can’t invalidate contract unless:
• Non-payment of premium
• Contested policy – suppression of facts

POLICY
INSURER HOLDER

Policyholder agrees to pay:

• Regular sum, periodically
• Lump sum at inception

125
 2 Product Categories:

Non-Participating Participating
Contracts Contracts

126
 Description of Contracts

Term Whole Life Endowment

Ordinary Life

Decreasing Limited
Term Payment
Whole Life

Whole Life
Level Term
Endowment

Guaranteed Insurability

Guaranteed
Convertibility
127
 Description of Contracts
Level Life Annuity Dread Disease
Contracts Covers

Single Life Immediate

Investment Linked
Guaranteed Immediate Policies
Deferred

Joint Life
Group Insurance
Last Survivor

Reversionary
Permanent Health
Annuity Certain Insurance (PHI)

128
 Description of Contracts

Supplementary Miscellaneous
Benefits Policies

Accidental Death
Joint Life
Benefits

Disability Benefits Children’s Insurance –

protected educational
policies
Sickness Benefits

Children’s Insurance –
children’s deferred
assurance

129
1. Term Insurance
a) Level Term Insurance
Sum Assured payable only in event of death
b) Decreasing Term Insurance
Sum Assured decreases in amount at periodic intervals

130
2. Whole Life Assurance
a) Ordinary Life Policy
Protection for whole duration for life, payable upon death.
b) Limited Payment Whole Life Policy
Pay premiums for limited number of years
c) Whole Life Endowment Policy
Option to withdraw guaranteed cash bonus

131
3. Endowment Assurance
Payable upon death. Pays full face amount at end of term
Anticipated Endowment – Insurer will pay policyholder in
installments at regular intervals till end of term.

132
4. Level Life Annuity Contracts
Annuity Contract Description
Single Life Immediate Periodic payment starts immediately for
remainder of lifetime
Guaranteed Immediate Guaranteed payments over fixed period and
thereafter till death
Deferred Annuitant pays lump sum at entry. At a
specified age, the office will pay an annuity of a
specified amount until death.
Joint Life Provides specified amount of income for two or
more persons

133
4. Level Life Annuity Contracts (continued)
Annuity Contract Description
Last Survivor Payment until last death among covered lives
Reversionary Commences at death of Life Assured provided
the annuitant is then alive
Annuity Certain Periodical payments for a number of years and
not dependant on death or survival of annuitant

134
Other Types of Contracts…
Contract Description
5. Permanent Health Provides income during periods of sickness or
Insurance disability on a long term basis
6. Dread Disease Pays out a lump sum upon diagnosis of any
Covers specified disease
7. Investment Linked Benefits on maturity are related to value of
Policies underlying investments held in account of
policy holder
8. Group Insurance Insure lives in large groups at lower premiums

135
9. Supplementary Benefits
Contract Description
Accidental Death Includes Personal Accident benefit cover and
Benefits Double Accident benefit cover
Disability Benefits Covers permanent disability event before 60
yrs old
Sickness Benefits Includes hospitalisation and surgical benefits

136
10. Miscellaneous Policies
Contract Description
Joint Life Insurance Covers two or more lives. Payable on death.
Children’s Insurance Protected Educational Policies
- Provides for education and for starting a child
in life when he reaches age of majority
Children’s Deferred Assurance
- To start a permanent insurance program for a
child at a low premium rate

137
What is a Family Takaful Plan?
• Long term protection & investment
• Mutual financial assistance

Supplementary Benefits:
• Permanent Total Disability
• Personal Accident
• Hospitalisation Benefit

138
 Types of Family Takaful Plans

Different Terms Health &

Education Medical
(10-35 yrs)

Mortgage
Plans Group

139
 Sign Takaful contract based on
Mudharabah
TAKAFUL
COMPANY

Credit instalments into

fund
Decide Takaful
instalments and 1. Participants Account
Tabaruk FAMILY
TAKAFUL FUND 2. Participants Special
Account

140
Chapter 23
Policy Conditions

141
• Definition of a Policy
• Privileges and Conditions
• Policy Transactions

142
CONTRACT Intangible, legally binding agreement

Written document that embodies the

POLICY agreement

Privileges
POLICY
Restrictive Conditions
CONDITIONS
Conditions Explaining the Contract

143
 PRIVILEGES

Days of Grace Policy Loans Reinstatement Non-Forfeiture

Condition Conditions

Surrender
Value Paid Up
Policy

Extended Term Automatic Premium

Assurance Loan

Paid Up Policy

144
 If insured commits
suicide within stated
Suicide Clause
period, policy becomes
Additional premium void
may be charged

Occupation and RESTRICTIVE Incontestability

Dangerous Clause
Hobbies CONDITIONS

Unless proven, the insurer

can’t deny liability on a policy
Most policies don’t on the grounds of
Foreign Travel and
impose this restriction misrepresentation or non-
Residence
disclosure alone.

145
Chapter 24
Practice of Life Insurance
New Business – Selection of Lives and Other
Issues

146
• Risk Management
• The Risk Factors – Mortality
• Selection of Lives To Be
Insured
• Commencement of Risk
• Loading Letter & Backdating
of Commencement Date
• New Business Premium
Accounting
• Life Insurance and Income Tax

147
 Factors that influence mortality:
AGE

FOREIGN RESIDENCE ETHNICITY

AVOCATION SEX

PERSONAL HABIT SOCIAL STATUS

MARITAL STATUS OCCUPATION

GEOGRAPHICAL LOCATION

148
 Objective of Selection:

To decide whether the risk is:

STANDARD Within limits / acceptable

SUB STANDARD Below average / acceptable

DEFERRED Below average / maybe acceptable later

DECLINED Below average / not acceptable

149
The total relief allowable for all insurance premiums on the
life of the individual or his/her spouse and EPF contribution
in the basis year is:

150
Chapter 25
Practice of Life Insurance
New Business – Premium Rating

151
• Quantifying The Risk
• Costing The Risk
• Premium Rates Calculations
• Other Considerations
• Adjustments to Gross
Premiums
• Numerical Rating System

152
The Past forms a Guide to the Future

153
 Standard mortality tables

Mortality
Expenses
Investment
COSTING Returns
Initial, renewal, and
termination expenses THE RISK
Financing and reinsuring
Tax costs, bonus loading etc.
Others

154
 How are premium rates calculated?

If the experience
Premium remains Takes into account of mortality,
Premium increases constant interest and expense and
with age expense elements interest are better
Basic principle is than expected,
age the difference will
benefit all.

155
 A satisfactory premium rate structure is:
Adequate Consistent

Competitive
Profitable

Equitable

156
Chapter 26
Practice of Life Insurance
Monitoring The Insurance Fund

157
• Purpose of Valuation
Exercise
• Valuation of Liabilities
• Valuation of Assets
• Surplus

158
To test whether the company is solvent

To determine the amount of surplus for distribution

To test the adequacy of the existing premium scales

To determine if any changes in the company’s

operation are necessary

To comply with the statutory requirements

159
The liabilities of a life insurance company are its contractual
obligations to its policyholder

Present
Present
Present Value of
=
Value of
Benefits + Value of
Expenses
- Future
Premiums
Payable
Payable

160
 The assets of a life insurance company are the investments
from the premiums, less claims and expenses

Methods of Valuing Assets:

Cost Price – Price at which the asset was acquired

Book Value – the value placed on the assets in the co. A/C book
Market Value – Value which the assets can be sold in the open market

161
 Surplus is the difference between the value of the assets and
the value of the liabilities

Main sources of SURPLUS:

MISC.
INTEREST MORTALITY EXPENSE SOURCES

162
 Methods of Distributing Surplus

Simple Maturity /
Reversionary Terminal Bonus
Bonus

Compound
Interim Bonus
Reversionary
Bonus
Guaranteed
Cash Bonus
Bonus

163
Chapter 27
Practice of Life Insurance –
Policy Documents

164
• Sources of Information
for Risk Assessment
• Policy Form and Its
Structure
• Endorsements

165
 Obtained from several sources:

Agent

Proposal Form Medical Report / Attending Agent’s Previous

Special Physicians Report Reports
Examinations Report

166
 The policy document must be easily understood
Main Sections of the Policy Contract
Heading Name and address of insurer
Preamble Introduction. States the parties involved
Operative Clause States the events that initiate a claim
Proviso Proposal is the basis of the contract
Schedule Vital information about the policy
Attestation Company officers signatures
Conditions & Privileges Clauses that explain, limit and enlarge
scope of contract

167
Chapter 28
Practice of Life Insurance -
Claims

168
• Introduction
• Death Claims
• Maturity Claims
• Claims Arising Under
Sickness and
Permanent Health

169
A claim will arise on…

Death of the Maturity of the

Insured Policy

Claims under
Sickness or
Supplementary
Disability Claims
Contract

170
 DEATH of
Policy holder Contact
Insurer

NOTIFICATION of PROOF of TITLE

PROOF of DEATH PROOF of AGE
DEATH & OWNERSHIP

171
 Section 161, Insurance Act 1996

If a claim is not paid within 60 days of receipt of intimation of

the claim, the insurer must pay a minimum compound of 4%.

172
MATURITY of
POLICY

INSURER

NOTIFICATION to PROOF of SETTLEMENT

POLICYHOLDER CLAIMS OPTIONS

173
The insured must prove his claim to the satisfaction of the
insurer and comply with all other conditions of the contract.
For PERSONAL ACCIDENT policies, the doctrine of PROXIMATE
CAUSE is important.

CLAIMS REGISTER
Every insurer shall maintain an up to date register of all insurance
claims immediately upon the insurer becoming aware of it.

174
Chapter 29
Some Mathematics

175
• Calculation of Age
• Calculation of Premium
• Interest Charges
• Guaranteed Surrender
Value Calculations

176
 Common methods for arriving at the age of
an individual:

Please refer to the

MII textbook for
calculations

177
 The tabular premiums in the rate book only apply
to standard lives
Sub-standard lives may be subjected to extra
premium, obtainable after detailed underwriting

Please refer to the

MII textbook for
calculations

178
 Interest charges arise out of:
1. Outstanding premium charges
2. Policy loan repayments

REINSTATEMENT of LAPSED POLICY

Provide evidence of good health
Pay outstanding premium with interest

Please refer to the

MII textbook for
calculations

179
Policies which have a GUARANTEED SURRENDER VALUE
would incorporate such values in their schedules.
When surrender values are NOT GUARANTEED, the
determination of such values requires actuarial
considerations.

180
Chapter 30
Practice of Life Insurance – Ethics and
Code of Conduct

181
• Guidelines on Code of
Conduct
• Life Insurance Selling
• Statement of Life
Insurance Practice

182
 7 UNDERLYING PRINCIPLES
1 To avoid conflict of interest

2 To avoid misuse of position

3 To prevent misuse of information

4 To ensure the completeness and accuracy of relevant records

5 To ensure the confidentiality of transactions

6 To ensure fair treatment of all policyholders

7 To conduct business with utmost good faith and integrity

183
GENERAL SALES PRINCIPLES
The intermediary shall NOT:
ⓧ Make inaccurate or unfair criticisms
ⓧ Attempt to persuade the prospect to cancel any existing policies

TWISTING : To discontinue a policy or to have a

NO TWISTING! policy made paid-up and then to effect a new one.

184
The aim is to reduce the formalities involved in the issue of new
policies and payment of a claim.

CLAIMS – An insurer may not unreasonably reject a claim

PROPOSAL FORMS – If disclosure of material facts is required, a
prominently displayed statement should be included in the form
POLICY AND ACCOMPANYING DOCUMENTS – Must indicate
whether there are rights to a surrender value

185
Insurers will ensure that information contained in the
sales materials / advertisements is correct and
truthful and thus not misleading to the public.

186
187