M9notes PDF

CMFAS Module 9:
Life Insurance and

Investment Linked Policies
1
CMFAS M9 Exam Objectives
To test knowledge and understanding:
a. Life Insurance & Investment-Linked Policies
b. Annuities
c. Riders
d. Sales Process
e. Underwriting Process
f. After-Sales Service
g. Impact of Law & Taxation on Life Insurance
2
Good To Know
MUST Bring
Exam mode: Computer Screen NRIC
or Passport
Duration : 2 Hrs on the day of exam!
Questions : 100Multiple Choice Questions

Passing Mark : 70% (70 Questions)
1 mark for each right answer
No mark deducted for wrong and blank answer
3
CMFAS M9 Question Types
Type of Questions
1. The majority of exam questions test the ability to recall

materials from the textbook.
2. Application questions.
3. Questions that test the understanding of:

i. the underlying insurance principles and concepts;
ii. products
4
Chapter 1
Risks and Insurance
5
Risks and Insurance Pg 2
Definition of Risk
Risk is defined as “exposure to the chance of injury or
loss, a hazard or dangerous chance” – Dictionary.com
Speculative Risk
Involves 3 possible outcomes: loss, gain or no change
Example: Investing
Pure Risk
No possibility of gain: Either loss or no loss
Example: Natural Disaster
6
Risks and Insurance Pg 3 - 4
Characteristics of Insurable Risk

• Loss occurs by chance
• Loss must be definite
• Loss must be significant
• Loss rate must be predictable
• Loss must not be catastrophic to the insurer
7
Pg 4-5
Risks and Insurance
Dealing with Risk

Remember ACTA!
• Avoiding the risk
• Control the risk
• Transfer the risk
• Accept the risk
8
3 Types of Personal Risk

• Premature death
• Outliving resources
• Poor health (sickness/disability)
9
Basic Life Insurance Terms You Should Know

• Death Benefit
• Applicant
• Policy Owner
• Life Insured
• Third Party Policy
• Sum assured
• Beneficiary
10
Hazards
• Physical characteristic
that may increase the
Physical
likelihood of a loss Hazard
• Likelihood that a person
may act dishonestly in Moral
the insurance transaction
Hazard
11
Anti Selection and Underwriting

• Anti Selection/Adverse Selection
People who have more to lose, tend to seek more insurance
• Underwriting
Method of minimising anti-selection problems. Can classify risks
as:
1) Standard 2) Sub-standard 3) Postponed/Declined
12
Risks and Insurance Pg 9-10
Various Life & Health Insurance Products

• Life Insurance Policies:
1) Term 2) Whole Life 3) Endowments 4) ILP’s
• Annuities
Different types. The most common being “till end of life” annuity
• Health Insurance Products

Designed to cover hospital/ medical/ surgical/ emergency
accident outpatient expenses
1) Private Health Insurance 2) CPF Board
13
Life Insurance Financial Protection against:

• Premature Death
• Outliving Resources
• Sickness/ Disablement
1) Critical Illness 2) Medical Expenses 3) Hospital Cash
4) Disability Income 5) Long Term Care
• Businesses
Keyman Insurance being the most common form
14
Basic Life Insurance Principles

• Law of Large Numbers
As the #of people increase, the risk to the insurer decreases
• Principle of Utmost Good Faith

Applicants are expected to:
1) Disclose all material facts
2) Not to make any misrepresentation of material facts
Insurers are also expected to abide by this principle
15
Information Revealed Information Not Revealed
Non –Disclosure
Concealment
Innocent Misrepresentation
Negligent Misrepresentation
Fraudulent
Misrepresentation
16
Risks and Insurance Pg 16 - 18
Insurable Interest Requirement

• Compulsory in all contracts of Life Insurance
It exists if:
1) A person is likely to benefit if the insured continues to live
2) He/she will suffer a loss or detriment with the insured’s death
• Why is it necessary?
1) It minimizes the moral hazards in insurance
2) Proposer is expected to safeguard the subject matter
17
Insurable Interest
• When must it exist?
General Insurance policies: At the time of the loss
Life Insurance: Only during inception, not required during
death
• Examples inlude:
1) Own life 2) Another Person Whom One is
Dependant On 3) Trustees & Beneficiaries
4) Creditors & Debtors 5) Key-person Insurance
6) Spouse 7) Child or ward
18
A Valid Trust Structure

should meet the
following conditions
Life Insured is Applicant is the Any Beneficiary

the Settlor Trustee of the has insurable
Trust interest on Settlor
Mr Davids Mr Ravi (Lawyer) Wife and Son
Trustee applies for whole life Any person whom

policy on the life of Mr Lim Beneficiary is OR OR
Settlor is partly /
(Settlor). Settlor’s spouse wholly dependant
Beneficiaries of this policy on
are Mr Lim’s wife and son.
Settlor’s child / OR
Mr Lim consents to the
purchase of the whole life ward below 18
policy years old
19
A Beneficiary of a Trust
requires the following
conditions to be met
Life Insured is Applicant is the Any Beneficiary with

the relevant Trustee of the insurable interest on
Beneficiary Trust relevant Beneficiary
Mr Roberts Mr Ramesh (Lawyer) Wife and Daughter
Applied for term policy on Relevant OR OR Any person whom
the life of Mrs Roberts relevant
Beneficiary’s
(Relevant Beneficiary in Beneficiary is
Trust). spouse
partly / wholly
Beneficiary of this policy is dependant on
Mr Roberts. Relevant
OR
Mrs Roberts consents to the Beneficiary’s child
purchase of the policy. / ward below 18
years old
20
Structure of the Singapore Insurance Market

• Buyers,
• Sellers (Reinsurers)
• Intermediaries
1) Representative of a Life Insurance Company (Insurer)
2) Representative of a Bank or Other Financial Institution
3) Representative of a Licensed And Exempt Financial Adviser
4) Introducers of Life Insurance Advisory Services
21
Other Relevant Organisations

• Rating Agencies
They provide independent assessment and opinion on the overall
financial capacity or credit worthiness of financial institutions that issue
capital market instruments.
They basically reflect the rating agency’s opinion on the credit
worthiness of the financial institution.
In the case of rating an insurer or re-insurer, the agency will make their
decision based on a broad range of factors.
Not all insurance and reinsurance companies are rated as they are not
compulsory for them to get it.
22
Other Relevant Organisations

• Market Associations
They are trade associations in Singapore representing insurance
companies and intermediaries. Examples of such members are:
• Association of Financial Advisers [AFA(S)]
• Life Insurance Association of Singapore (LIA)
• Singapore Reinsurer’s Association (SRA)
23
Financial Industry Disputes Resolution

Centre (FIDReC)
• Affordable, one stop centre for customers
• For claims up to $100,000 (insureds and insurers only)
• For claims up to $50,000 (consumers and banks only)
• Individuals or sole proprietors accepted
FIDReC’s Dispute Resolution Process

1) Mediation (1st Stage)
2) Adjudication (2nd Stage)
24
MoneySENSE Programme
• Launched in 2003, brings initiatives to enhance the
basic literacy of consumers
• Covered in 3 tiers
1) Basic Money Management
2) Financial Planning
3) Investment Know-How
25
Quiz Time!
A class of relationship in which insurable interest needs to
be proven is when a:
A. person insures his own life

B. creditor insures the life of his debtor
C. wife buys a policy on the life of her husband
D. guardian buys a policy on the life of her ward who is
a minor
26
Quiz Time!
QUESTION: One of principles of Utmost Good Faith
ANSWER: Disclosure of all material facts, Not making any

Misrepresentation of material facts
QUESTION: Name TWO personal risks
ANSWER: Premature Death, Outliving Resources, Poor Health

(Sickness or Disability)
QUESTION: How many classes of Risks are there as a result

Of Underwriting? Name all
ANSWER: 4. Standard, Sub-Standard, Postponed, Declined

27
Chapter 2
Setting Life Insurance

Premium
28
Setting Life Insurance Premium Pg 30-35
Actuaries consider the following:

• Mortality & Morbidity Rates (Fig.2.1)
• Investment Income
• Expenses (What are the 2 Categories?)
• Gender (Difference in Premium Rates)
• Smoking Status
• Sum Assured
• Premium Frequency (RP vs SP vs Yrly Renewable vs Ltd
Prem)
29
Setting Life Insurance Premiums Pg 35-36
Suitability of Frequency and Mode of

Premium Payments
• Premium affordability
If customer has not set aside sufficient money to buy life
insurance policies, please don’t attempt to sell him a Single
Premium Policy. The coverage will not be enough.
• Product suitability
30
Quiz Time!
QUESTION: Name any 3 factors actuaries must take

note of when setting life insurance premiums
1) Mortality and Morbidity Rates
2) Investment Income
3) Expenses
4) Gender
5) Smoking Status
6) Sum Assured
7) Frequency of Premium Payments
Can be found on Pg 30
31
Quiz Time!
QUESTION: How is Gross Premium Calculated?

ANSWER: Gross Premium = Net Premium +
Loading (Expenses)
QUESTION: Policy owners need only pay

premiums for a specified period of time. What
type of premium payment is this called?
ANSWER: Limited Premium

Can be found on Pg 35
32
Chapter 3
Classification of Life
Insurance Products
33
Classification of Life Insurance Pdts
Hmm, how do I
classify
soooo many
products?
34
Classification of Life Insurance Pdts Pg 38
Ways of classifying:
• By Statutory Insurance Fund – insurers to maintain
separate insurance funds for ILP and Par/Non-Par policies.
• By Premium Type (Single, Recurrent, Regular, Yearly

Renewable, Limited Payment Policy)
• By Product Type
• By Ownership (Single Life, Joint {First-To-Die vs Last-
Survivor}, Third-Party, Group Policy)
35
Classification of Life Insurance Pdts Pg 38-39
S17 of the Insurance Act (Cap. 142):

“Insurers who are registered to carry on insurance
business are required to maintain insurance funds in
respect of their insurance business”
To ensure that
the assets and
liabilities of the
shareholders
and those
relating to the
insurance
businesses are
kept separate!
ILP’s cannot be mixed with Par
36
& Non Par Plans
Product Type Purpose Served

Term Insurance Provide life cover for fixed term
Whole Life Insurance Provide life cover for whole life
Endowment Insurance Provide life cover for limited term and lump sum at end of the term
Investment Linked Life Provide mainly for investing in UT’s or investments with some
Insurance insurance cover
Universal Life Insurance Provides life cover with flexibility in changing mix btwn cover and
investment
Annuities Protect against insufficient income arising out of excessive longevity
Critical Illness Insurance Protects against contracting one of the covered critical illnesses
Long Term Care Insurance Protects against being unable to perform a specific number of ADL*
Medical Expense Insurance Protects against risk of ill health and hospitalisation
Disability Income Insurance Protects against risk of loss of income if a person is disabled
37
Classification by Premium Type

• Single Premium – Policy is paid at the beginning of the policy
term in one lump sum
• Recurrent Single Premium - It allows the policy owner to

make single premium payments on a regular basis
• Regular Premium – It allows the policy owner to pay premiums

on a yearly, half yearly, quarterly or monthly basis
38
Classification by Premium Type

• Yearly Renewable Premium – Only applicable to Yearly
Renewable Term policies. The premium upon renewal is based on
the life insured’s attained age
• Limited Premium Payment – Applicable to policies where the

policy owner needs to pay premiums only for a specified number
of years or a specified age
39
Classification by Ownership
Single Life Policy

• Most common type of insurance policy issued
• As policy only covers one life, hence the name of the
policy
Joint Life Policy

• Generally used to cover husband and wife (to cover a
loan)
• First-to-die Life Insurance Policy pays on the death
of one of the insured’s
• Last Survivor Life Insurance Policy pays out only
on the death of the second life insured
40
Third-party (life of another) policy

• Usually issued to the husband on the wife’s life and
vice versa or parent on child’s life
• One of the parties may not be covered under the
policy e.g. Husband = policy owner, wife = life insured
• The cover for the two parties differs e.g Father buys
Payor’s benefit rider, Child = Life insured
Group policy
• Multiple employer groups such as trade associations
and labour unions;
• Members of professional associations or affinity
groups (such as membership clubs); and
• Debtor-creditor groups which generally consist of a
credit granting institution such as a bank and its
debtors
41
Characteristics of Group Life Insurance

• Master Contract – Issued under a single contract called the
“Master Contract”. Kept by policy owner. When an insured
member dies or leave the group, only his coverage is terminated.
They main plan goes on as it under the master contract
• Minimal Underwriting Requirements – Made available to

the participating employees with simpler medical underwriting if
the group size is large. Medical examination is only required where
the sum assured exceeds the “free cover” limit
42
Characteristics of Group Life Insurance

• Experience Rating – Usually underwritten based on past
claims experience.
• Cost Effective – Many life insured. Only one master contract,

thus save on admin costs
• Plan Continuation – It is usually renewable by the employer on

a yearly basis
43
Individual Life Insurance Group Life Insurance

Only the individual applicant Members who belong to the group.
Ocassionally, family members are also
covered
Each individual insured gets a policy A master contract is issued for the
contract Company
Individual can select the amount of Members may or may not have the right to
coverage he wants decide on the amount. Can be a flat
amount or multiple of basic salary
Individual’s health and financial status Group evaluated as a whole
evaluated
Coverage continues till termination, policy Coverage ceases when individual leaves
expiry or maturity group. The remanining members still
covered
Higher cost of coverage due to individual Lower cost of coverage due to less admin
underwriting and higher admin costs costs and documentation involved
44
Group Life Insurance

Normally Group Life Insurance can be written as:
1) Term Life Insurance
2) Whole Life Insurance
3) Endowment Insurance
Since Group Term Life Insurance has the greatest appeal to

employers and is sold by most insurers in Singapore, we will
discuss only Group Term Life Insurance
45
Group Term Life Insurance

• Yearly Renewable Term Insurance Policy
• Premiums varies with the size and experience of Group on
yearly basis
• Just a simple health declaration needed if the group is small
Group Term Life Insurance (Features)

1) Coverage
Mostly 24-hours worldwide coverage, with certain
exclusions. Usually up to age 65-70 and covers Death and
46 TPD

2) Extended Benefit
Provides continued coverage for 12 months even though the
employee leaves the company, usually on the condition
that:
a) Employee remains unemployed
b) Employer notifies the insurer within (usually 14) days from
the date of termination
c) Master policy is in force
47

3) Riders
Allows for the provision of riders such as:
1) Critical Illness 2) Accidental Death & Dismemberment
3) Hospital & Surgical 4) Disability Income
4) Sum assured
According to rank OR
Number of times of basic monthly salary
48

5) Premiums
Paid on annual basis. Grace period is usually 30/31 days from
annual premium due date.
Non-Contributory
(Company pays
premiums in full)
Premium
Payment Contributory
(Members pay
premiums in part
or in full)
49

6) Commencement of cover
Coverage normally commences at the start of employment.
Covers only people who are “actively at work”
7) Assignment of Policy
NO third party assignment allowed
8) Termination of Coverage
a) When employee reaches specified age
b) Employee retires or gets terminated
50

9) Termination of Coverage
c) Employee transferred to work overseas during which he
is no longer under Company payroll
d) Temporary leave of absence, vacation without pay, sick
or injured for more than 6 months
e) Employer does not pay premium within grace period
f) Insurer or employer decides not to continue with policy
*Reinstatement usually allowed. Terms & conditions apply
51

10) Claims procedure
Documentation needed:
• Death claim form (1 by employer and 1 by attending
physician)
• Copy of Death Cert
• Copy of payslip
• Police report (if applicable)
• Incident report (if applicable)
52

10) Claims procedure
Documentation needed:
• TPD claim forms (1 by employer and 1 by attending
physician)
• Copy of payslip
• Copy of NRIC (certified by employer)
53
Quiz Time!
Under a Last Survivor Life Insurance policy:
A. death benefit is payable on the second death

B. death benefit is payable on both deaths, in
proportionate amounts
C. income benefits are payable after the first death and
last until the second death
D. annuity benefits are payable after the first death and
last until the second death
54
Quiz Time!
QUESTION: Name the 2 kinds of contribution plans

for GTL Policies
ANSWER: Contributory & Non-contributory
QUESTION: How are the sum assured for GTL

Policies determined?
ANSWER: According to rank, according to number of

times of basic monthly salary
55
Chapter 4
Traditional Life
Insurance Products
56
Traditional Life Insurance Products Pg 50-59
Whole Life Endowment

Term Insurance
Insurance Insurance
• Level Term • Ordinary Whole • Pure
• Decreasing Term Life Endowment
• Increasing Term • Limited • Anticipated
• High Protection Premium Endowment
Payment WL • Low Protection
• No Savings
• High Protection • High Savings
• Low Savings
57
What happens if he
dies?
Inception Policy Expiry
of Policy Date
Term
Policies
No Cash value Policy Term

No Policy Loan Nothing is payable if the insured is
No bonus payable alive after policy expiry
Premium is the lowest
Premium is usually fixed EXCEPT for e.g. CPF Dependants’
Increasing Term and Renewable Term Protection Scheme
Insurance
58
Features of Term Insurance

• Covers the insured against death during the policy term
• Non participating = no bonus payable on death
• Duration of cover is only for period specified at inception.
Once specified period is up, policy expires
• Policy lapses if premium is not paid within grace period
• Most insurers offer TPD coverage and certain riders which
can be attached to the policy
• No cash value accumulation
• No policy loan feature
59
Features of Term Insurance

• No automatic premium loan
• Premium cost is the lowest compared to other types of life
insurance
• Death benefit is paid in a lump sum
• Upon TPD, the sum assured is paid either in a lump sum
or in installments.
Example of Term Insurance is the CPF’s Dependant’s

Protection Scheme (DPS). The DPS covers death and TPD
and is renewable yearly up to age 60.
60
Nothing is
Example: A10-Year S$100,000 Level Term payable if the
Insurance Policy insured survives
to the end of the
policy term
S$100,000 Level Death benefit payable
Term
Policies
S$0
1 Policy Term 10 (end of policy term)
Note: Both the death benefit and the premium remain level
throughout the term of the policy
61
Example: A10-Year S$100,000 Decreasing Term

Policy
S$100,000 Death Benefit
S$0
1 Policy Term 10
1. Based on observation, what happens to the sum assured over time?

2. Under which situation will an insured need a Decreasing Term Policy?
3. Will the premiums reduce as the sum assured is reduced periodically?
4. When will the premium stop but coverage can still continue?
62
Fig 6.10 – 10-Year S$100,000 Increasing Term Insurance
Period of Benefit Payment

S$150,000
Death Benefit increasing
at 5% per annum
S$100,000
1 Policy Term 10
1. What happens to the death benefits?

2. Why do you think the client need an Increasing Term Insurance?
3. Will the premium be increased at each increase of sum assured?
63
Example: Exercising The Renewable Option For a 5-Year

Renewable Term Insurance Policy
Conditions allowed for renewal:
Expiry date DOES NOT EXCEED
a specified age
Premium MUST BE PAID at Renew w/o evidence
renewal of insurability
Pay a higher premium at EACH
RENEWAL due to his ATTAINED
AGE
Policy Policy Expiry New Policy

Inception Date Date Expiry Date
1/1/2005 31/12/2009 31/12/2014
64
Traditonal Life Insurance Products Pg 50-59
Yearly Renewable Term (YRT) insurance:
Depending on policy terms, client

may not be able to renew the
$ policy after age 70.
Premium
30 31 32 33 34 35 36 70
1. What is the advantage and disadvantage of renewable option?

2. To discourage client from renewing such policy indefinitely, what is
one of the conditions the insurers may rely on? (ans on pg 56)
65
Change or Suitable for clients who prefer

Convert w/o permanent insurance but do not
Term evidence of have the budget at the time of
Whole purchase
Policy insurability
Life
Policy
Attained Age Conversion

When term coverage is converted to permanent insurance under attained age
conversion, the renewal premium rate is based on the attained age of the insured.
Original Age Conversion
The date of the conversion is considered to be the date on which the policyowner
purchased the original term policy. The premium would be based on the earlier age.
Policy owner usually needs to make a large cash outlay at time of conversion
66
Change or Suitable for clients who prefer

Convert w/o permanent insurance but do not
Term evidence of have the budget at the time of
Whole purchase
Policy insurability
Life
Policy
Conditions allowed for conversion are:

1. Anytime during the policy term or before he reaches a specified age, depending
on whichever is the earlier
2. Must be done in writing on a form as prescribed by the insurer accompanied by
the premium for the new policy based on the insured’s attained age
3. Sum Assured for the new policy < = Term policy
4. New policy will include all limitations of risk (exclusions) applicable to the Term
policy
67
Suitability of Term Insurance

Term Insurance is suitable either the need for protection is:
• Purely Temporary
• Permanent, but the insured cannot temporarily afford the
premiums for permanent insurance
68
Traditional Life Insurance Products Pg 61
Whole Life Insurance Plans

• Nature of WL Insurance
1) Provides for the payment of the policy’s face value +
bonuses if applicable upon the death of the insured.
2) Provides coverage for the whole life of the insured.
Hence the name
3) Known as Ordinary Whole Life or Limited Payment Life
4) Riders allowable to be attached
5) TPD coverage is normally included as part of the policy
or as a rider
69
Definition of Total & Permanent Disability

An insured is said to be suffering from TPD if he cannot ever
perform any work, occupation or profession.
He is also considered to have TPD if he suffers from one of the

following:
1) Loss of sight of both eyes
2) Loss of both limbs; and/or
3) loss of sight of one eye and loss of one limb
70

• Features of WL Insurance
1) Covers against death, for whole of insured’s life

2) Normally coupled with a TPD benefit/rider. TPD claims
either in lump sum or installments – capped at $2M/insurer
3) Accumulates cash value (usually after 3 years)
4) Riders allowable to be attached
5) Premium higher than term policy. Fixed amount
throughout premium term on a regular basis
71

• Features of WL Insurance
6) Premiums payable throughout the policy term or for a
limited period
7) Death benefit is paid in one lump sum
8) Can be a participating or non-participating policy
72
Whole Life Insurance

End of
Inception Policy
of Policy Term
AGE 30 60 100 (for example)

If insured dies at 60, policy
pays out at age 60,
premium payment stops. Maturity value (Basic Sum
Policy ceases. Assured) is paid to the
insured if he is alive at the
end of the policy term
73
Policy Endows Here
S$100,000
Cash Value =
Cash Death Benefit
Values
Premium
30 40 50 60 70 80 90 100
1. If he dies before 100, how much will insurer pay?

2. If he lives till 100 and beyond, how much will insurer pay?
3. What if he stops paying premiums before reaching 100?
74

• Non-forfeiture options
Surrendering the policy for its cash value:
Policy owner surrenders his whole policy for its
accumulated cash values. This option should be
exercised with constraint. Although he can purchase
another insurance plan in the future, his health status
might have changed.
75

Use the cash value to purchase extended term
insurance
Policy owner uses his existing cash values to convert his
existing policy to an extended term insurance.
Appropriate when policy owner does not want to pay for
his premiums anymore, but still wants coverage.
76

Use the cash value to purchase paid up Whole Life
Insurance
Policy owner uses his existing cash values to convert his
existing policy to a reduced amount of paid-up Whole life
policy. The sum assured is the amount that can be
purchased at the Insured’s attained age by the net cash
value as if a single premium. No further premiums
required.
77
S$300,000
(Sum assured) Example
Cash Values
of Non-
Forfeiture
Options
$66,000
(Cash Values)
25 30 35 40 45 50 100
(years)
Example: Mr. Beckham, aged 50 years, has $300,000 policy, with
$66,000 cash value. He has the following options:
1) Surrender whole policy for $66,000
2) Continue the $300,000 coverage for 16.5yrs as Paid Up Term
Insurance
3) Reduce the coverage to $184,000 of paid up Whole Life Insurance
78
Criteria Ordinary Whole Limited Premium

Life Insurance Payment Whole
Life Insurance
Premiums Lower Higher
Premium Payment Payable for life Can be arranged to be

Term fully paid up during
one’s working years
Sum Assured Higher Lower
(assuming same age,
gender and premiums)
Cash Value Builds up slowly Builds up quickly
79
Traditional Life Insurance Products
Whole Life Insurance Term Insurance

Offers lifetime coverage; for entire lifetime Offers limited term coverage. No more
of the insured (as long as the policy remains benefits once that period ends
in force)
Generates cash value, thus creating a NO cash value throughout the whole term
savings vehicle. Normally generated from 3rd
policy year onwards
More expensive in premiums when Much cheaper than most plans, including
compared to Term Insurance Whole Life Insurance plans
Provides less coverage than Term Policies for Provides superior coverage over Whole Life
the same amount of premiums Insurance for the same amount of premiums
80
Suitability of Whole Life Insurance

• In summary, the Whole Life Policies:
1) Provide protection against long term or permanent
needs; and
2) Accumulate a savings fund that can be used for
general purposes or to meet specific objectives
81
Nature of Endowment Insurance

It’s another type of life insurance, that provides death benefit
during the policy term, or the maturity value which is equal to
the death benefit if he survives to the end of the policy term.
Unlike whole life insurance plans, they have a fixed maturity

date. They are designed to provide a death benefit equal to
the
Target accumulation amount during the accumulation period.

They can be participating or non participating policies
82
Features of Endowment Insurance

• Duration of cover is only for the specified period at
inception of the policy
• Upon death/maturity, benefit usually paid in lump sum
• TPD benefit usually paid in lump sum or in installments
• Riders are allowable to be attached
• Cash value builds up quickly.
• Non forfeiture options like APL* available once policy
acquires cash value
• Policy lapses if premium is not paid within grace period.
APL will activate if policy has sufficient cash value
83
Features of Endowment Insurance

• Policy loans allowed once policy acquires cash value
• Premium usually higher than Term Insurance and Whole
Life Insurance. Lump sum premium is allowed. Payable
either the full term or for limited number of years
• Can be Participating or Non Participating
84
Endowment Insurance Plans

• Types of Endowment Insurance
1) Pure Endowment Insurance
2) Anticipated Endowment Insurance
85
Premium for such policy

Example of an is higher than term and
Endowment Death Benefit payable whole life (non-par)
Insurance Policy when death/ TPD
occurs Maturity
Date
Inception
of Policy
Policy Term
Maturity value (Basic Sum
Assured) is paid to the
Can be 10, 15, 20 yrs or up to a insured if he is alive at the
certain age limit (e.g. 65) end of the policy term
86
Example of a PURE Endowment Insurance

Policy
Inception Maturity
of Policy Date
Should
Nothing is
death/TPD
payable!
occur
Policy Term
It is NOT sold as a standalone policy, Face Amount is paid to the
EXCEPT in some sub-standard cases, insured only if he survives to
where underwriter may counter-offer this the end of the specified period
policy to the insured in view of his medical
history
87
Maturity
Example of an Anticipated Benefit,
$12,500
Endowment Insurance Policy
$2,500 $2,500 $2,500 $2,500 $2,500
3 6 9 12 15 18
Example of an 18-year, $25,000 Anticipated Endowment
Insurance Policy. Insured will receive cash payments every 3
years.
Should he die/get TPD during the course of the term, he would
still receive $25,000 + bonuses.
Cash payments can be left with the Insurer to accumulate
88
interest.
Suitability of Endowment Insurance Plans

• Children’s Education
• Saving/Investing Purposes
1) Children’s Education
2) Savings/ Investment Purposes
(Such as retirement planning, etc)
89
MAS Disclosure Requirements Relating to

Life Insurance Policies
• Must furnish the client with:
1) Product summary
2) Benefit Illustration
3) Product Highlights Sheet (ILP only)
4) Your Guide to Life Insurance
90
Quiz Time!
QUESTION: Name the 2 kinds of Endowment

Insurance Policies
ANSWER: Pure Endowment & Anticipated Endowment
QUESTION: What are the 3 non-forfeiture options?
ANSWER: Surrendering cash values, use cash values to

purchase a Paid Up whole life policy, use cash value to
purchase to an Extended Term Insurance policy
91
Quiz Time!
QUESTION: Give an example of a Decreasing Term
Insurance
IMPORTANT NOTE: Read
the table on pages 73-74. It’s
ANSWER: Mortgage Insurance
a testable item!
QUESTION: What is renewable option (Term

Insurance)?
ANSWER: Giving the life insured the right to renew the

policy at the end of the policy term, without the evidence
of insurability.
92
Chapter 5
Riders
(Supplementary
Benefits)
93
Riders (Supplementary Benefits) Pg 76
Riders = supplementary benefits

Basic Contract = can be Non-Par or Par policy
Basic
Basic Contract
Riders
Contract +
Riders
• riders are not automatically included in a policy.

• policy-owner must specifically request for riders to be
included but their requests are subject to insurer’s
assessment and approval
• subject to additional premium
94
• Riders cannot be dropped by the insurer as long as premiums

are paid when due
• If the policy lapses, the insurer may refuse to reinstate a rider

at the same time that it reinstates the policy
• Cannot purchase a rider without a basic policy
• Cannot cancel the basic policy and retain only the rider
• The term of the rider cannot exceed that of the basic policy
95
Some of the common riders offered by insurers are:

• Waiver of premium rider
• Total and permanent disability (TPD) rider
• Critical illness rider
• Term riders
• Payor benefit rider
• Guaranteed insurability option rider
• Accidental death benefit rider
• Accidental death and dismemberment rider
• Hospital cash (income) benefit rider
96
Waiver of Premium Rider

• Keeps a policy in force in the event that the insured is not
able to pay the premiums, when he is totally and
permanently disabled or is suffering from one of the
critical illness covered under his policy
• It causes the premiums under a policy to be waived once
any of the aforesaid events
2 Main happened
Groups
Total and permanent Critical illness

disability (TPD)
Refer to Page 78 for definition of TPD
97
Disability or Critical
Illness occurs
$ $ $ recovers $ $ $
Premium
Premium Waived Paying
Term
Waiver of Premium Rider
Keeps the policy in force and the policy’s cash value would
also continue to increase
98
TPD is defined as:

Disability such that there is , neither at the time the
disability commences, nor at any time thereafter, any
work, occupation or profession that the life insured
can ever be capable of doing or following to earn or
obtain any wages, compensation or profit.
99
Riders (Supplementary Benefits)
Rider expires when the insured reaches a
specified age
Disability or Critical
Illness occurs
Rider expires
here
$ $ $
$ $ $ $ $ $
Normally rider Premium Paying Term

expires at age
60 or 65 years No waiver of
premium
100
TPD is defined as:

It also includes the total and irrecoverable:
1) Loss of sight of both eyes or
2) both feet at or above the ankle or
3) One hand at or above the wrist and one foot at or
above the ankle.
101
TPD Waiver of Premium Rider Exclusions:

1) Intentionally self inflicted injuries, while sane or insane
2) Bodily injuries sustained as a result of travel or flight in or on
any type of aircraft, except
It also includes the total and irrecoverable:
1) Loss of sight of both eyes or
2) both feet at or above the ankle or
3) One hand at or above the wrist and one foot at or above the
ankle.
102
Total and Permanent Disability Rider
Example of Payment of TPD Benefit

$(60% of SA)
$(10% of SA) $ $ $
6 In the event of a total and permanent

month disablement, the disability benefit is paid as a
Disability waiting lump sum or in installments spread over a
Strikes period number of years.
Most insurers place a limit (usually $2M) on the aggregate amount of
TPD benefit that they will pay on all the policies that an insured has
with the insurer. They will also not pay if the disability was caused by
intentional self-inflicted injuries.
103
Acceleration
Critical Benefit
Illness Rider Additional
Benefit
Exclusions:
1) Pre-existing illnesses
2) Self inflicted injury/illness, while sane or otherwise
3) Willful misuse of drugs and/or alcohol
4) Congenital or inherited disorder
104
Exclusions:
5) AIDS or HIV
6) Bodily injury sustained as a result of travel in or on any type of aircraft,

except as a fare paying passenger or as a crew member of an
international airline operating on a regularly scheduled passenger flight
of a licensed commercial aircraft
7) War or warlike operation, civil war or civil commotion
105
$200K Whole Life
Insurance Policy with
Critical Illness
50% Acceleration
Rider $200K Whole
Death/ TPD Life Policy
with 50%
Acceleration
Rider $100K
payout
$200K Death/TPD
payout
$100K
payout
106
$100K Whole Life

Insurance Policy
$100K Whole
with 200K Life Policy
Additional Benefit with 200K Critical Illness
Rider Acceleration
Rider
$200K
payout
$100K
payout
$100K
payout
107
Eligibility Criteria for Critical Illness Rider
1) Must be a Critical Illness covered by rider

2) Meets definition & not fall under exclusions
3) Meets the conditions as specified by Insurer
4) Meets Waiting Period and Survival Period
108
Acceleration Benefit Additional Benefit
Payment under the policy on diagnosis of a Payment under the policy on diagnosis of a
covered critical illness affects the basic sum covered critical illness does not affect the basic
assured sum assured
May cause the policy to be terminated upon the Will not cause the policy to be terminated upon
payment of a covered critical illness claim, if it is a the payment of a covered critical illness claim
100% acceleration rider
The maximum amount payable under the policy is The maximum amount payable under the policy is
equal to the basic sum assured plus bonuses (if equal to the basic sum assured plus bonuses (if
any) any) plus the rider sum assured
Critical illness sum assured must not exceed that Critical illness rider sum assured can be up to a
of the basic sum assured certain number of times of the basic sum assured,
subject to the insurer’s guidelines
Critical illness rider term usually follows the basic Critial illness rider term must not exceed that of
plan and can be for life the basic plan and usually expires when the life
insured reaches a specified age
109
Lump sum payout Pay a lump sum amount upon diagnosis of critical illness covered
by the policy
One critical illness claim only Only one covered CI can be covered. There are some policies
which can cover more than one
Waiting period Specific waiting period. Say 90 days
Cap on sum assured Some insurers may impose a limitation on the amount to
minimise moral hazard
Level premium Premium is level and is either guaranteed or non guaranteed
Flexibility No restriction on how the benefit can be used. Both for ILP and/or
traditional
No cash value Do not acquire cash value
Termination Auto terminated once basic policy terminates. May expire at the
maximum age before the basic policy terminates
24hour worldwide coverage Provide worldwide coverage, 24/7 unless otherwise stated
110
Term Rider
• Is a term policy attached to a permanent policy
• Cannot be attached to a term policy
• Amount of the term rider coverage is usually expressed as a
ratio of the sum assured of the basic plan
Types of term riders

• Level term rider
• Decreasing term rider
• Family income benefit rider
111
Riders (Supplementary Benefits) Pg 88-93
Term Rider
• Payor Benefit Rider (3rd party policies, on payor’s life)
• Guaranteed Insurability Option Rider
• Accidental Death Benefit Rider
• Accidental Death & Dismemberment Rider
• Hospital Cash (income) Benefit Rider
Read up on pages 94 - 95
112
Quiz Time!
QUESTION: Name the 2 categories that the riders of

Waiver of Premium Rider are in
ANSWER: TPD and Critical Illness
QUESTION: What are the 3 types of Term Riders?
ANSWER: Level Term, Family Income Term,

Decreasing Term.
113
Chapter 6
Participating Life
Insurance Policies
114
Participating Life Insurance Policies Pg 98
What are participating policies?

Life insurance products that participate in the performance of
the participating fund of the life insurer. They share in the
profits or the surplus of the participating fund
Common participating plans:

1) Participating Whole Life Insurance policy
2) Participating Endowment Insurance policy
3) Participating Anticipated Endowment Insurance policy
Objective of Par Policies and Its Implications
They provide competitive and stable medium-to-long
115
term returns to participating policy owners.
Guaranteed and Non Guaranteed Benefits (Bonuses)

Participating policies provide a combination of guaranteed and non
guaranteed benefits.
Guaranteed benefits are paid out to the beneficiaries should the life
insured die within the policy term, and also upon surrender.
Non guaranteed benefits depend on the following key

factors:
1) Investment performance
2) Level of expenses incurred by or allocated to the participating fund
3) Amounts paid out to meet claims on policies in the participating fund
116
Participating Life Insurance Policies Pg 99-102
Bonus
Distribution
Methods
Terminal / Maturity
Reversionary Bonus bonus
Cash Bonus Interim Bonus
117
Participating Life Insurance Policies Pg100
Types of Non-guaranteed Benefits (Bonuses)

- Revisionary Bonus (RB)
• It’s the most common type of bonus. Also known as Annual Bonus.
• It is an addition to the sum assured, regardless of the age of the
insured, or how long the policy has been in force.
• In proportion to the sum assured eg: $10 for every $1,000 SA.
• Declared yearly and credited to each policy on its anniversary date.
• Sometimes called “vesting”
• Guaranteed once declared.
118

- Revisionary Bonus (RB)
1) Simple Revisionary Bonus
(Refer to Example 6.1, Page 101)
2) Compound Revisionary Bonus

(Refer to Example 6.2, Page 101)
119

- Terminal Bonus (TB)
It is added on top of the RB when terminated (due to death, TPD, CI, etc)
maturity or surrender, usually provided the policy has been in force for a
minimum period.
In Singapore, typical bonus allocation for insurers take place in
March/April, following the end of the financial year.
120

- Terminal Bonus (TB)
Policies that terminate in the early part of the year before the finalisation
of the bonus allocation may be given interim bonuses.
Typically determined based on the prevailing bonus rates, or bonus rates

used in reserves for future bonuses or results from an interim bonus
investigation report
121
Cash Dividends
Some plans provide cash dividends rather than additions to the sum
assured. Can be converted to additional sum assureds or applied to
reduce future contributions.
122
Refer to the Examples written on the white

board for INTERIM BONUSES:
123
Level of Revisionary Bonus vs Terminal Bonus

The mix between revisionary bonus & terminal bonus can vary for
different participating products. Some have higher terminal bonus with
lower revisionary bonus, and vice versa.
124
Death Guaranteed Bonuses

Benefit = Death Benefit + Credited
Surrender Guaranteed Surrender Value

Value = Surrender + Bonuses
Value Credited
Paid-Up Guaranteed Paid-up Value of

Amount = Paid-Up Value + Bonuses
Credited
Buying a life insurance policy is a long term commitment. Early
termination of the policy usually involves high cost and the surrender
value may be less than the total premiums paid.
125
Determination of Bonuses
Bonuses Assets
Assets backing
Future Participating
Current Participating
bonuses Group
bonuses (non- Fund
(once guaranteed)
declared,
guaranteed)
Premiums Participating Policies
126
Risk Sharing Mechanism
a) Risk sharing rules

b) Methodology to determine amount of asset to back each
participating product group
Risk Sharing Rules
a) Bonuses (RB & TB) allocated on yearly basis

b) Bonuses allocated have to be approved by the Board of
Directors of the insurer
127
Risk Sharing Rules
Key risks affecting participating fund

performance include:
• Investment risk
• Expense risk – acquisition and maintainence
• Mortality risk
• Dread disease and other morbidity risks
• Lapse/surrender risk
• Business risk, eg, non participating policies and riders
128
Bonus Allocation
The Appointed Actuary to take the following into
consideration:
1) Maintaining equity and fairness between different generations of

participating policies
2) Maintaining solvency of the fund
3) Ensuring consistency with the objective to provide competitive and

stable medium to long term returns to participating policy owners
Vesting and Allocation of Bonuses are NOT the same!

Bonuses allocated may not vest immediately. Usually, allocated
bonuses are vested only upon the policy anniversary for which the
bonuses are due and after premiums are paid
129
- Determination of Annual Bonuses to be allocated:
Allocated annually to all in-force participating policies, except in

some cases, such as policies in force for less than 2 years.
Normally bonus rates will only be adjusted IF:
• there is a prolonged period of good or poor performance; and/or

• there is a change in medium to long-term expected investment
returns
- Terminal Bonus
A percentage of compounded bonus. Normally given only to long

term plans. Not applicable to policies that terminate during the
initial years.
130
- Terminal Bonus
Using the 90:10 rule. The Insurance Act states that insurers can
only take out just 1/9 of the amount allocated to policy owners as
bonus for that year.
131

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CMFAS Module 9:

Life Insurance and

Questions : 100Multiple Choice Questions

1. The majority of exam questions test the ability to recall

3. Questions that test the understanding of:

Characteristics of Insurable Risk

Dealing with Risk

3 Types of Personal Risk

Basic Life Insurance Terms You Should Know

Anti Selection and Underwriting

Various Life & Health Insurance Products

• Health Insurance Products

1) Private Health Insurance 2) CPF Board

Life Insurance Financial Protection against:

Basic Life Insurance Principles

• Principle of Utmost Good Faith

Insurers are also expected to abide by this principle

Information Revealed Information Not Revealed

Insurable Interest Requirement

A Valid Trust Structure

Life Insured is Applicant is the Any Beneficiary

Trustee applies for whole life Any person whom

Life Insured is Applicant is the Any Beneficiary with

Structure of the Singapore Insurance Market

Other Relevant Organisations

Other Relevant Organisations

Financial Industry Disputes Resolution

FIDReC’s Dispute Resolution Process

A. person insures his own life

ANSWER: Disclosure of all material facts, Not making any

QUESTION: Name TWO personal risks

ANSWER: Premature Death, Outliving Resources, Poor Health

QUESTION: How many classes of Risks are there as a result

ANSWER: 4. Standard, Sub-Standard, Postponed, Declined

Setting Life Insurance

Actuaries consider the following:

Suitability of Frequency and Mode of

QUESTION: Name any 3 factors actuaries must take

QUESTION: How is Gross Premium Calculated?

QUESTION: Policy owners need only pay

ANSWER: Limited Premium

• By Premium Type (Single, Recurrent, Regular, Yearly

S17 of the Insurance Act (Cap. 142):

Product Type Purpose Served

Classification by Premium Type

• Recurrent Single Premium - It allows the policy owner to

• Regular Premium – It allows the policy owner to pay premiums

Classification by Premium Type

• Limited Premium Payment – Applicable to policies where the

Single Life Policy

Joint Life Policy

Third-party (life of another) policy

Characteristics of Group Life Insurance

• Minimal Underwriting Requirements – Made available to

Characteristics of Group Life Insurance

• Cost Effective – Many life insured. Only one master contract,

• Plan Continuation – It is usually renewable by the employer on

Individual Life Insurance Group Life Insurance

Group Life Insurance

Since Group Term Life Insurance has the greatest appeal to

Group Term Life Insurance

Group Term Life Insurance (Features)

Group Term Life Insurance (Features)