CEILLI Slides 2019 (English)

TokioMarine – Certificate
Examination Investment-Linked
Life Insurance (CEILLI)
Tokio Marine Life Insurance Malaysia
TMTDA, January 2019
Tokio Marine
Life Insurance Malaysia Bhd.
tokiomarine.com
Life & Health | Property & Casualty
TMTDA/WHITE2-ENTRANCE/CEILLI(TTT)/ENG/NY/01032019/VERSION1.0
Agenda
Chapter 1 - Introduction to Investment-Linked Life Insurance
Chapter 2 - Mechanisms and Features of Regular Premium Investment-Linked Life

Insurance
Chapter 3 - Mechanisms and Features of Single Premium Investment-Linked Life

Insurance
Chapter 4 - Considerations for Purchasing an Investment-Linked Policy
Chapter 5 - Investment Considerations
Chapter 6 - Types of Investment and Vehicles and Potential Risks
Chapter 7 - Common Types of Investment-Linked Funds
Chapter 8 - Pertinent Guidelines on Investment-Linked Business
Chapter 9 - Agents Professional Approach and Guidelines

Chapter 1 :
Introduction to
Investment-Linked Life
Insurance
3
Chapter 1 : Introduction to Investment-Linked Life Insurance
1.1 INTRODUCTION
Insurance industry in Malaysia has steady

growth in the last 20 years
First introduced in Malaysia in December 1999.
Policy owners can choose the amount of coverage they need;
Can select minimum May accrue returns on

and maximum sum their contributions in the
assured based on age form of long-term savings
4
1.1 INTRODUCTION
report
Total number of Investment-Linked Distribution of annual premium that has gone

insurance grew between 2012 and 2013. into Investment-linked Insurance policies has
increased.
284,679,163,295 Sum assured (2013)
55.2%
48.4% (2013)
248,305,252,495 Sum assured (2012) (2012)
Part of this growth is due to the fact that, Insurance companies in Malaysia have stepped up their efforts
in designing and offering very good plans that continue to meet customers’ needs.
5
How investment-link plan work.
Investment
linked
Fund Special Unitised
Value of Policy
Policyholder managed by Fund
Insurer
Pay premium to
purchase fund
Protection
Directly
 Death linked Investment
 TPD
Performance
Depends On
(Everyday
fluctuations of
market forces)
6
What is an investment-linked insurance policy?
Value of policy is in Investment

units in chosen fund(s) +
Insurer funds can Protection
acquire a wide array of
assets :
 Equities or stocks Investment-
 Bonds
 Fixed interest, linked Insurance
 Foreign funds,
 Real estate
Policy Annual Minimum Premium
 Currency and so on RPIL – RM 1,200
SPIL – RM 5,000
Policy owner
accumulates units in Value of policy is in units in
selected fund as his of chosen fund(s) or fund(s)  Any gain or losses in fund
the overall accrued operated by the insurer value is bear by policy
value owners
 Insurer DOES NOT
provided any guaranteed
cash values 7
RM3/unit
5,000 units x
RM3/unit =
RM 15,000
After 2 years
RM 5,000 for 5,000
units (RM1/unit)
Lose all premiums

RM0/unit paid and coverage
provided
Therefore, policyholders who choose to take Investment-Linked policies must realize that they are
also responsible to monitor the performance of their policy to ensure a reasonable return, other than
the fund manager.
8
In UK, investment-linked life insurance is known as

unit-linked
Malaysia/ lifeSingapore
insurance. UK U.S.A.
Malaysia/ Singapore UK U.S.A.
/
Investment-Linked Unit-Linked Variable Life
Refers to the same thing
9
Self-Assessment Questions
1. What are the factors that have contributed to the steady growth of the life insurance in
Malaysia since 2000?
I. The Malaysian Government granting more flexibility to life insurance companies to run
business operations based on their own management philosophies and at their own
prudent discretion
II. Malaysia’s dynamic economic growth experience
III. Life insurers designing and offering customer-centric plans
IV. The introduction of investment-linked insurance and the steady growth of this product
a) I and II
b) II and III
c) III and IV
d) II
2. Which of the following is the correct description of an investment-linked life policy?

a) A participating policy offering lifetime coverage
b) A capital guaranteed policy
c) An endowment policy which provided minimum returns
d) A policy offering protection while also investing in funds which form the basis for returns
to the policy owner
10
3. An investment-linked life insurance policy is also known as the following in some parts of
the world:
I. Mutual fund-linked policy
II. Unit-linked policy
III. Variable life policy
IV. Universal life policy
a) I, II, III and IV
b) I, II and III
c) II, III and IV
d) II and III
4. Investment-linked funds are managed by

I. The insurer’s own professional managers in its internal investment department
II. Fund managers/fund houses appointed by the insurer through outsourcing
III. Outsourcing to the funds of unit trust companies since investment-linked funds are similar
to unit trust funds
IV. The insurer’s board of directors who can make special decisions on the types of
investment vehicles to offer to policy owners.
a) I, II, III and IV
b) I
c) I and II
d) I and IV
11
5. Since investment-linked insurance has an investment element, a prospective policy owner

is allowed to opt for
I. A nominal amount of sum assured of his selection
II. No life protection at all
III. At least the minimum amount of sum assured according to age, basic premium paid and a
formula set by the relevant regulator.
IV. The sum assured offered by the insurer concerned based on its internal underwriting
guidelines in relation to the financial status and circumstances of the intended policy
owner.
a) I
b) I and II
c) III
d) IV
12
6. Which of the following statements are correct?

I. Policy owners of investment-linked plans should be made to understand that they wholly
bear the gains or losses from the investment portion of their policies.
II. As responsible corporations, life insurers are obliged to be partly responsible for any
drastic drop in prices of funds their custody; thus, they have to bear part f the losses
suffered by policy owners if such incidents occur.
III. For investment-linked policies, an individual can invest in a diversified portfolio with a
sum as low RM1,200 per year. This is possible as the overall collected premiums
contributed by investment-linked policy owners from a sufficiently large pool for
spreading over varied stocks or securities in the market.
IV. An average income earner may not possess ready sufficient liquidity to invest in a spread
of assets if he wants to do it in the open market on his own.
a) I, III and IV
b) II and III
c) I and II
d) I, II, III and IV
13
Chapter 2 :
Mechanisms and Features of
Regular Premium Investment-
Linked Life Insurance
14
Chapter 2 : Mechanisms and Features of Regular Premium
Investment-Linked Life Insurance
2.1 INTRODUCTION
Regular Premium Investment-Linked Insurance
More Structure more Primary focus

flexibilities and complex than - Protection
transparencies traditional insurance Secondary focus
- Investment-linked
2.2 MINIMUM REGULAR PREMIUM
Minimum annual premium from RM 1,200 to RM1,800

(depending on the product and the marketing directions of an insurer)
15
2.3 ALLOCATE AND UNALLOCATED PREMIUM
Insurance Premiums
Ratio :
First year : 40 – 50%
Rate increase until 7th year Allocated for Unallocated for
After 7th year : 100%
Investments Insurance
Less Insurance Charges, Less agent’s

Add Investment Returns Policy Fee and Fund commissions and
Management Fee management expenses
16
2.4 REGULAR AND AD HOC TOP-UP PREMIUM
REGULAR TOP-UP
 Purpose – Enhance the accumulation of units.
 Top-ups (TUs) of premium are allowed
 Deduction about 5% from TU, rest will put in the
fund(s)
 Paid together with the basic RP at each due date.
AD HOC TOP-UP
 Is paid at any time, and not on a due date
 To keep a policy in force when the account value gets
depleted due to high COI
 Insurers set the minimum amount for ad hoc TU
17
2.5 SUM ASSURED MULTIPLE RULE
minimum amount of life insurance coverage that can be purchased based on

the basic annual regular premium amount and age of a new policy owner.
SAM FACTOR
Age 1 – 16 17 – 25 26 – 35 36 – 45 46 – 55 ≥ 56
SAM
60 55 50 35 25 15
Factor
18
Examples
Minimum
Age Annual Premium SAM Factor
Coverage
56 years = 5,000 x 15
RM 5,000 15
old = RM 75,000
16 years = 5,000 x 60
RM 5,000 60
old = RM 300,000
19
Unit-Deducting Rider (UDR)

Premium-Paying Rider (PPR)  need not extra regular
 requires extra regular premium but it entails the
premium to be paid for the additional COI charge for the
rider with the basic premium. rider to be deducted from
investment account value.
**Agency commissions are payable from PPRs, not from UDRs.
20
SAM formula Total Sum Assured
for UDR : (Total Annual Premium – Notional Premium of Riders)
Annual
Personal Details Coverage / Notional Premium SAM Factor
Premium
Basic Coverage : RM 300,000
??? Critical Illness Coverage : RM 300,000 15
Man at age 30 Total Coverage : RM 600,000
(Riders with Sum How to calculate annual premium?
Assured) = Total Coverage / SAM Factor
= (600,000) / 50
= RM 12,000
Young working person Notional Premium of Rider : RM 200

RM 3,600 55
at age 24 Total Coverage : ???
(Riders without SA
How to calculate total coverage?
payable on death, the
= (Annual Premium – Notional Premium of Rider) x SAM Factor
notional premium is to
= (3,600 – 200) x 55
be deducted)
= RM 187,000
21
2.6 OPTIONAL RIDERS
Disability Income
Accident Rider
Rider, etc
Waiver of
Medical
Premium OPTIONAL RIDERS Rider
Rider
Critical Illness / Payor Benefit

Dread Disease Rider Rider
No extra regular premium is involved in a UDR but it entails the additional COI charge for the rider
to be deducted from the investment account value of the policy owner, based on the same
premium.
22
2.7 ACCOUNT VALUE
 Depends on 2 factors
- Value of each of the units
ACCOUNT - Number of units the policy has accumulated to dates
VALUE  The value of the policy rise as the number of units
increase with every premium invested or vice versa.
2.8 PARTIAL WITHDRAWAL, SURRENDER AND CHARGE
 Do not limit the frequency or maximum amount of withdrawal.

PARTIAL  Remaining account value is not below a certain minimum
WITHDRAWAL  Depletion may cause balance to be insufficient to meet higher
COI at older age.
SURRENDER  Total surrender is allowed without restrictions
Insurers may impose an early withdrawal or surrender charge, depending on the number of years a
policy has been kept in force
23
2.9 FUND SWITCHING AND SWITCHING FEE
 Can switch investment fund from one fund to another

fund.
 Switches between funds may
- Free of charge, or
- Free of charge for a limited number of switched
within a given period and charged imposed for
subsequent switches
2.10 PREMIUM HOLIDAY
 To prevent the policy from lapsing when a due premium

is not paid and if the accrued AV is sufficient to cover
due premiums
 Deduct COI and other management charges
 Allowed to cover BSA only, riders will be lapsed UNLESS
AV is sufficient to cover both
24
2.11 FREE-LOOK PERIOD
If there is Insurer  Unallocated premiums

 Value of units – unit price at the
next valuation date
will  Any deducted insurance
From the date of delivery refund charges and policy fees that
of the policy
2.12 NO-LAPSE GUARANTEE PERIOD
Regular premium has been paid without fail

Clause stipulates that the
investment-linked (IL) policy will
not lapse in the first few years No premium holiday has been effected
as long can meet certain
conditions No changes including partial withdrawal and
fund switching
25
2.13 DEATH BENEFIT MECHANISM
 The basic sum assured plus the accrued account value.

 The DB amount should never be less than the basic SA at any point in time as long as due
premiums are paid faithfully.
26
2.14 DUAL PRICING AND SINGLE PRICING
 Bid-offer spread
DUAL  Offer Price – Bid Price = 5% difference
PRICING  Offer Price (Purchase Price) = RM 1.00
 Bid Price (Selling Price )= RM 0.95
 Offer Price is the same as Bid Price.

SINGLE  NO bid-offer spread
PRICING  Upfront charge (point of acquisition)
 Back-end charge (point of disposal)
 Depends on product design
27
2.15 THE LONG HORIZON
 Leverage the cumulative effect from the protection and investment perspectives.
 The overall protection amount in the form of death benefit increases over the years
(Original sum assured is coupled with the cumulative account value )
 In the longer run, the Dollar Cost Averaging phenomenon creates a positives impact on
the cumulative effect on the account value.
28
2.16 DOLLAR COST AVERAGING
1. Constant /
Regular Payment
2. Total units
3. Cost per Unit
29
2.16 DOLLAR COST AVERAGING
 Unit price will rise and fall with market fluctuations ;

 When prices go down, a policy owner will be able to acquire more units at lower
price.
 When prices go up, the units acquired at lower prices will appreciate in value.
 Dollar Cost Averaging means leveraging price fluctuations.
30
2.17 SPREAD-OUT RISK AMONG VARIED ASSETS
In shorter period
Not all assets in a fund May perform
have same experience better
In longer period
Overall impact is the averaging effect on the price of the fund with the spreading out of risk.
2.18 RETIREMENT PLAN, MEDICAL PLAN AND EDUCATION PLAN
Regular Premium Investment-Linked Tax Relief :

(RP-IL) Plans :  RP-IL/EPF : RM 6,000
 Retirement products with monthly  Medical Plan* : Up to RM 3,000
guaranteed income  Education Plan* : Up to RM 3,000
 Medical and critical illness plans
 Education plans *subject to the approval of Inland Revenue Board
31
1. Which options are open to policy owners of a regular premium invested-linked plan?
I. A policy owner may opt for higher a sum assured than the minimum amount stipulated by
the Sum Assured rule.
II. A policy owner can pay top-up premium to accelerate the accumulation of the account
value in the policy.
III. A prospective policy owner can apply to combine a single premium plan with a regular
premium plan into one policy
IV. A prospective policy owner can select the death benefit based on either the sum assured
or the account value, whichever is higher.
a. I and II
b. I, II and III
c. II and III
d. I, III and IV
32
I. Top-up premiums can either be paid on a regular basis or at any time.
II. Most insurers impose a minimum amount for both regular top-ups and ad hoc top-ups.
III. Most insurers allow ad hoc top-ups once a year and impose a maximum amount.
IV. An upfront charge, normally around 5 per cent, is deducted from each top-up.
a. II, III and IV

b. I, II and IV
c. I and IV
d. I, II, III and IV
3. A female, aged 30 years, has budgeted to set aside RM3, 000 a year for a basic regular
premium investment-linked plan with a Unit-Deducting Hospitalization Rider. According to
the SAM formula, the multiple factor for her age is 50 times. How would you calculate the
minimum sum assured for the basic plan?
a. RM3,000 minus the notional premium for the rider, multiply by 50
b. RM3, 000 multiply by 50
c. RM3, 000 multiply by 55 times
d. RM3, 000 minus the notional premium, then multiply by 55 times.
33
4. Which of the statements below are correct?
I. All life insurers impose an early partial withdrawal charge and an early surrender charge
II. High partial withdrawal may cause the future account value to be insufficient to cover
the higher cost of insurance at older ages. Therefore, it is prudent for a policy owner to
make ad hoc top-ups to replenish the units and the account value.
III. Depending on the practices instituted by individual life insurers, all fund switches may be
processed free of charge, or be free for the first switch or first few switches within a
policy year and a fee in charged for subsequent switches.
IV. The investment risk profile of a young investor or policy owner may like change from the
aggressive category to the conservative category as he advances in age; hence, he may
want to progressively shift more of his equity assets to fixed income or bond fund until
he gets close to retirement age.
a. II, III and IV

b. I, II and IV
c. I and IV
34
5. Identify the correct statements from those given below.
I. The free-look period is 15 days commencing from the date of delivery of policy contract
to the policy owner.
II. The no-lapse guarantee clause stipulates that as long as premiums are paid without fail
by the grace period and there was no previous premium holiday or partial withdrawal,
the regular premium investment-linked policy will never lapse over the entire policy
tenure although the account value may be insufficient to cover the cost of insurance at
any point in time.
III. The no-lapse guarantee clause stipulates the regular premium investment-linked policy
will not lapse in the first few years (e.g. 2 years) even though the account value is not
sufficient to cover the cost of insurance, provided:
• All premiums were paid during the period.
• No premium holiday was exercised during the period.
• There was no partial withdrawal or fund switching during the period.
IV. As the basic death benefit of a regular premium investment-linked policy is basic sum
assured plus account value, the life insurer will continue to deduct the cost of insurance
for the basic coverage as long as the policy remains in force.
a. I, III and IV
b. II, III and IV
c. II and III
35
6. Select the correct statements from the following.
I. The Dollar Cost Averaging phenomenon leverages the long term or the acquisition of
more fund units when prices are down and the appreciation of units already acquired
when prices go up.
II. Some assets in a fund may perform well in a given short period while some may not, but
the overall impact is the averaging effect due to the spreading out of risk. With prudent
management by fund managers, the unit price is likely to be higher in the longer run.
III. The maximum tax relief for a qualified regular premium investment-linked medical plan
and an education plan is RM3,000 a year. If a policy owner has both, the combined limit
is also RM3,000.
IV. Whether a policy owner has a qualified regular premium investment-linked medical plan
or an education plan, or both, he qualifies for a tax relief of up to RM6,000 a year.
a. I, II and IV
b. I, II and III
c. I and III
d. II and IV
36
Chapter 3 :
Mechanisms and Features of
Single Premium Investment-
Linked Life Insurance
37
Chapter 3 : Mechanisms and Features of Single Premium
3.1 INTRODUCTION
Almost the same characteristics as RP-IL

Single Premium - Sum assured (SA)
Investment- - Death benefit (DB) mechanisms
- Allocated / unallocated premium ratio
Linked Insurance - COI deduction mechanisms
3.2 MAIN OBJECTIVE FOR OWNING SINGLE PREMIUM INVESTMENT-LINKED INSURANCE
Primary - Investment
Secondary - Protection
3.3 MINIMUM BASIC SINGLE PREMIUM
Current range is RM 5,000 to RM 20,000

38
3.4 ONE-TIME UNALLOCATED PREMIUM CHARGE
One-time payment
Unallocated Spans over the first 6 years in reducing ratios

Premium Charge
Around 5% (same as top-ups)
Balance 95% will acquire in the selected fund(s)
3.5 SUM ASSURED FORMULA
BSA is 125% of the single premium (SP) paid

Single Premium – RM 10,000
Insurers able to lower it to RM 5,000 or 105% of SP BSA = RM 10,000 x 125%
= RM 12,5000
3.6 DEATH BENEFIT FORMULA
All Tus are excluded from the BSA formula.
39
3.7 COST OF INSURANCE DEDUCTION AND SUM AT RISK MECHANISM
 The minimum protection amount : BSA or Account Value (whichever is higher).
Criteria Scenario
Account Value > BSA Protection amount is Account Value
COI will be deducted to cover the
Account Value < BSA
shortfall between AV and SA.
Shortfall difference = Sum at Risk (SAR)
Account Value COI
> SA Cease
< SA Deduction Resume
40
1. Single Premium investment-linked insurance is said to be more inclined towards

investment than protections because
a. Generally, about 95% of the single premium is allocated for investment in fund units.
b. The policy owner has the discretion to opt out of any protection coverage so that no cost
of insurance will be deducted from the account value.
c. The usual sum assured is 25 per cent above single premium outlay and may be lowered to
5 per cent above the premium for older age groups, i.e.. RM125,000 for SP of RM 100,000,
RM 105,000 for senior age with the same premium.
d. Once the account value exceeds the basic sum assure, the death benefit will be the
account value, not inclusive of the sum assured.
2. Mrs A, aged 45, signs up for a single premium investment-linked plan by paying an initial
RM100,000. Six months later, she pays another RM100,000 as top-up. The total sum
assured in her policy after payment of the top-up is
a. RM250, 000
b. RM125, 000
c. RM205, 000
d. RM210, 000
41
3. Which of the statements below are correct regarding single premium investment-linked
insurance?
I. Most insurers set their minimum basic single premium as ranging from RM5, 000 to RM20,
000, depending on product design.
II. All insurers set the minimum basic single premium at RM5, 000
III. Top-up premiums, if any, also bear the same normal upfront or unallocated premium
charge ratio of around 5% as the basic single premium
IV. Cost of insurance will be deducted regardless of whether the account value is above or
below the basic sum assured at any point in time.
a. I, III and IV
b. I and III
c. II and IV
d. II, III and IV
42
4. Which statement/s relate(s) to the application of cost of insurance (COI) in single premium
investment-linked insurance?
I. COI is based on the sum assured or account, whichever is higher
II. When the account value of a single premium investment-linked policy is still below the
sum assured, the shortfall gap between the two levels is called sum at risk
III. Deduction of COI is based on the shortfall amount from the account value level to the sum
assured level
IV. COI is based on the difference between the sum assured and account value at any point in
time
a. I
b. III
c. II and III
d. IV
43
5. Top-ups for single premium investment-linked plans are encouraged when

I. The market is on the upturn and unit prices are rising
II. A market downturn sets in not long after policy inception, thus causing the sum at risk to
prolong longer than expected, based on the initial premium outlay
III. The nation is experiencing a period of strong economic or GDP growth
IV. The policy owner believes in the impact of Dollar Cost Averaging and wants to leverage
that to boost the account value instead of relying on just one single outlay
a. I, II, III and IV
b. I and III
c. II and IV
d. I, II and III
44
6. The few mechanisms and features of single premium investment-linked plans which differ
from regular premium investment-linked plans are:
I. The sum assured formula for single premium plans is different than that for regular
premium plans
II. The death benefit formula for single premium plans is not guided by the same minimum
Sum Assured Multiple rule applicable to regular premium plans
III. The allocated premium ratio for single premium plans is different from that for regular
premium plans
IV. While the policy is kept in force, the cost of insurance deductions for single premium
plans may not be continuous because the formula is based on sum at risk, unlike regular
premium plans which are based on sum assured.
a. I and IV
b. I, II, III and IV
c. II, III and IV
d. I, III and IV
45
Chapter 4 :
Considerations for
Purchasing an Investment-
Linked Policy
46
Chapter 4 : Considerations for Purchasing an Investment-
Linked Policy
4.1 INTRODUCTION
 Protection + Investment
INVESTMENT-
LINKED POLICY
 Consider the benefits and risks of ILP
4.2 BENEFITS OF INVESTMENT-LINKED POLICY
i. POOLING AND
vi. TRANSPARENCY
DIVERSIFICATION
v. ADMINISTRATION BENEFITS ii. FLEXIBILITY
iv. ACCESS iii. EXPERTISE

47
Linked Policy
4.2 BENEFITS OF INVESTMENT-LINK POLICY
POOLING AND
DIVERSIFICATION
Policy owner access to a Risk characteristics in

“pooled” and diversified well-diversified is BETTER
portfolio. than a less diversified.
Funds consist of a wide
range of equity and
fixed income securities.
48
Linked Policy
Premium holiday
Change level of premium

payment Single premium top-ups
FLEXIBILITY
Switch between funds

Withdrawals
Change level of sum assured
49
Linked Policy
EXPERTISE Managed by professional fund managers
Access to well diversified investment-linked

ACCESS
funds
Keep track of investment through unit

ADMINISTRATION
statement
50
Linked Policy
promotes full transparency relating to official

TRANSPARENCY
sales materials presented at the point of sale.
Example of transparency details :
Name of basic plan, names of riders, coverage amounts, overall

Proposal summary premium.
Descriptions of benefits For plans and riders

and excluded risk
Statement of Cost Of Cost Of Insurance (COI) will be levied monthly and deducted from
Insurance (COI) fund/s up to maximum tenure.
Statement of Premium PH will be applied when due premium is not received

Holiday (PH)
Statement of Based on assumed rates of return

Investment returns
51
Linked Policy
Policy owner can maximize the investment element by opting to pay the
minimum basic annual premium and the balance as regular top-up.
Can increase sum assured without a corresponding increase in annual
premium.
Policy may lapse if insufficient account value for deduction of charges due
Special to higher COI.
Advisory Can add top-ups or reduce basic sum assured (within min. Sum Assured
Multiple rule) in the later years to maintain policy.
Highlights
Charges may change by insurer, giving 3 months’ notice
COI increases with attained age.
All investment risks are borne by the policy owner.
52
Linked Policy
Breakdown of annual premium and coverages
Selected fund/s and proportion ratio, if more than 1 fund (in %)

Amount of allocated and unallocated premium according to policy years.
Support by a table of allocated premium ratio for first 6 years
Elements Basic sum assured
contained in the
COI amount for basic sum assured and riders
table of
illustrated values Amount of other charges – policy years
and benefits are: Amount of annual fund management fee
Projected cumulative account value – high and low scenario
Projected cumulative death benefit amount
Commission amount
53
Linked Policy
Assumed rates of return With high and low scenarios for first and after 20 years according to
of funds Bank Negara Guidelines
Actual historical Funds in the past 5 years

returns
Short descriptions Underlying assets of each available fund
Policy Disclosure Sheet Policy owner to read PDS and general terms and conditions
(PDS)
Requirement for Acknowledgement upon reception and understood the contents of

intended policy owner sales quotation and PDS.
to sign
54
Linked Policy
4.3 RISKS AND UNCERTAINTIES
Investment Charges
Fluctuations
a. Death and Disability Benefits

- SA and Value of units  Not guaranteed
b. Maturity / Surrender Benefits  Administration fee
- Units Value  Insurance charge
 SA is guaranteed  Fund management fee, etc
 Units value is not
 Can be changed by insurer after 3
 Account and maturity value will rise months’ written notice*
and fall
*except for the insurance charge or COI which
 Not suitable for risk averse policy gradually increases yearly according to attained
owners but want high protection with age.
guaranteed cash and maturity values
55
Linked Policy
4.4 REGULAR PREMIUM INVESTMENT-LINKED PLANS vs. WHOLE LIFE
PARTICIPATING PLANS
No. Regular Premium Investment-Linked Plan Whole Life Participating Plan
1 Whole life coverage up to age 100 Whole life coverage up to age 100
Account value is not guaranteed as it depends Cash Value (CV) is guaranteed and
2
on fund performance incorporated in the policy contract
Surrender value is based on an accrual in the Surrender value is based on cash value plus
3
account value payable vested bonus or dividend
Death benefit is payable from the sum assured Death or maturity benefit is payable from
4 plus account value. Maturity benefit is payable the sum assured plus vested bonus or
from the account value. dividend
Investment instrument are decided by
5 Policyholder can choose from an array of funds
insurer
Policyholder can choose a higher sum assured
6 Premium amount is based on sum assured
with the same premium
Policyholder can add rider/s via cost insurance
Policyholder has to pay extra premium for
7 deduction from account value. This means hat
the rider/s chosen
no extra premium is required
56
Linked Policy
4.4 REGULAR PREMIUM INVESTMENT-LINKED PLANS vs. WHOLE LIFE
PARTICIPATING PLANS
No. Regular Premium Investment-Linked Plan Whole Life Participating Plan
8 Top-up premium is allowed at any time Top-up is not allowed

No partial withdrawal is allowed from the cash
Partial withdrawal from the account value is
9 value but withdrawal can be made from the
allowed
surrender value of bonus or vested dividend
10 There is no policy loan feature Policy loan is available with interest chargeable
Policyholder can choose to request premium
There is an automatic premium loan (APL)
holiday id he does not have the means to
feature with interest chargeable to cover the
11 pay the premium. The cost of insurance will
premium in default, if there is sufficient cash
still be deducted from the account value if
value
it is sufficient
Same tax relief as accorded to a whole life Same tax relief as accorded to a regular
12
participating plan premium investment-linked plan
Minimum age of 10 – 16 can apply on own life.
Minimum age of 18 years to apply on own
13 Age 10 – 15 will require parental consent.
life
Parental consent is not required for age 16.
57
Linked Policy
1. The benefits of an investment-linked policy are:

I. It provides access to a diversified investment portfolio. Thus, it has better risk
characteristics than a non-diversified portfolio.
II. It offers flexibilities.
III. Fixed nominal charges are levied on the policy.
IV. The life insurer insulates the policy owner against market risks.
a. I and II
b. II and IV
c. I and III
2. When an investment-linked policy reaches maturity, the maturity value will be

a. the basic sum assured and the account value.
b. the account value.
c. the account value plus terminal/ maturity bonus.
d. the basic sum assured and the account value plus terminal/maturity bonus.
58
Linked Policy
3. What are two similarities between a regular premium investment-linked plan and a whole
life participating plan?
I. Both plans provide lifetime coverage up to maximum age 100.
II. Both plans allow the addition of riders without additional premium.
III. Both are entitled to the same income tax relief treatment for premiums paid.
IV. The minimum age for an individual to apply on own life, and not as juvenile application
arrangement, is age 16 for both products.
a. I and II
b. II and III
c. I and III
59
Linked Policy

I. The minimum age for applying a regular investment-linked policy on own life is age 18
last birthday.
II. A minor aged 16 last birthday who is applying for an investment-linked policy on own life
needs parental consent.
III. A minor aged 16 last birthday can apply for a whole life participating policy without
parental consent.
IV. Minors aged 10 to 15 last birthday can apply for a whole life participating policy with
parental consent.
b. I, II and III
c. I and III
d. I, III and IV
60
Linked Policy
5. As the sales illustration document printed by any life insurer is meant for reference and
view by a prospect, a sales intermediary is expected to observe certain rules. These are:
The sales intermediary must
I. get the new policy owner to sign the illustration as acknowledgement of having
understood the contents.
II. get the new policy owner to sign the policy disclosure sheet and also to sign it himself to
declare that proper presentation has been carried out and the non-guaranteed elements
have been explained.
III. highlight that all investment risks are borne by the policy owner, that all fees and charges
may be changed by the insurer giving 3 months’ notice, and that the cost of insurance
increases with attained age.
IV. explain that the projected returns may be deemed likely returns of the selected funds
based on the past 5 years’ historical performance.
b. I, II and III
c. I, III and IV
d. I and III
61
Linked Policy
6. Which of the following statements regarding a life insurer’s sales illustration/quotation

document are correct?
I. The projection of future returns is based on the past 5 years’ performance experience of
a specific fund or funds proposed to the prospect.
II. Projected returns are based on assumed rates for the high and low scenarios of the
specific fund/s.
III. Normally, the actual historical returns of the various offered funds in the past 5 years are
also shown for the purpose of transparency.
IV. Projection of values is based on assumed rates of return up to 20 years.
a. I and III
b. II, III and IV
c. I, III and IV
d. II and III
62
Chapter 5 :
Investment
Considerations
63
Chapter 5 : Investment Considerations
5.1 INTRODUCTION
Understand the basic knowledge of

investing
Agents to educate clients with the basic

principles so that clients able to make
investment decisions
Some fundamental considerations to be

focus when making an investment
decision.
64
5.1 INTRODUCTION
1. Investment Objectives
2. Availability of Funds
3. Risk or Security
4. Investment Horizon
5. Accessibility of Funds
6. Taxation Treatment
7. Investment Performance
8. Diversification
65
5.2 INVESTMENT OBJECTIVES
Fundamental Investment Objectives (Primary)
Safety Growth Income
Seek safe return 1. Seek capital gains

Seek steady stream of
- Try its best to create a 2. Equity, commodities & income
hedge against inflation common stocks
66
Risk
Managed
Funds
Equity Funds
Bond
Funds
Balanced
Funds
Cash Funds
Returns
67
Fundamental Investment Objectives (Secondary)
• A comfortable standard of living

• Funds for their dependents
• Funds for the education and upbringing of their children
• Their financial position
• Liability cancellation
• Retirement income
• Achieve a state of financial freedom
• Funds for expenses and taxes upon death
68
5.3 FUNDS AVAILABLE
Clients must know how much

funds available to invest.
Personal Budget – surplus or deficit
Cash flow and net worth analysis
Put aside money & follow through financial

obligation
69
5.3 FUNDS AVAILABLE
i. Simple Monthly Cash Flow Analysis
No Income (A) RM Expenditure RM

1 Salary 5,000.00 Rental/ Housing Loan Payments 1,000.00
2 Rental 500.00 Groceries and Utilities 750.00
3 Commissions 1,000.00 Children/ Parents’ allowance 500.00
4 Others 1,000.00 Education Expenses 250.00
5 Loans (Car, Credit Cards, etc.) 2,000.00
6 Insurance Premiums 500.00
7 Savings 500.00
8 Misc. 1,000.00
TOTAL 7,500.00 6,500.00
 Income – Expenditure = RM 7,500 – RM 6,500

= RM 1,000
* Can be utilized to fund an investment plan
70
5.3 FUNDS AVAILABLE
ii. Simple Net Worth Analysis
No Assets (Present Value) Amount Liabilities Amount
1 House 220,000.00 Housing Loan Balance 200,000.00
2 Car 30,000.00 Car Loan Balance 35,000.00
3 EPF 20,000.00 Credit Card Balance 5,500.00
4 Savings Account 1,500.00 Personal Loan Balance 10,000.00
5 Insurance Cash Value 20,000.00 Others 15,000.00
TOTAL 291,500.00 265,500.00
 Assets – Liabilities = RM 291,500 – RM 265,500

= RM 26,000
* Can be utilized to fund an investment plan
71
5.4 RISK OR SECURITY
There is a trade-off between expected return and risk that should prevail in rational
environment
High risk / Aggressive

 Can achieve higher returns
RISK
Low risk / Conservative
 Trade close to its historical
average prices and quite stable
Risk
Return
72
5.4 RISK OR SECURITY
Know your investment risk profile (e.g. age, family situation, experience) to determine
how best to allocate your savings amongst various risk asset.
Risk Averting Risk Indifferent Risk Taking/Seeking

(Conservative) (Neutral) (Aggressive)
INDIVIDUALS REACT TO RISK DIFFERENTLY
LOW OR NO RISK MODERATE RISK HIGH RISK
73
5.5 INVESTMENT HORIZON
the length of time a sum of money

Definition is expected to be invested.
Investment The shorter the investor’s horizon,

Investment the less risk he should be willing to
Horizon Strategy accept
To determine the investor’s income

needs and desired risk exposure,
Purpose which is then used to aid in security
selection.
74
5.6 ACCESSIBILITY OF FUNDS
 A client will invest with the objective to make money

and he will need the money to settle a specific event.
 Categories :-
ACCESSIBILITY – The time when the client needs the fund
OF FUNDS – Cost/ penalty that the client has to pay if client
exists early
– Initial/ set up cost in setting up or buying into
the investment
5.7 TAXATION TREATMENT
Client should know the different types of

investments before making a decision
TAXATION Different types of portfolios enjoy wide range

TREATMENT of tax treatment
Investment-linked plans enjoy the same tax

treatment as traditional plans
75
5.8 ACCESSIBILITY OF FUNDS
The life cycle of the

investment
Country’s economic,
The history of the regulatory and political
invested company factors
Investment
Performance Regional and
Past experience of the
global economic
investment
factors
The invested company’s The competencies and capabilities

level of costs of the management team
76
5.9 DIVERSIFICATION
 The process of investing across different asset

categories and market segments.
 A strategy used by professional fund managerS
DIVERSIFICATION without sacrificing returns.
 Investing in shares, bonds, money market
instruments and real estate investments trusts
(REITs)
Minimize Risks & Maximize Returns
77
1. An example of investment in Money Markets is
a. 5-Year Bond.
b. Currencies and Forex.
c. Treasury Bills.
d. Savings account.
2. People generally want to invest

I. to lead a comfortable lifestyle.
II. to be comfortable during retirement.
III. to amass great wealth.
IV. to provide adequate funding for their children’s education and their upbringing.
a. II, III and IV
b. I, II and III
c. I, II and IV
d. II, III and IV
78
3. Which statement below explains what a simple (current) net worth analysis involves?
a. The forecast of a person’s future net wealth and financial status (e.g. middle income,
upper middle income, etc.)
b. A calculation of the sum of assets in current monetary terms that a person presently owns,
not including any future inheritance
c. The total sum of all assets owned by a person in present value minus the existing total sum
of all liabilities he is obliged to settle. The balance, if any, is his present net worth to his
family in the event of his early demise.
d. A personal plan outlining the targets for values of current and future assets to be achieved
at a certain time in the future.
4. The main purpose of an agent conducting a risk profile on his potential client is
a. to assess whether the potential client is willing to use a major portion of his savings or
liquid assets to purchase a large investment-linked plan.
b. to help the potential client understand his own risk profile, i.e. whether he has
conservative, aggressive or balanced risk characteristics, and also to consider the type of
asset categories suitable for his profile.
c. to assess whether the potential client will be attracted to the product/s being offered.
d. to assess whether the potential client is willing to forego some of his existing liquid assets
in order to buy an investment-linked product.
79
5. Which of the statements below are true?
I. A person’s investment horizon is the length of time that he is prepared to hold a particular
asset before he liquidates it.
II. The investment horizon of an individual, among other factors, also depends when he needs
liquidity in the future date for specific objective/s.
III. The cost or penalty that an investor has to pay in the event he needs to liquidate the asset
earlier than expected also has a bearing on his choice of investment horizon.
IV. It is pertinent for an agent to strike a clear understanding with a potential client as to how
much the latter is willing to set aside or commit for acquiring an asset.
b. I, II and III
c. II, III and IV
d. I, II and IV
80
6. Which of the following statements is correct?
a. Diversification means spreading out investment in different asset categories or fund types.
b. Diversification not only means spreading out investment in different asset categories or
fund types, but also acquiring various assets of the same category or fund type.
c. Investment-linked funds in Malaysia confine the investment diversification to assets in the
country as a way of discouraging the outflow of funds.
d. When the stock market shows signs of going up, an investor should give key focus to
leverage the market trend and switch all fixed income or bond assets to equities.
81
Chapter 6 :
Types of Investment and
Potential Risks
82
Chapter 6 : Types of Investment and Potential Risks
6.1 INTRODUCTION
Cash and Deposits

Bonds Fixed Income Securities
Sukuk Common Shares

Instruments
Investments
Capital Guaranteed
Unit Trusts
Funds
Real Estate
Investment Trusts Commodities Properties
83
6.2 CASH AND DEPOSITS
Has no value in itself, only as a medium of

exchange.
Include short-term debt instruments :
Treasury Bank
Bills Accounts
84
Treasury Bills
 Short-term government funding vehicles issued on a regular basis with repayment
 Short period of 1/ 3/ 6/ 12 months
Issued at discount rate

Government Borrow
money Central Institution
from Bank
Citizens
Discharged at face value
85
Bank Accounts
 Fixed deposits placed for fixed periods with fixed interest rates
 Very little risk of loss of principal and interest
 Factors that may influence the choice of deposits are as follows :-
 Funds available for investment Interest Rate
 The time the funds can remain in the account
 Whether there will be emergency withdrawals
 Prevailing market condition
Savings Accounts | Current Accounts | Fixed Deposits |

Deposit
Investment Accounts | Time Deposits and Offshore Accounts.
86
 Established under Akta Perbadanan Insurans Deposit Malaysia

2005
Purpose : protect against the loss of deposits in the unlikely
event of a bank failure and to promote financial
system stability.
 Current maximum protection limit granted ;

RM250,000 per depositor per bank.
www.pidm.gov.my
 Protect owners of insurance policies and holders of takaful
certificates in the event of the failure of member insurance /
takaful institutions.
 Maximum protection insurance – RM 500,000 (per insured)
87
6.3 FIXED INCOME SECURITIES
 A group of investment vehicles that offer a fixed periodic return
 Stress current income and offer little or no opportunity for appreciation in value.
 If there is an active secondary market, they can be bought and sold at any time before
maturity. It gives opportunity to realize capital gains.
 If the secondary market is inactive, the investor’s money is locked up for the full
lifespan of the security.
Investor
Has lent in return for fixed interest income and
Issuer money to repayment of principal at maturity.
Types of fixed
Government Corporate Preference
income
Bonds Bonds Shares
securities
88
Safest type of
Government bonds investments
maturity
Government
borrow money
 Short-term : <5 years to maturity from public
 Medium term : 5 – 10 years to Government
maturity Bonds
 Long-term : >15 years to maturity Investor gets the
interest + capital
on maturity.
Advantage & Disadvantage
No. Advantages Disadvantages

In times of high inflation,
1 Very safe.
capital can be eroded.
2 Guaranteed marketability and income for the future.

89
Corporate Bonds
Debenture Stocks Loan Stocks Convertible Stocks
- Secured loans - Unsecured loans

- Fixed charge on company’s - Convert to ordinary shares on
- Interest rate and term a fixed date
property or assets are fixed
- Pays fixed interest rates at the - Enjoy dividends declared.
- Return of capital is
end of which the capital is repaid depending on the
company’s performance
- Less secure and higher
Interest rates for corporate bonds Convert decision depends on
interest rate
tend to be higher than for dividend income and capital
government bonds as the security appreciation are better than
is lower. the fixed interest given.
90
Corporate Bonds vs Government Bonds
Return
Bonds Return Risk

Corporate High Return High Risk
Corporate
Bonds
Bonds
Government Low Return Low Risk
Bonds
Government
Bonds
Risk
91
6.4 SHARES
Refers to portfolio of shares in listed

companies
Influenced by factors
A shareholder owns part of
the company and possess
voting right
- General performance of
country’s economy SHARES
- Current interest rates
- Inflation rates
Shareholders are not liable for
- Specific company’s
earnings the debts of the company
- Prevailing currency
performance Types of companies
Private companies Public companies

- Operating in Malaysia - Be quoted on stock exchange
- Not listed on Bursa Malaysia IF meet the requirements
- Not available to ordinary - Shares can be bought and sold
investors at fluctuating prices
92
6.4 SHARES
Preference
Ordinary Shared
Shared
 Holder is given the right to a fixed a

 The holder is a part-owner of the
dividend through profit been made
company
 Dividends of Preference Shares are
 Entitled to share in its profit in the
lower than common dividend BUT
form of dividends
more secure than ordinary shares
 No certainty on the dividends as it
 Kind of hybrid as it’s containing
depends on company’s profit
both equity and a debt instrument
 Dividends are usually paid bi-
or fixed income
annually
 Preferred shareholders have the
 Announcements of high profits and
right to be compensated if the
will tend to increase the price and
company if winds up BUT do not
vice versa.
have voting rights
93
6.4 SHARES
ADVANTAGES DISADVANTAGES
1. Shares may provide potential

good dividends and capital 1. Shares value can go below the
appreciation. price the shares were
originally bought for,
2. Shares are very liquid as they especially in times of market
can be traded in the open downturns.
market.
94
6.5 UNIT TRUSTS
 Useful vehicles for small private investors
 Authorized and supervised by the Securities Commission Malaysia
 Unit trusts investment, comprising an array of funds ranging from equity, bond, fixed income,
balanced fund, etc. is established by a trust deed
Investors Open-ended fund

Trustee (usually bank) kept
the fund; govern by trust
deed.
Fund Manager to manage.
Regulatory Body: Securities Commission

95
6.5 UNIT TRUSTS
TRUST DEED enables a trustee to hold the pool of money and assets in trust
on behalf of the investors. Another party, the investment
manager (also called fund manager) manages the pool.
ADVANTAGES
Investors
1. Spread of assets thus
lower the risk than shares
of single company
FOUR WAY Unit Trust 2. Funds are managed by
Fund
Operating
Manager ARRANGAMENET Company professional fund
managers
3. Allow EPF contributor to
utilize a portion of their
Trustee EPF account in approved
unit trust companies.
96
6.5 UNIT TRUSTS
Unit Trust SP-IL
1. Regulator Securities Commission (SC) Bank Negara Malaysia (BNM)
2. Investment Approach •Acquisition of units in funds entailing a • Acquisition of units in funds entailing a spread
spread of assets of assets
• Wide array of funds available for selection • Array of funds available for selection,
although array offered by insurers may generally
be less than that offered by a UT company
3. Fund Price Validation Daily validation Daily validation
4. Life Protection Element No sum assured on investor’s life Minimum sum assured of 125% of initial Single
Not an inherent feature of UT products Premium, 105% for senior ages and sub-standard
cases
5. Cost of Insurance & Policy Fee Nil Both are chargeable
6. Top-Up Allowed at any time Allowed at any time
7. Fund Switch Allowed Allowed
8. Sales Charge Charge imposed by some UT schemes may be Usually 5%
slightly higher than 5%
9. Trustee • Must be appointed • Trustee appointment not compulsory. At the
• Small trustee fee is charged discretion of the board of directors
• If no trustee, then no trustee fee
10. Fund Management Fee Usually up to 1.5% of account value charged Usually up to 1.5% of account value charged
annually, depending on fund category annually, depending on fund category
11. EPF withdrawal Can make withdrawal from EPF to buy Cannot make withdrawal from EPF to buy
97
6.6 PROPERTIES
Residential Property
Types of REITs
Commercial / Industrial Property
in Malaysia and
overseas
Agricultural property
Price depends on :
 Quality of land
 Location of land
 Type of crops grown
 Value of the buildings on the land / existing
facilities on agricultural property
Now a popular form of real estate investment available to the Malaysia public,
knows as Real Estate Investment Trust (REIT)
98
6.6 PROPERTIES
Similar to unit trust as the money

invested by many investors.
Returns averagely in Distribute rental

develop market is around income as dividends
3-5%. back to the investors.
Some specific real estate like shopping Traded in Bursa Malaysia like
malls, office blocks, apartments and equities.
warehouses to hotels.
99
6.6 PROPERTIES
ADVANTAGES DISADVANTAGES
1. Economic recession, property could be

difficult to be disposed off
1. Good capital appreciation and
steady flow of income 2. Mortgage loan interest subject to
increase
2. Low risk investment
3. Pay the annual Assessment Tax and the
3. Mortgaging the property, capital Land Tax (or Quit Rent)
can be obtained
4. Monthly service fees to the appointed
maintenance management.
100
6.6 PROPERTIES
 Legal fee for processing the purchase

Initial fees that have to be  Stamp duty
paid at the time of  Mortgage loan agreement fee, if financing is
purchase of property provided by a financial institution
 Valuation fee – to ascertain the value of
property
Ranges for properties sold

within 5 years after their
purchase  30% (if disposed of within 3 years) ;
 20% (4th year) and
(Real Property Gains Tax  15% (5th year)
(RPGT) on the gain will be
imposed on the seller)
101
6.7 SUKUK
Sukuk
Islamic equivalent It’s investment principles

An Arabic term Gives the investor a
of bonds which prohibits the
for financial share of ownership in
- Comply with charging, or playing of
certificates the underlying asset
Islamic law interest
Characteristics:
 Issued by pooled funds (mutual funds)
 Based on hard assets that generate steady income and expectations
 Maybe guaranteed or not by their originators
 Investors receive a feel equal to the income of the underlying assets
 Securities are issued by Special Purpose Vehicles (SPVs), often subsidiaries of banks or trusts called SPVs
 Maybe issues in US dollars
 Differ from conventional bonds because they are based on tangible assets instead of being based on the
debt.
102
6.9 CAPITAL GUARANTEED FUNDS
 Investment vehicle offered by certain institutions

CAPITAL • Guarantees the investor’s initial capital from any
losses
GUARANTEED
 When invest in Capital Guaranteed Funds, it is
FUNDS
GUARANTEED that you will not lose any money
PROVIDED investor don’t redeem the investment
before the maturity date.
6.10 COMMODITIES
 Investment to profit from the price movements relating

to energy, metals and food
 Commodities future contract, entails speculating future
COMMODITIES price movements
 Speculating on price movements itself is a high risk
exposure
103
1. Malaysian Treasury bills are debt instruments that are considered safe because
I. they are issued by the Government of Malaysia.
II. they are short-term instruments.
III. they are guaranteed by the World Bank.
IV. their tenure is normally 12 months.
b. I, II and III
c. I and II
d. I, II and IV
104

I. Normally, when interest rates fall, the prices of fixed income or bond assets may rise; when
interest rates rise, their prices may drop.
II. Government bonds are safer than corporate bonds but their returns are comparatively
lower.
III. The maturity period of short-term government bonds is usually less than 5 years; for the
medium-term ones, it is usually 5-10 years and for the long-term ones, it is usually above 15
years.
IV. Preference shares are hybrid securities with both equity and fixed income characteristics. In
the event the company concerned winds up, preferred shareholders have the first right to
be compensated from the company assets first before normal shareholders.
b. II, III and IV
c. I, II and III
d. I and IV
105
3. The similarities and differences between unit trusts and single premium investment-linked plans
are:
I. The investment approach of both are similar.
II. The life insurance protection element is not part and parcel of unit trust products, whereas
for single premium investment-linked plans, it is.
III. Unit trusts do not impose cost of insurance and policy fee charges since the life protection
element is absent.
IV. A trustee must be appointed for unit trusts but this is not compulsory for single premium
investment-linked plans.
a. I and II
b. I, II, III and IV
c. II, III and IV
d. I and III
106
4. Which of the following statements about Real Estate Invest Trusts (REITs) is NOT true?
a. REITs operate in a way similar to unit trusts.
b. Rental income from the properties invested by a REIT is distributed to investors in the form
of dividend.
c. A REIT can invest in a wide range of properties like malls, office blocks, apartments,
commercial lots, hotels, etc.
d. REITs may acquire shares in property development companies
5. Which of the statements below is incorrect?

a. Sukuk are like bonds but they are based on Shariah-compliant principles.
b. Malaysia is the world’s largest issuer of sukuk.
c. Sukuk securities are issued by Malaysia in Ringgit only.
d. Sukuk securities issued by Malaysia can be in USD.
107
6. The protection offered by PIDM on the deposits placed in banking institutions and policies bought
from insurance companies operating in Malaysia is granted
I. to all banks, insurance companies, takaful operators, reinsurance companies and retakaful
operators which have business operations in Malaysia.
II. only to banks, insurance companies and takaful operators which are member institutions of
PIDM.
III. with a levy charged to all member institutions and non-member institutions at differing
rates.
IV. with a levy charged to member institutions.
a. I and III
b. I and IV
c. II and IV
d. III and IV
108
Chapter 7 :
Common Types of
Investment-Linked Funds
109
Chapter 7 : Common Types of Investment-Linked Funds
7.1 INTRODUCTION
 Investment aspect involves channeling a portion of

policy owner’s money in funds
INIVESTMENT-
LINEKD FUNDS
Investment mechanisms Funds
and features and main available in
funds unit trust
7.2 FIXED INCOME / CASH AND MONEY MARKETS FUNDS
Please refer to Chapter 6 ( and )

for details of these assets
110
7.3 EQUITY FUNDS
• Acquire units of stocks in companies

• To allow a minor portion in cash/money markets for temporary
hold and before channeling to another stock
• Chapter 6 ( ) explains about equities, a term used
interchangeably with stock and shares.
7.4 PROPERTT FUNDS AND REITs
• Funds invest either in property development companies

• Please refer chapter 6
111
7.5 MANAGED FUNDS
• Equities, fixed incomes, properties,

cash/money markets, etc.
 Asset allocation depends on fund manager’s view of the future prospects
7.6 BALANCED FUNDS
• Called as hybrid funds, comprise specified proportions of specified

asset categories
• Does not change its asset mix
70% in 30% in fixed

equities income
112
7.7 SPECIALISED FUNDS
Designed with specific themes or regions
Example, investments in a particular geographical region like

SPECIALISED - Asia Pacific Fund
FUNDS - Asean Fund
- Emerging Market Fund
Example fund with specific theme is Global Green Energy Fund
7.8 SUKUK
Become more popular among Malaysians in its positive historical

performance growth potentials.
With support from the Malaysian Government and mega

corporations, sukuk is gaining dominance in the Malaysian
capital market.
113
7.9 RISKS vs RETURNS OF INVESTMENT-LINKED FUNDS
Discussed these in Chapter 5 (5.2)
vs If offered by fund manager, property funds be positioned before

equities and derivatives be placed after equities.
Risk
Managed
Funds
Equity Funds
Bond
Funds Balanced
Funds
Cash Funds
Returns
114
Bond Equities
Debt funds Features Stocks and shares
Lower risk Risk Higher risk

Higher
Stable Return
(Depending on stock market)
**To lower risk of loss in equity fund:

• mechanism of Dollar Cost Averaging via continuous contributions to fund over a long horizon
• spread-out to various stocks in one equity basket.
115
Actual local bond fund:
1. “P’ Bond Fund of “C” Bank Group

(a) Current Average Volatility Factor @ July 2014: 0.89
Calendar Year Performance (%)

8.43%
5.84% 5.69%
3.87% 3.51%
2.35%
2008 2009 2010 2011 2012 2013

Year
2. FBM-KLCI Index
(a) 1 Year Volatility (%) : 6.5
(b) Total Return 2013 (%) : 14.0
116
Bond has low risk/ volatility, low return
FBM KLCI has higher risk/ volatility, higher return
Higher risk (Equity fund) will face a steeper drop in return

than bond funds when market faces downturn.
Advantage of IL funds
 Advantage of IL funds
 Services of professional fund managers
 An ordinary person would lacks of knowledge, information and experience
to pick right stock and time correctly.
117
1. Sukuk is gaining ground in terms of transaction volumes in Malaysia, including for investment-
linked funds because
I. this investment vehicle is becoming more popular among investors.
II. of the strong support from the Government and mega corporations, especially Malaysian
ones.
III. of its higher return experience compared to conventional bonds because of special
incentives provided by the Government.
IV. it is traded only in Malaysian Ringgit.
a. I, II and III
b. I and II
c. II and III
118
2. The average yield of Malaysian Treasury bills with tenures of 6 to 12 months is
I. around or slightly better than 3%.
II. normally around 4 to 5 per cent.
III. normally of very low volatility ratio but in periods when the Government embarks on mass
mega projects and needs funding, it may issue bills with yields as high as corporate bonds.
IV. with wide variance, depending on the type of bill.
a. I
b. II and IV
c. I, II, III and IV
d. IV
119
3. If is safer to rely on professional fund managers appointed for investment-linked funds than to
invest directly in the stock market because
I. an ordinary individual is generally not equipped to identify the right stock that will reap
gain.
II. the professional fund managers’ role is to ensure the assets and vehicles achieve a certain
minimum growth rate according to the various stages of time span; otherwise, the fund
managers and life insurer will be obligated to make up the shortfall.
III. it is not easy for an ordinary individual to pick the right time to buy and the right time to
sell for optimising capital gains.
IV. ordinary individuals, especially those occupied with work, do not have the time and
knowledge to properly monitor market trends.
b. I, III and IV
c. I, II and III
d. II, III and IV
120
4. Malaysian bonds are deemed to be
I. more volatile than global bonds.
II. less volatile than global bonds.
III. rated at very high preference because the country’s economy is growing vibrantly.
IV. experiencing better yields than global bonds for many years.
a. I and III
b. II
c. III and IV
d. IV
5. Compared to government bond funds, corporate bond funds have

I. lower yields and lower risks.
II. higher yields and higher risks.
III. more or less similar yield and risk ratios.
IV. a longer tenure.
b. II
c. III and IV
d. IV 121
6. If an insurer has an investment-linked fund tracking the FBM-KLCI index, it means
I. the fund manager refers to the index as the benchmark for guiding the fund’s investment
strategy and also the return targets in the ensuing years.
II. the insurer is obligated to grant the returns according to the ratios experienced by the
index. If the actual return of the fund in any period is lower than that shown by the index,
the insurer will top up the difference.
III. the fund invests in the same stocks of the companies identified by the index.
IV. the fund invests in stocks of companies in the same industries as the companies identified
by the index.
a. I and IV
b. II
c. I and II
d. IIII
122
Chapter 8 :
Pertinent Guidelines on
Investment-Linked Business
123
Chapter 8 : Pertinent Guidelines on Investment-Linked
Business
8.1 GUIDELINES ON INVESTMENT-LINKED BUSINESS
To provide professional & proper conduct
Valuation of units is on every business day
Insurer should seek policy owner’s consent before exercise

Premium Holidays
Insurer could undertake unit splits:

- Once in financial year
- With sustainable appreciation in NAV over 6 months
Top-up premium (TUP) can be used to purchase units as

TUP not a requirement for min. death benefits
Initial offer period shall not exceed two months

- Min. fund size not reached, insurer shall refund
monies contributed with interest/investment profits earned
* Unit Splits : to make fund size bigger and price lower

124
Business
Insurers shall:
•Provide separate Fund Fact Sheet for each IL funds
•Provide statement on the value of policy
•Provide report on the performance of each IL fund to policy owners
•Publish latest NAV per unit of IL funds daily in newspapers or insurer’s website
15 days free-look:
Allocated and unallocated shall be

refunded
* value of units depend on unit price
at the next valuation date
* Less any expenses eg: ME fees
125
Business
Maximum gross rates for sales illustrations
Illustrated Return for Generic Funds X% Y%
Equity 2% 9%
Managed 3% 8%
Bond 4% 7%
* Max. period of projection should not exceed 30 years
**The guidelines also apply to family takaful products.

To sell family takaful products by takaful operators must pass the Takaful Basic Examination.
126
Business
1. Valuation of units in an investment-linked fund must be done
a) six days in a week, including Saturdays (half day).
b) every business day.
c) every day.
d) seven days a week. For a day that falls on a weekend or a public holiday, valuation processed by the
automated system will be based on the same unit price as the previous business day.
2. The guidelines stipulated by the regulatory authority in allowing a life insurer to undertake unit splits for
an investment-linked fund once a year is on the condition that “there is sustainable appreciation on net
asset value (account value) over a six-month period preceding the split.” Which of the statements below
is correct regarding the above statement?
a) This means that appreciation over the 6-month period must be considered substantial by reasonable
standard compared to the previous 6 months.
b) This refers to an appreciation rate of at least 20 per cent at the end of the current 6 months over the
previous 6 months.
c) This refers to an increase in the average monthly net asset value (account value) consecutively for 6
months.
d) This means that the discretion to define “sustainable appreciation” may lie with the life insurer as
long as there is growth in the fund in the prevailing 6 months over the previous 6 months, subject to
the approval of the board of directors.
127
Business
3. Since part of the initial premium of a regular premium investment-linked plan may already have been
allocated and invested to acquire fund units by the time the customer decides not to take the plan within
the 15 days free-look period, in what manner will the refund be made?
a) Refund of full initial premium
b) Refund of full initial premium minus policy fee and medical examination expenses (if any) incurred by
the life insurer
c) Refund of unallocated premium + net asset value (account value) at next valuation date + insurance
charges and policy fee already deducted - medical examination fees if any PERTINENT GUIDELINES ON
INVESTMENT-LINKED BUSINESS 87
d) Refund of unallocated premium + net asset value (account value) - cost of insurance and policy fee-
medical examination fees if any
4. Life insurers offering investment-linked insurance are obligated to provide certain fundamental
“transparencies” as required by regulatory guidelines. These are:
I a separate Fund Fact Sheet for each of the funds.
II a statement on the policy owner’s net asset value (account value) details at least once a year.
III a performance report on each fund of the policy owner at least once a year.
IV publishing of fund unit prices daily in at least one national English newspaper and one national Bahasa
Malaysia newspaper, and on the insurer’s website.
a) II, III and IV c) I and II
b) I, II and III d) I, II, III and IV
128
Business
5. Which of the statements below regarding sales illustrations for investment-linked plans are correct?
I The low and high projection for an equity fund should not be above 2% and 9% respectively for the first 20
years.
II The low and high projection for a managed fund should not be above 3% and 8% respectively for the first
20 years.
III The low and high projections for a fixed income/bond fund should not be above 4% and 7% respectively
for the first 20 years.
IV For projected illustrations beyond 20 years, insurers must abide by the low scenario rates of 2%, 3% and
4% for equity funds, managed funds and bond funds respectively. The high scenario rates for the same
three funds are 6%, 5.5% and 5% respectively.
a) I, II, III and IV c) I and II
b) I, II and III d) II, III and IV
6. What are the prerequisites for the launch of a new investment-linked fund?
I A minimum fund size can be set by the insurer.
II The initial offer period shall not be more than 2 months from the date of launch.
III If the minimum fund size is not reached by the end of the initial offer period, the insurer can call off the
fund and refund all premiums collected.
IV The insurer will also have to pay interest or profit from the premiums collected during the initial offer
period to the intended policy owners.
a) I and II c) I, II, III and IV
129
b) b) I, III and IV
TMTDA/WHITE2-ENTRANCE/CEILLI(TTT)/ENG/NY/01032019/VERSION1.0 d) I, II and III
Chapter 9 : Agents
Professional Approach and
Guidelines
130
Chapter 9 : Agents Professional Approach and Guidelines
9.1 INTRODUCTION
Process of marketing, selling and the guidelines for agents
9.2 MARKETING
Objective of satisfying customers’ requirement can be achieved through:

 Usage of financial needs analysis
 Knowing customer tools
 Sales illustrations
To engage in personal selling requires:

Product Knowledge
Market Knowledge
Knowledge of Buying Process
Knowledge of Selling Process
Selling Techniques
131
9.3 CONSUMER BUYING DECISION

9.4 THE SELLING PROCESS
PROCESS
Problem Recognition Locating the prospective customer
Information Search The sales presentation
Evaluation of Alternative Policies Conducting the sales interview
Purchase Handling objectives
Post-purchase Evaluation Closing the sales
132
9.5 AFTER-SALES SERVICES
It help reduce customer’s further questions and concerns. The delivery of a policy is also
an important aspect which gives an opportunity for further business
Explain
contractual Policy owner sign delivery Agents return signed
provisions “acknowledgement slip” slip to insurer
** 15 days cooling-off period commences from the date of policy delivery

acknowledged by policy owner
133
9.6 LIAM Guidelines on the Code of Conduct
PART 1 - Guidelines on the PART III - Statement of Life

PART II - Life Insurance Selling
Code of Conduct Insurance Practice
1. Statement of Philosophy 1. Introduction 1. Introduction
2. Coverage 2. General Sales Principles 2. Claims
3. Monitoring Devices 3. Explanation 3. Proposal Forms
4. 7 Principles of the 4. Disclosure of Underwriting 4. Policies and Accompanying

Guidelines Information Documents
5. Accounts and Financial 5. Sales Materials

5. Code of Conduct
Aspects /Advertisements
134
PART II – LIFE INSURANCE SELLING

 General Sales Principles
The intermediary shall: The intermediary shall not:
Produce his Registered Intermediary Authorisation
Card Make inaccurate or unfair criticisms of any insurers
Attempt to persuade a prospective policy owner to

Ensure as far as possible that the policy proposed cancel any existing policies unless there are clearly
is suitable to the needs unsuited to the policy owner’s needs
All LIAM member companies have agreed to

cooperate to eliminate “twisting” and appropriate
Gives advice only action will be taken, if proven
“Twisting” is a forma of misrepresentation where

policy owner is induced to discontinue an existing
Treat all information supplied by the prospective policy to purchase a new policy with same or other
policy owner as completely confidential company
Make clear comparisons on characteristics with

other types of policies
Render continuous service to the policy owner

135
 Explanations of the Conduct

Detriments arising from twisting are:
Qualifying period will have to recommence.
Higher premium rates based on attained age.
Paying Initial costs twice.
Suicide clause, incontestable clause & other clauses have to

start all over again
136
 Disclosure of Underwriting Information

The intermediaries shall :
 Avoid influencing proposer answers or statements

while filling up proposal form
 Point out the consequences of non-disclosure and

inaccuracies to proposer
 Accounts and Financial Aspects

The intermediaries shall:
 Acknowledge insurer receipt and maintain a proper account of all monies

received in connection with insurance policy.
 Forward to the company without delay any monies received for life
insurance.
137
PART III – STATEMENT OF LIFE INSURANCE PRACTICE
 Claims
An insurer should not :
Unreasonably Reject Delay Collect Processing Fees
138
 Proposal Forms
To disclosure of material facts:
Warning that if the signatory is in any doubt about

whether certain facts are material, these facts should be
disclosed.
Drawing attention to the consequences of failure to

disclose all material facts
139
Policies and Accompanying Documents

The policy and accompanying documents must indicate whether there are rights to a
surrender value. If yes, then this right must be indicated.
Proposal for whole-life or endowment insurance contract features should be mentioned:
1. Long-term contracts
2. Surrender values – Policy will not have cash

value on termination unless premium paid for 3
years or more
140
9.7 GUIDELINES ON MINIMUM STANDARDS FOR TREATING CUSTOMER

FAIRLY
 Issued by Life Insurance Association of Malaysia.
Agents should take note of the following :
Customers are fully Agents should be well- That products are sold
informed about the key trained, especially in based on customer’s
benefits, key risks, and investment and savings suitability, needs and risk
exclusions. products. appetite.
141

I Agents must utilise the sales materials and sales illustrations provided by their respective
principal in their sales process.
II Agents must utilise the sales materials and sales illustrations provided by their respective
principal in their sales process. However, they may have the discretion to supplement these
provided the facts do not deviate from those in the materials and illustrations provided by
the principal.
III Only the signature of the intended new policy owner must be obtained on an insurer’s
Customer Fact-Find (CFF) form.
IV The sales intermediary must also sign the CFF form as witness after the intended new policy
owner has signed.
a) I, II and IV c) II and IV
b) I and III d) II and III
142
2. As soon as a policy contract has been issued by a life insurer,

I the insurer is to mail (by registered mail) the policy contract to the correspondence address
of the new policy owner. The registered mail slip should suffice as evidence that the contract
has reached the policy owner.
II the agent should deliver the policy contract without delay.
III the delivery process should entail the explanation of the contractual provisions and re-
explaining the benefits. The agent then has to request the new policy owner to sign the
delivery acknowledgement slip. Finally, the agent must return the signed acknowledgement
slip to the insurer for recording and filing.
IV if the new policy owner is unavailable at the first time of personal delivery by the agent,
acknowledgement of receipt of the policy contract signed by a representative of the policy
owner’s household or office shall be deemed valid. The agent does not need to follow up on
this.
a) I and II c) I, II, III and IV
b) II and III d) I, III and IV
143
3. Agents who have sold investment-linked plans should conduct reviews with their clients
ideally once a year. The purposes are
I to provide updates on the performance progress of fund/s selected by the clients.
II to discuss and ascertain whether the client’s financial objectives might have
changed due to certain circumstances.
III to discuss and ascertain whether the original risk profile of the client has changed
due to certain circumstances.
IV to discuss alternative next steps where necessary.
a) I, II and IV c) I, II, III and IV
b) II, III and IV d) III and IV
4. The Code of Conduct pertaining to life insurance selling applies to

I all agents.
II all employees of life insurers.
III insurance brokers.
IV agents and insurance brokers.
a) I, II, III and IV c) I and II
b) I and III d) I, II, and IV
144

I Agents may design their own financial planning form to gather financial data and
financial information of their prospective clients for analysis. However, the format
must be approved by their principal.
II The Customer Fact-Find form of a life insurer officially documents important facts
concerning the financial data concerning a prospective policy owner and his family.
III Cancellation of a policy is allowed if the request by a new policy owner falls within
the 15 days free- look period. The period commences from the date the policy
contract is passed to the agent for delivery. CERTIFICATE EXAMINATION IN
INVESTMENT-LINKED LIFE INSURANCE 110
IV The free-look period commences from the date the client signs the
acknowledgement slip upon receiving the policy.
a) I, II and III c) II and IV
b) I, II and IV d) I and IV
145
6. The pertinent points highlighted by the Guidelines on Minimum Standards for Treating
Customers Fairly (TCF) for agents’ attention are:
I Agents should inform customers fully about the key benefits, key risks and
exclusions.
II Agents must first be well-trained, especially involving the sale of investment and
savings products.
III Agents must guide the customers as to what details are necessary to declare and
what are not necessary so that the concise personal information captured in the
application documents will cater for a smooth underwriting process.
IV The product being proposed to a customer should be based on suitability, needs
and risk appetite.
a) I, II and IV c) II and III
b) I, II and III d) I, II, III and IV
146
Thank
Thankyou
you
Disclaimer: These are training materials and are not to be used as sales tools. The materials should be restricted 147
to internal circulation only and should not be distributed to third party. 147
147

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TokioMarine – Certificate

Chapter 2 - Mechanisms and Features of Regular Premium Investment-Linked Life

Chapter 3 - Mechanisms and Features of Single Premium Investment-Linked Life

Chapter 4 - Considerations for Purchasing an Investment-Linked Policy

Chapter 5 - Investment Considerations

Chapter 6 - Types of Investment and Vehicles and Potential Risks

Chapter 7 - Common Types of Investment-Linked Funds

Chapter 8 - Pertinent Guidelines on Investment-Linked Business

Chapter 9 - Agents Professional Approach and Guidelines

Insurance industry in Malaysia has steady

First introduced in Malaysia in December 1999.

Policy owners can choose the amount of coverage they need;

Can select minimum May accrue returns on

Total number of Investment-Linked Distribution of annual premium that has gone

284,679,163,295 Sum assured (2013)

How investment-link plan work.

What is an investment-linked insurance policy?

Value of policy is in Investment

Lose all premiums

In UK, investment-linked life insurance is known as

Refers to the same thing

2. Which of the following is the correct description of an investment-linked life policy?

4. Investment-linked funds are managed by

5. Since investment-linked insurance has an investment element, a prospective policy owner

6. Which of the following statements are correct?

Regular Premium Investment-Linked Insurance

More Structure more Primary focus

2.2 MINIMUM REGULAR PREMIUM

Minimum annual premium from RM 1,200 to RM1,800

2.3 ALLOCATE AND UNALLOCATED PREMIUM

Less Insurance Charges, Less agent’s

2.4 REGULAR AND AD HOC TOP-UP PREMIUM

2.5 SUM ASSURED MULTIPLE RULE

minimum amount of life insurance coverage that can be purchased based on

2.5 SUM ASSURED MULTIPLE RULE

2.5 SUM ASSURED MULTIPLE RULE

Unit-Deducting Rider (UDR)

**Agency commissions are payable from PPRs, not from UDRs.

2.5 SUM ASSURED MULTIPLE RULE

SAM formula Total Sum Assured

for UDR : (Total Annual Premium – Notional Premium of Riders)

Young working person Notional Premium of Rider : RM 200

2.6 OPTIONAL RIDERS

Critical Illness / Payor Benefit

2.8 PARTIAL WITHDRAWAL, SURRENDER AND CHARGE

 Do not limit the frequency or maximum amount of withdrawal.

SURRENDER  Total surrender is allowed without restrictions

2.9 FUND SWITCHING AND SWITCHING FEE

 Can switch investment fund from one fund to another

2.10 PREMIUM HOLIDAY

 To prevent the policy from lapsing when a due premium

2.11 FREE-LOOK PERIOD

If there is Insurer  Unallocated premiums

2.12 NO-LAPSE GUARANTEE PERIOD

Regular premium has been paid without fail

2.13 DEATH BENEFIT MECHANISM

 The basic sum assured plus the accrued account value.

2.14 DUAL PRICING AND SINGLE PRICING

 Offer Price is the same as Bid Price.

2.15 THE LONG HORIZON

2.16 DOLLAR COST AVERAGING

3. Cost per Unit

2.16 DOLLAR COST AVERAGING