SCI M8A – Collective Investment Schemes II

Correct: FIDReC operates a two-stage process: mediation and adjudication. In the mediation stage, a case manager helps both parties reach a voluntary settlement. If mediation fails, the matter proceeds to adjudication. A key feature of FIDReC is that the adjudicator’s decision is binding on the financial institution (the insurer) if the consumer (Mr. Lim) accepts it. However, the consumer is not bound by the decision and can choose to reject it and pursue other legal remedies, such as court action.

Incorrect: Option b is incorrect because FIDReC always emphasizes mediation first, and MAS does not preside over FIDReC hearings as FIDReC is an independent body. Option c is incorrect because the decision is only binding on the consumer if they choose to accept it; they retain the right to seek other legal recourse if they are unhappy with the award. Option d is incorrect because FIDReC services are generally free for consumers at the mediation stage, and while there is a nominal fee for adjudication, it is not a percentage-based fee of the claim amount.

Takeaway: FIDReC provides a mediation-first approach where adjudication awards are binding on the financial institution but allow the consumer the flexibility to reject the decision and pursue further legal action.

Correct: Under Section 49L of the Insurance Act in Singapore, an irrevocable nomination creates a statutory trust in favor of the named beneficiaries (spouse and/or children). Because the policyholder no longer has full beneficial interest in the policy, any subsequent dealing with the policy, including a collateral or absolute assignment, requires the written consent of all the beneficiaries of the trust.

Incorrect: Proceeding with only a declaration from the policyholder is insufficient because the legal rights belong to the beneficiaries under the statutory trust. An irrevocable nomination cannot be automatically suspended by a private contract like a loan agreement. Furthermore, a policyholder cannot unilaterally convert an irrevocable nomination to a revocable one; the trust nature of Section 49L requires beneficiary consent for any changes that affect their interest.

Takeaway: An irrevocable nomination under Section 49L of the Insurance Act creates a statutory trust, meaning the policy cannot be assigned without the written consent of all named beneficiaries.

Correct: In the context of Singapore’s life insurance market, participating endowment policies are designed for disciplined savings. They offer a guaranteed sum assured which, if the policy is held until the maturity date, usually meets or exceeds the total premiums paid (capital guarantee). The potential for higher returns comes from non-guaranteed bonuses (reversionary and terminal) which depend on the performance of the insurer’s participating fund.

Incorrect: The suggestion that bonuses are fixed at inception is incorrect because bonuses in a participating policy are non-guaranteed and depend on the performance of the Life Fund. The idea that a policy can be surrendered at any time for the full sum assured is false; early surrender of an endowment policy usually results in a surrender value that is significantly less than the premiums paid due to front-end costs. Finally, the capital guarantee is a contractual obligation of the insurance company, not a direct guarantee or compensation scheme provided by the Monetary Authority of Singapore (MAS) for investment underperformance.

Takeaway: Endowment policies provide disciplined savings by combining a contractual capital guarantee at maturity with the potential for non-guaranteed bonuses based on the insurer’s participating fund performance.

Correct: Under the Financial Advisers Act (FAA) and the MAS Guidelines on Recommendation on Investment Products, financial advisers and their representatives must have a reasonable basis for any recommendation made to a client. This requires a thorough ‘Know Your Client’ (KYC) process, including a needs analysis that considers the client’s financial status, investment experience, and risk appetite. For Investment-Linked Policies (ILPs), this is particularly critical because the investment risk is borne by the policyholder.

Incorrect: Approach 2 is incorrect because providing disclosure documents like the Product Summary and Benefit Illustration is a separate requirement and does not replace the statutory duty to ensure the recommendation is suitable for the client. Option C is incorrect because representatives are strictly prohibited from making performance guarantees regarding the underlying sub-funds of an ILP. Option D is incorrect because the FAA emphasizes the quality of advice and the suitability of the product for the specific client, rather than just the accuracy of technical documents.

Takeaway: The FAA requires representatives to perform a comprehensive needs analysis to ensure every ILP recommendation has a reasonable basis tailored to the client’s specific financial profile.

Correct: In Singapore, when a policyholder decides to switch sub-funds within an ILP, the financial adviser must ensure that the new fund is suitable for the client’s current investment objectives and risk tolerance. Furthermore, under the Financial Advisers Act (FAA) and relevant MAS guidelines, all costs associated with the switch, such as switching fees and the impact of the bid-offer spread, must be clearly disclosed to the client before the transaction is finalized to ensure transparency.

Incorrect: The approach of executing a switch without prior disclosure is incorrect because MAS regulations require transparency regarding fees before the transaction occurs. The claim that disclosures are only mandatory above certain thresholds is false, as fee transparency is a fundamental requirement for all switches. Suggesting that a switch is not a new investment decision is misleading, as it involves a change in the underlying asset allocation and risk exposure, necessitating a suitability check and updated disclosures.

Takeaway: Financial advisers in Singapore must ensure that sub-fund switches are suitable for the client and that all associated costs and risks are disclosed prior to the transaction in accordance with MAS guidelines and the FAA.

Correct: Under the Singapore Insurance Act, insurers must establish and maintain separate insurance funds for different classes of business, such as the Singapore Life Fund. This regulatory requirement ensures that the assets within the fund are ring-fenced and used exclusively to meet the obligations and operational expenses of that specific fund, thereby protecting the interests of the policyholders.

Incorrect: The suggestion that surpluses can be freely moved to offset losses in other business lines is incorrect as the Insurance Act and MAS regulations strictly control the withdrawal of surpluses and the use of fund assets. The claim that all life policies must have fixed premiums is false; many products like Investment-Linked Policies (ILPs) or certain term policies allow for premium adjustments or variable costs. The responsibility for solvency lies with the insurer’s board and management, including the Appointed Actuary, not the intermediaries like brokers or financial advisers.

Takeaway: The Singapore Insurance Act requires the ring-fencing of life insurance fund assets to ensure they are used solely for the benefit of policyholders and the fund’s specific liabilities.

Correct: In Singapore, the Incontestability clause is a standard provision in life insurance policies. It stipulates that after a policy has been in force for a certain period (typically two years) during the lifetime of the insured, the insurer cannot challenge the validity of the contract based on misstatements or non-disclosure of facts, unless those misstatements or non-disclosures were fraudulent. This provides the policyholder with security that their coverage will not be arbitrarily cancelled after a significant period.

Incorrect: The suggestion that an insurer has an absolute right to void a policy at any time for material non-disclosure ignores the legal protections provided by the Incontestability clause. The claim that the policy becomes incontestable even in cases of fraud is incorrect, as fraud is a standard legal exception that allows an insurer to void a contract. The idea that contestability is limited only to age or gender misstatements is a misunderstanding; misstatements of age are usually handled by adjusting the sum assured or premiums rather than voiding the policy under the incontestability provision.

Takeaway: Under Singapore insurance standards, a life policy becomes incontestable after being in force for two years, except in cases where the insurer can prove fraudulent non-disclosure or misrepresentation.

Correct: Strategic Asset Allocation (SAA) is the process of defining the long-term policy mix of asset classes (such as equities, fixed income, and cash) that is expected to meet the sub-fund’s investment objectives while staying within its risk tolerance. In Singapore, this SAA is a core component of the sub-fund’s mandate and must be clearly disclosed to policyholders in the Product Highlights Sheet (PHS) and prospectus to ensure they understand the long-term strategy.

Incorrect: The suggestion that SAA allows managers to ignore prospectus limits is incorrect, as managers must always adhere to the stated investment boundaries to protect policyholders. SAA does not function as a capital or return guarantee; ILP sub-funds typically involve investment risks where the policyholder bears the downside. Furthermore, the Monetary Authority of Singapore (MAS) does not mandate a universal 50/50 split for all balanced funds; the specific allocation is determined by the fund’s own mandate and objective as defined by the insurer.

Takeaway: Strategic Asset Allocation acts as the long-term structural blueprint for a sub-fund, ensuring the portfolio remains aligned with its disclosed risk-return objectives despite short-term market pressures or conflicts of interest.

Correct: According to the MAS Guidelines on Fit and Proper Criteria (FSG-G01), the duty to ensure a representative is fit and proper rests with the principal firm. Financial soundness is one of the three core pillars of the criteria. While a discharged bankruptcy does not lead to an automatic rejection, the principal firm must conduct its own due diligence and exercise judgment to determine if the individual’s past financial difficulties or other conduct issues impact their suitability to perform regulated activities.

Incorrect: Relying solely on the MAS Representative Register is incorrect because the register is a notification-based system where the onus of verification lies with the principal firm, not the regulator. Financial soundness is a requirement for all representatives, not just senior management. A discharged bankruptcy is not an absolute, permanent bar to entry, but it is a factor that must be rigorously evaluated by the hiring firm rather than ignored.

Takeaway: The principal firm is primary responsible for conducting due diligence and ensuring representatives meet all MAS fit and proper pillars, including financial soundness and integrity, prior to appointment.

Correct: In Singapore, transparency is a fundamental requirement for Investment-Linked Policies. According to MAS disclosure requirements and industry standards, all fees that impact the policy’s value, including switching fees, must be explicitly disclosed in the Product Summary and the Benefit Illustration. It is common practice for insurers to offer a specific number of free switches annually to facilitate portfolio rebalancing, but any charges for additional switches must be clearly defined so the policyholder can make informed investment decisions.

Incorrect: Omitting fees from the Benefit Illustration violates MAS disclosure principles which require all costs to be transparent at the point of sale. While insurers may have some rights to vary fees, they generally cannot do so without a notice period (often 30 days) as specified in the policy contract, and fees are not typically pegged to the Singapore Interbank Offered Rate. There is no regulatory requirement in Singapore that mandates the waiving of switching fees based on market volatility or the direction of the fund switch; such waivers are at the insurer’s commercial discretion.

Takeaway: All ILP charges, including switching fees and any limits on free switches, must be transparently disclosed in the Product Summary and Benefit Illustration to comply with Singapore’s regulatory disclosure standards.

Correct: Under the Extended Term Insurance (ETI) option, the net cash value is used as a single premium to purchase term insurance for the same sum assured as the original policy. The risk is that this coverage is only for a specific duration; once that term ends, the policy expires with no further value. In contrast, Reduced Paid-Up (RPU) maintains the original policy’s nature (e.g., whole life) but reduces the face amount, providing permanent coverage without the risk of the policy expiring during the insured’s lifetime.

Incorrect: The option regarding bonuses is incorrect because ETI policies are typically converted to non-participating status and do not earn further bonuses. The option regarding a 20-year requirement is incorrect because non-forfeiture options generally become available once the policy has acquired a sufficient cash value, which typically occurs after 2 or 3 years of premium payments in the Singapore market. The option regarding medical underwriting is incorrect because non-forfeiture options are contractual rights within the policy and do not require the life insured to provide fresh evidence of insurability.

Takeaway: Extended Term Insurance maintains the full sum assured for a limited time, while Reduced Paid-Up insurance provides a lower sum assured for the remainder of the original policy term.

Correct: Under the MAS Fit and Proper Guidelines and the Financial Advisers Act (FAA), the primary responsibility for ensuring that representatives are fit and proper lies with the financial institution. MAS sets the standards, but the institution must perform its own due diligence, including checking past employment records and disciplinary history to assess the candidate’s honesty, integrity, and reputation.

Incorrect: The Monetary Authority of Singapore (MAS) does not perform the initial vetting for every single representative; it relies on the financial institution’s due diligence. Criminal records are not the only criteria for being fit and proper; honesty and conduct history are equally vital. While industry bodies like the LIA exist, the legal and supervisory responsibility for representative fitness under the FAA remains with the hiring institution and MAS.

Takeaway: In Singapore, financial institutions bear the primary responsibility for ensuring their representatives meet MAS Fit and Proper standards through robust due diligence and background checks.

Correct: In the context of Singapore’s ILP market, equity sub-funds are designed for investors with a higher risk tolerance and a longer investment horizon. They seek growth through capital gains and dividends from stocks. However, unlike fixed income or money market funds, they do not offer capital protection and are subject to significant market volatility, meaning the value of the units can fluctuate widely based on the performance of the underlying equities.

Incorrect: The suggestion that equity sub-funds provide guaranteed returns or principal protection is incorrect as ILP sub-funds generally pass all investment risk to the policyholder. The idea that an insurer’s capital adequacy ratio protects a policyholder from market fluctuations is a misunderstanding of how ILPs work; the policyholder bears the market risk, not the insurer. Describing equity sub-funds as low-risk or suitable for short-term liquidity is inaccurate because equities are inherently volatile and are generally recommended for long-term objectives to weather market cycles.

Takeaway: Equity sub-funds offer the highest potential for long-term growth among standard ILP fund types but come with higher market volatility and no guarantee of capital preservation.

Correct: In Singapore, Investment-Linked Policies (ILPs) typically use an ‘attained age’ scale for mortality charges (Cost of Insurance). As the policyholder ages, the probability of death increases, leading to significantly higher mortality charges. These charges are usually deducted by cancelling units from the policyholder’s account. At older ages, these charges can become so high that they exceed the premium contributions and investment growth, leading to a rapid depletion of the unit balance.

Incorrect: The suggestion that MAS mandates upward adjustments of mortality charges based on fund performance is incorrect, as these charges are determined by the insurer’s mortality tables and the net sum at risk. Mortality charges are not fixed; they increase with age, making the claim of constant charges incorrect. There is no standard regulatory requirement or common product feature in Singapore ILPs that automatically doubles mortality charges for a ‘secondary guarantee phase’ in the manner described.

Takeaway: The cost of insurance in an ILP increases with the attained age of the life insured, which can lead to significant unit depletion and potential policy lapse in later years if not properly managed.

Correct: In the context of Singapore’s participating life insurance policies, reversionary bonuses are a method of distributing the Life Fund’s surplus. While the declaration of future bonuses is not guaranteed, once a reversionary bonus has been declared and vested in a policy, it becomes a guaranteed benefit. This means it is added to the sum assured and the insurer is legally obligated to pay it upon a claim (death or maturity) or include it in the calculation of the surrender value; it cannot be revoked or reduced regardless of the insurer’s future investment performance.

Incorrect: The suggestion that bonuses remain non-guaranteed until maturity is incorrect because vesting creates a permanent addition to the sum assured. The idea that insurers can deduct from vested bonuses to offset premium increases is false, as vested bonuses are protected liabilities. Claiming that a supplementary rider is required for bonus protection is a misconception, as the guarantee of vested bonuses is an inherent structural feature of participating whole life policies in Singapore.

Takeaway: Once declared and vested, reversionary bonuses in a participating policy become a permanent and guaranteed addition to the policy’s sum assured.

Correct: The Life Insurance Association (LIA) Singapore plays a vital role in the self-regulation of the industry. It establishes codes of practice, such as the Code of Life Insurance Practice (COLIP), which member companies are expected to adhere to. These codes are designed to promote high standards of professional conduct and ensure that consumers receive adequate disclosure and fair treatment. While MAS provides the overarching statutory framework (such as the Financial Advisers Act), LIA guidelines provide specific industry standards that ensure consistency and consumer protection across all member insurers.

Incorrect: The approach of waiting only for MAS guidance is incorrect because LIA members are bound by the association’s codes of practice as a condition of membership; these codes are not merely voluntary suggestions. The claim that LIA has statutory power to override MAS is incorrect; MAS is the primary financial regulator in Singapore, and LIA is a trade association that complements, rather than overrides, statutory law. The suggestion that LIA codes are only for internal administrative use is incorrect, as many LIA codes specifically target consumer-facing activities like benefit illustrations and the sales process.

Takeaway: LIA Singapore sets essential industry codes of practice that member companies must follow to ensure professional standards and consumer protection, effectively complementing the regulatory framework established by MAS.

Correct: Term insurance is characterized by its focus on pure protection without any savings or investment component. In the Singapore market, its primary purpose is to provide high coverage for a specific period (the ‘term’) when the need for protection is greatest, such as during the years of a mortgage or while children are young. Because it does not build up a cash value or surrender value, the premiums are significantly lower than those for whole life or endowment policies for the same amount of coverage.

Incorrect: The suggestion that it functions as a savings vehicle with bonuses describes a participating endowment or whole life policy, not term insurance. The idea of lifetime coverage with sub-fund investments refers to an Investment-Linked Policy (ILP). The claim that it is designed to return all premiums as a maturity benefit describes a ‘Return of Premium’ rider or a specific type of endowment, whereas standard term insurance in Singapore typically pays nothing if the insured survives the term.

Takeaway: Term insurance provides the most cost-effective way to obtain high levels of protection for a fixed duration because it lacks a cash accumulation or investment component.

Correct: In the Singapore insurance context, participating (par) policies are linked to a specific Par Fund where policyholders share in the performance of the fund. This sharing occurs through the distribution of surplus in the form of bonuses or dividends, which typically consist of a guaranteed component and a non-guaranteed component. Conversely, non-participating (non-par) policies do not participate in the profits of the life fund; all benefits are fixed and guaranteed at the inception of the policy, meaning the policyholder does not bear the investment risk or benefit from the insurer’s favorable experience.

Incorrect: The requirement to distribute at least 90% of the surplus to policyholders (the 90/10 rule) applies specifically to participating funds, not non-participating ones. Bonuses in participating policies are explicitly non-guaranteed and depend on the performance of the fund, meaning they cannot be guaranteed at the illustrated rates. Smoothing is a characteristic of participating funds used to provide stable bonus rates over the long term by holding back some surplus in good years to support bonuses in poor years; it is not a feature of non-participating policies which have fixed contractual obligations.

Takeaway: The primary distinction is that participating policies offer a share in the insurer’s profits via non-guaranteed bonuses, while non-participating policies provide fixed, guaranteed benefits without profit-sharing.

Correct: In Singapore, forward pricing is the standard mechanism for Investment-Linked Policies (ILPs). Under forward pricing, the price of units is not known at the time the application is submitted; instead, the transaction is processed at the next valuation point. This approach is crucial for protecting the interests of all fund participants as it prevents ‘market timing’ or price arbitrage, where an investor could exploit known past prices to the detriment of the fund’s existing unit holders.

Incorrect: Historical pricing is generally discouraged in the Singapore ILP market because it uses ‘stale’ prices, allowing investors to trade on information already reflected in the market, which can lead to unfair advantages. Offering a choice of prices or using a weighted average price would violate the principle of equitable treatment of all policyholders and could lead to significant tracking errors and potential regulatory scrutiny from the Monetary Authority of Singapore (MAS) regarding fair dealing and price transparency.

Takeaway: Forward pricing is the required standard for ILP transactions in Singapore to ensure market integrity and prevent investors from exploiting stale prices through arbitrage.

Correct: Under MAS Notice 314, when a customer is identified as a Politically Exposed Person (PEP) or a close associate of a PEP, they are automatically categorized as higher risk. The insurer is required to perform Enhanced Due Diligence (EDD), which specifically includes taking reasonable measures to establish the source of wealth and source of funds. Furthermore, senior management approval must be obtained before the business relationship is established or the policy is issued.

Incorrect: Notifying a client that they are being investigated or flagged for AML/CFT reasons constitutes ‘tipping off,’ which is a criminal offense under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA). Standard CDD is insufficient for high-risk individuals like PEP associates. While filing an STR is necessary if there is suspicion of criminal conduct, the insurer must still perform its own EDD and management approval process; they do not wait for STRO to perform the insurer’s internal compliance duties.

Takeaway: For high-risk clients such as PEP associates, MAS Notice 314 mandates Enhanced Due Diligence and senior management approval prior to establishing a business relationship.

Correct: In the Singapore insurance context, the Net Asset Value (NAV) per unit of an Investment-Linked Policy (ILP) sub-fund is the price of one unit. It is derived by taking the total market value of the sub-fund’s assets (including cash and accrued income) and subtracting all liabilities (such as management fees, trustee fees, and provisions for tax on capital gains or income). This net amount is then divided by the total number of units in issue to ensure the price reflects the current fair value of the fund.

Incorrect: Calculating NAV based on historical cost is incorrect because ILP sub-funds must reflect current market values to ensure fairness to both entering and exiting policyholders. Excluding accrued income is incorrect because all economic benefits belonging to the fund, such as interest or dividends earned but not yet received, must be included in the asset valuation. Fixing the price annually is incorrect as ILP unit prices are typically calculated on a daily basis (often using forward pricing) to reflect the underlying market movements of the sub-fund’s investments.

Takeaway: The NAV per unit is the net market value of a sub-fund’s assets after liabilities, divided by the total units in issue, typically calculated daily.

Correct: In Singapore, Investment-Linked Policy (ILP) sub-funds are required to operate on a forward pricing basis. This means that when a client submits a buy or sell order, the transaction price is not known at the time of the request; instead, it is the Net Asset Value (NAV) calculated at the next valuation point after the insurer receives the valid instruction, provided it is before the cut-off time. This approach ensures that no policyholder can take advantage of known prices (market timing), which protects the interests of all participants in the fund and aligns with the MAS Fair Dealing Guidelines regarding ethical and transparent business practices.

Incorrect: Approach X is incorrect because using a price from the time of verbal intent or the date of signing (historical pricing) is prohibited in the context of ILPs as it facilitates market timing and treats policyholders inequitably. Using the previous day’s price during market drops is also incorrect as it violates the forward pricing principle and the fund’s valuation rules. While the Fair Dealing Guidelines emphasize promptness, they do not permit bypassing established valuation rules or cut-off times to use historical prices.

Takeaway: In Singapore, ILP transactions must adhere to forward pricing and established cut-off times to ensure fair and equitable treatment for all investors in the sub-fund.

Correct: In accordance with MAS AML/CFT requirements (such as MAS Notice 626), financial institutions in Singapore must maintain all relevant records for at least five years. This period begins from the date of termination of the business relationship for CDD and account files, or from the completion of the transaction for individual transaction records. This ensures that the Suspicious Transaction Reporting Office (STRO) and other law enforcement agencies can access historical data for investigations into money laundering or terrorism financing.

Incorrect: The suggestion to retain records for only three years or to destroy CDD documents earlier than transaction records is incorrect because MAS mandates a minimum of five years for both types of information. While the PDPA does emphasize data protection, it does not override the specific statutory record-keeping requirements set by MAS for AML/CFT purposes. Furthermore, the retention period is calculated from the termination of the relationship or completion of the transaction, not from the date the account was first opened.

Takeaway: Under Singapore’s AML/CFT framework, financial institutions must retain CDD and transaction records for at least five years after the business relationship has ended.

Correct: In Singapore, regulatory requirements set by the Monetary Authority of Singapore (MAS) and industry best practices dictate that a Product Summary must be provided to a prospective client before they sign the application form. The Product Summary contains vital information regarding the benefits, risks, fees, and exclusions of the life insurance or ILP, and its timely provision is essential for the client to provide informed consent to the purchase.

Incorrect: Approach Y is incorrect because providing the Product Summary after the application is submitted violates the principle of pre-sale disclosure; the client must have the information before they commit. Option C is incorrect because while the Product Summary is mandatory, internal actuarial notes are proprietary documents and are not required (nor usually permitted) to be shared with clients. Option D is incorrect because the concern of ‘information overload’ does not override the legal and regulatory requirement to provide mandatory disclosure documents like the Product Summary at the point of sale.

Takeaway: The Product Summary must be provided to prospective clients in Singapore before the application is signed to facilitate informed decision-making as part of the mandatory disclosure process.

Correct: In Singapore, for Investment-Linked Policies (ILPs), the Total Expense Ratio (TER) provides a comprehensive measure of the fund’s operating costs, including management fees, audit fees, and other trust expenses. MAS requirements and Life Insurance Association (LIA) guidelines emphasize that the TER must be disclosed in the Product Summary. It is a critical metric because the net return received by the policyholder is the gross investment return of the underlying assets minus the TER and other fund-level expenses. This ensures transparency regarding how much of the fund’s assets are being consumed by expenses annually.

Incorrect: The suggestion that the TER is only disclosed above a 2% threshold is incorrect as MAS requires disclosure for all ILP sub-funds to ensure transparency regardless of the cost level. Presenting the TER as a one-time sales charge is factually wrong because the TER represents recurring annual operating expenses, whereas sales charges are typically transaction-based. Finally, the TER is not a voluntary disclosure; it is a mandatory requirement for ILP sub-funds in Singapore to help consumers compare the cost-efficiency of different funds.

Takeaway: The Total Expense Ratio (TER) is a mandatory disclosure for Singapore ILPs that represents the annual operating costs and directly reduces the fund’s net performance.

Correct: In a dual-pricing environment for ILPs in Singapore, the offer price is the price at which units are bought, and the bid price is the price at which units are sold (or valued). Because the offer price is higher than the bid price, the difference (the spread) acts as an initial charge. This means that for a given premium, the client receives fewer units than if they were purchased at the bid price, and the immediate ‘surrender’ or ‘valuation’ value of those units is lower than the cash amount invested.

Incorrect: The suggestion that the spread is only a deferred fee for fund switching is incorrect as the spread applies to the initial purchase of units in a dual-priced fund. Claiming the spread is a MAS-mandated liquidity reserve is a factual error; it is a commercial charge used to cover distribution and administrative costs. While some policies offer start-up bonuses, it is incorrect to state that the spread is inherently neutralized by bonus units as a standard mechanic of dual-pricing.

Takeaway: In dual-priced ILPs, the bid-offer spread functions as an initial charge that reduces the net amount of capital effectively put to work at the start of the policy.

Correct: In Singapore, the processing of ILP death claims must adhere to the Insurance Act regarding nominations (such as Section 49L for trust nominations or Section 49M for revocable nominations) to ensure the insurer pays the correct claimant. Furthermore, ILPs typically use forward pricing, meaning the unit price used for the death benefit calculation is the one available after the insurer receives the formal claim notification and all necessary supporting documents, ensuring the valuation is current and contractually compliant.

Incorrect: Using the unit price from the actual date of death is incorrect because insurers operate on a forward pricing basis and cannot process a transaction until they are notified of the event. Requiring a Grant of Probate for Section 49L trust nominations is unnecessary and legally incorrect, as trust nominations under the Insurance Act allow for the death benefit to be paid directly to nominees without waiting for probate. Calculating the benefit based on the highest price of the year is not a standard industry practice and does not reflect the actual value of the investment at the time of the claim.

Takeaway: Effective death claim management in Singapore ILPs requires aligning unit valuation with forward pricing principles and strictly following the Insurance Act’s nomination framework for legal discharge of liability.

Correct: Under the MAS requirements for the sale of Specified Investment Products (SIPs), if a retail customer fails the Customer Account Review (CAR) for listed products, the intermediary is prohibited from allowing the customer to trade those products unless the customer passes the SGX Online Education Portal or the intermediary provides advice that the product is suitable for the customer. This ensures that the customer has a minimum level of understanding or has received professional guidance before exposing themselves to the risks of SIPs.

Incorrect: Obtaining a waiver or declaration of sophisticated status is not a valid substitute for the CAR process for retail clients under the Securities and Futures Act framework. Mandatory observation periods or simulated trading are not recognized regulatory alternatives to the CAR or the SGX learning module. MAS does not grant individual exemptions for CAR failures based on net worth; instead, the client must meet the specific criteria or follow the remedial paths of advice or education.

Takeaway: Retail clients who fail the Customer Account Review for listed SIPs must either complete the SGX Online Education Portal or receive formal advice before they are permitted to trade.

Correct: According to the Life Insurance Association (LIA) Singapore guidelines and the Code of Practice, when a representative recommends the replacement of an existing life insurance policy, they have a professional duty to ensure the client makes an informed decision. This includes providing a ‘Comparison of Benefits and Costs’ form or a similar written comparison that clearly outlines the disadvantages of the replacement, such as new contestability periods, loss of accumulated cash values, and the impact of surrender charges.

Incorrect: The suggestion that a representative only needs a waiver of liability is incorrect because LIA standards emphasize proactive disclosure and fair dealing rather than just shifting risk to the client. Documenting verbal consent in a CRM system is insufficient as the LIA requires specific written disclosures and comparisons. Notifying MAS for individual policy replacements is not a standard regulatory requirement; the focus of LIA standards is on the conduct between the representative and the client during the advisory process.

Takeaway: Under LIA standards, representatives must provide a detailed written comparison of policies when recommending a replacement to ensure the client understands the financial impact and potential losses.

Correct: In Singapore, under the regulatory framework for Investment-Linked Policies, an insurer may suspend the determination of the Net Asset Value (NAV) and the dealing of units in exceptional circumstances, such as a market closure. This is necessary when the underlying assets cannot be fairly valued. Suspending dealings ensures that no policyholder is unfairly advantaged or disadvantaged by transacting at inaccurate prices. The insurer is required to inform the Monetary Authority of Singapore (MAS) and the policyholders regarding such a suspension.

Incorrect: Continuing to trade at stale prices is inappropriate because it leads to unfair dilution or enrichment of policyholders. Setting an arbitrary 20% redemption threshold ignores the fundamental problem of the inability to value the fund’s assets. Automatically switching policyholders to a cash fund without consent is a breach of the policy contract and does not address the underlying valuation issue of the original sub-fund.

Takeaway: Suspension of unit dealings is a protective regulatory mechanism used when fair valuation is impossible, ensuring equitable treatment of all policyholders and requiring notification to MAS.