CMFAS M9A – Life Insurance And Investment-Linked Policies II Set Two

It is to be acknowledged that an investment portfolio with an insurance element is generally understood as an insurance wrapper product which provides flexibility for a wide variety of investment choices. This product may be called “portfolio bond” or “insurance cover.” It comes under the concept of an ILP.

Please learn that ILPs provide investors with much greater discretion (and responsibility) in how capital is spent relative to conventional life policies. However, investment decisions made by an ILP policy owner are limited to what the insurer offers, and he has no say in choosing the fund managers. ‘Portfolio bonds’ go further by enabling policy owners to appoint portfolio managers within the platform of the insurer.

Please learn that one way of combating this is by using publicly traded derivatives. When the transaction takes place at an exchange, the counterparty ‘s liability is reduced as the exchange provides the assurance that the central clearing party’s strategy complies with contractual obligations. Remember that there is still a risk that the exchange itself can default even if the risk is low.

Please do not assume that the likelihood of the anticipated return that could not be reached is greater than other investments if an investment is considered to be of high risk. This also means a weakening of the principal in full or in part. Investors obviously claim proper compensation for the risk they take on. That is why investors expect more returns from risky investments.

Please note that futures were initially only exchanged on commodities, in a Chicago Mercantile Exchange (CME) dominated market. Nonetheless, after its introduction in the 1970s, contracts on financial instruments became extremely popular and soon overtook commodity futures in terms of trading volume and global market accessibility. There are two basic asset categories, for which there will be future contracts. These are Commodity futures contracts; and Financial futures contracts.

Please note that the bonus certificates are tracker certificates that have the conditional downside protection barrier pre-determined. They are built only at barrier point to give protection to the downside. As long as the underlying asset’s price does not slip below the mark, the buyer’s maturity payout is no less than a negotiated amount (the “bonus”).

It is to be noted that a typical life insurance policy has an element of protection and an element of savings/investment. Part of the premium insurance is used to provide protection from death or other misfortunes, such as a disability or terminal illness. The balance of the premium is invested, payable at the policy maturity, early termination of the policy or other occasions in accordance with policy conditions.

Please note that “Leverage” (also known as “gearing”) refers to methods used to improve the future return rate. These strategies include margin lending, the use of derivatives for price differential lending, and borrowing money for trade. Know it works both ways. Although “leverage” increases gains, it magnifies losses, too. Most derivative contracts are leveraged, or geared, by design.

There is no such thing as a financial investment outside the economy. You are influenced by general economic conditions and consumer viewpoints. Given the global globalization that exists today, consumer prices are influenced not only by domestic circumstances but also by global environmental factors such as inflation, exchange rates, commodity prices, etc.

It is to be acknowledged that semi-annual fund reports for each ILP subfund are prepared as part of the ongoing disclosure requirements. The report contains, inter alia, the following information about the fund values and performance: Investments at market value and as a percentage of NAV as at the end of the period under review; and the performance of the ILP sub-funds and, where applicable, the performance of the benchmark, in a consistent format, covering periods of three months, six months, one year, three years, five years, ten years and from the start of the ILP sub-fund.

Please note that there are several options to make payments under a structured ILP to the policy owner: (a) Death Benefits: if the policy owner dies while the policy is still in service, the greater the amount of life insurance for the policy; or the cash value for the policy; is paid to the stated beneficiary. When the death benefit is paid the policy is discontinued and there will be no further payout. (b).Maturity / Survival Benefits: If the policy owner survives to maturity, the insurance term expires and the policy owner is paid the maturity value.

From the viewpoint of an organization, liquidity refers to insufficient cash to fulfill their cash flow requirements. This may be a temporary issue, and may not suggest a structural problem. For example, market declines may lead to marginal calls for futures contracts, causing a temporary cash crunch for the institution. . A financially strong institution is able to borrow money or sell assets to meet a temporary surge in demand for cash payment or collateral.

Bonus certificates are tracker certificates with the pre-determined barrier conditional downside defense. These are built to give protection to the downside only at barrier point. So long as the price of the underlying asset does not fall below the threshold, the payout on maturity to the buyer is no less than an negotiated sum (the “bonus”).

It is stated that in traditional asset classes, structured products can be used as an alternative to direct investment , particularly in markets where direct access is restricted. For example, when a market is closed to foreign investors, structured products may be the only way to replicate that market ‘s output, without investing directly in that market’s securities.

Please learn that the benefit of an airbag certificate over a bonus certificate is that it gives the underlying stock an opportunity to recover over the certificate ‘s lifespan. Airbag certificates may be configured to have various rates of airbags to match the specific risk tolerance of an individual. The higher the level of security, of course, the lower the risk for return.

Please note that futures were initially traded on goods only, in a market dominated by the Chicago Mercantile Exchange ( CME). Nevertheless, contracts on financial instruments became immensely popular after their launch in the 1970s and rapidly overtook commodity futures in terms of trading volume and global market accessibility. There are two basic asset categories, for which there will be future contracts. These are  Commodity futures contracts; and  Financial futures contracts.

Please note that a derivative contract is a deferred delivery deal where its value depends on certain underlying properties, or is derived from them. The manager of a derivative contract does not own the properties that underlie it. Use home buying as an example is a derivative contract being an option to buy a flat. You pay for the right to buy the flat a fraction of the price of the flat, You will not own the apartment though until years later when you pay the purchase balance.

Please learn that determining suitability begins with knowing your client-their investment goals, risk appetite, time horizon, financial position, knowledge of investment, and experience. The second step is for the Consultant to know the goods under consideration so that the product attributes and risk factors can be explained to the consumer in a way that he can understand.

Buying calls appeals because of the leverage for aggressive investors. Suppose Michael has a strong sense that a specific stock is about to move higher. If he buys the stock, his cash outlay is S$1,000 for every 100 shares and his overall loss is S$1,000. He pays S$100 (100 shares X S$1 per right) when he buys a call, and his risk is limited to S$100. We see leverage working here-the call is just 10 percent of the S$1,000 needed to buy the stock directly.

It is to be acknowledged that the responses and explanations given in the PHS should be straightforward and they should use plain language to promote comprehension. To this end, the insurer will consider and be encouraged to use diagrams (graphs, maps, flowcharts, tables) and numerical examples to illustrate the mechanisms and benefits of the understanding of the investor’s product aids.