CMFAS Module 9 Key Notes 1
The requirements that must be met before a risk can be potentially insurable. The loss must:
- be significant in financial terms
- occur by chance;
- be definite;
- be calculable; and
- not be catastrophic to the insurer.
2. What does it mean for a loss by chance is insurable?
In order for a potential loss to be insurable, the loss must occur by chance. In order words, it must be accidental in nature and cannot be predicted in advance. The loss must be caused either by an unexpected event, such as contracting a terminal disease, or by an event that is not intentionally caused by the person covered by the insurance, such as fire. Although death is a certain event, a person is unable to control the timing of his death, as the event usually occurs by chance. Hence, death is an insurable event. However, insurers will exclude suicide coverage within a certain period of the inception of the policy as suicide is clearly not accidental.
3. What does it mean for a loss to be significant in financial terms?
Some losses will cause financial hardships to most people and are considered to be insurable. For example, a person injured in an accident may lose a significant amount of income if he is unable to work. Insurance coverage is available to protect against such a potential risk.
4. What does it mean for a loss rate to be calculable?
The insurer must be able to calculate the possibility and extent of the loss. The chance of an individual loss may be impossible to estimate but the likelihood of loss in a larger sampling of insureds is predictable. This is known as the law of large numbers, which is the mathematical foundation of insurance. The larger the sampling, the greater will be the degree of
predictability.
In order to eliminate or reduce one’s exposure to a specific financial risk, and depending on the frequency and severity of the losses, one can deal with risk in one of the following methods:
- avoiding the risk;
- controlling the risk;
- retaining the risk; or
- transferring the risk
6. How can an individual control a risk?
Risks can be controlled by taking steps to prevent or reduce losses. An example will be to undergo a health screening examination yearly, when one reaches a certain age (e.g. 40 years old), so that one can detect and treat an illness before it is too late.
7. How can an individual transfer the risk?
An individual can transfer risk to another party by shifting the financial responsibility for that risk to another party, generally in exchange for a fee. The most common way to transfer risk is to buy insurance.
8. What are the types of personal risks faced by an individual that can be insured?
The three main types of personal risks faced by an individual that can be insured are:
- premature death;
- outliving resources; and
- poor health and disablement
9. What are the various types of life insurance available?
- Term Insurance provides a death benefit if the insured dies during a specified period.
- Whole Life Insurance provides life insurance coverage throughout the insured’s lifetime and also provides a savings element.
- Endowment Insurance provides a policy benefit that is paid either when the insured dies or on a stated date if the insured lives until then.
10. What are the type of health insurance coverage currently available?
The risk of ill health can be met by Health Insurance coverage, which include:
- Critical Illness Insurance
- Medical Expense Insurance
- Hospital Cash (Income) Insurance
- Disability Income Insurance
- Long-Term Care Insurance
11. What are some of the duty of disclosure that that insurer must provide to the insured?
The insurer also has a duty of disclosure to the insured. In order to fulfill this duty, the insurer must also exercise utmost good faith by, for example:
- notifying an insured of a possible entitlement to a premium discount resulting from a good previous insurance history;
- only taking on risks which the insurer is licensed to accept, i.e. avoid unenforceable contracts; and
- ensuring that statements made are true, as misleading an insured about policy cover is a breach of utmost good faith.
12. Why Is Insurable Interest Necessary?
Insurable interest is required for life insurance contracts mainly because it excludes the possibility of gambling and also the proposer is expected to safeguard the subject matter.
Without insurable interest, any life insurance is more or less a gamble, since the policy owner (policyholder) will not actually be at risk with the insured peril or event.
13. Who are the buyers in the insurance market?
The buyers of insurance are those who need insurance as follows:
- individuals (including sole proprietors);
- commercial enterprises (such as multinational corporations, small and medium enterprises, partnerships, companies, etc.);
- government (including its various agencies, ministries and statutory boards).
14. What are web aggregators intended for?
A web aggregator is intended as a way to leverage on technology to make it easier for consumers to compare products. Web aggregators compile and provide information about insurance policies of various insurance companies on a website. Web aggregators are different from other distribution channels, as they are designed to be a self-help tool for the customers.
15. What factors should the actuaries take into account in regards to setting the premiums?
When setting the premiums, the actuaries will take into consideration the following factors:
- Mortality and Morbidity Rates;
- Investment Income;
- Expenses;
- Gender;
- Smoking Status;
- Amount of Sum Assured; and
- Frequency of Premium Payments.
16. What types of life insurance products are available in the market?
There are many types of life insurance products available in the market. These products vary in many ways, such as their features and the benefits provided by them. Generally, they can be classified by way of:
- statutory insurance fund;
- product type;
- premium type; and/or
- ownership.
17. Do life insurance companies need to separate insurance funds for the various types of policies?
Yes, life insurance companies generally establish and maintain separate insurance funds for the following types of life insurance policies:
- Participating;
- Non-participating; and
- Investment-linked.
18. Do critical illness insurance also cover accidents?
No, as the Critical Illness Insurance defines that it will pay out a lump sum when the policy owner dies or is diagnosed with a major illness. The illnesses that are covered vary, but usually include heart attack, stroke, coronary artery bypass, most cancers, kidney failure, fulminant hepatitis, major organ (heart, lung and kidney) transplants, paralysis and multiple sclerosis.
19. What types of premiums are available in life insurance products?
Life insurance products can also be classified according to the frequency of premium payments. This includes:
- Single Premium policy;
- Recurrent Single Premium policy;
- Regular Premium policy;
- Yearly Renewable Premium policy; or
- Limited Premium Payment policy.
20. What are the yearly renewable premium policies?
This is applicable only to Yearly Renewable Term Insurance policies. This policy is renewable on a yearly basis. The premium upon renewal is based on the life insured’s attained age. This means that the premium may increase on each year of policy renewal as the life insured’s age advances.
21. What are group life insurance written as?
Group life insurance can be written as:
- Term Life Insurance;
- Whole Life Insurance; or
- Endowment Insuranc
22. What features of Group Term Life Insurance policy have in regards to coverage?
Group Term Life Insurance usually provides 24-hour worldwide coverage, with some exclusions which you must highlight to your clients. The coverage is usually up to the age of 65 years, although some insurers insure up to the age of 70 years. Most Group Term Life policies provide death benefit and Total and Permanent Disability (TPD) benefit.
23. In what sort of events would the coverage for each individual employee usually be terminated?
The coverage for each individual employee usually terminates on the happening of one of the following events:
- when the employee reaches a specified age (e.g. 65 years of age);
- when the employee retires or terminates his employment with the employer;
- when the employee is transferred to work overseas in an associated or subsidiary company for an extended period of time in which he is no longer on the local payroll of his employer;
- when the employee is on temporary leave of absence, vacation without pay, sick or injured for more than six months;
- when the employer does not pay up the premium within the grace period; and
- when the insurer or the employer decides not to continue with the policy.
24. What are the relevant documents that needs to be submitted in the event of a death claim?
In the event of a death claim, the policy owner (i.e. employer) has to give a written notice of the death of the insured employee to the insurer within 30 days of the death of the employee. The relevant supporting documents to be submitted include:
- death claim forms (one to be completed by the employer and another by the attending physician);
- copy of the death certificate certified by the employer;
- copy of payslip (if the sum assured is determined based on the salary which the employee is drawing);
- police report and / or coroner’s report if death is as a result of an accident or unnatural death; and (if required)
- incident report (copy) by the employer submitted to the Commissioner of Workplace Safety and Health, if the accident causing death or bodily injuries happened during work at the workplace.
25. What is the key differene between Term Insurance and Whole Life Insurance?
In contrast with Term Insurance, which pays benefits only if the insured dies during a specified period of years, Whole Life Insurance provides for the payment of the policy’s face value (plus bonuses, if applicable) upon the death of the insured, regardless of when death occurs.
In some insurers’ policies, an insured individual can also be considered to have TPD if he/she suffers from one of the following:
(a) loss of sight of both eyes;
(b) loss of both limbs; and / or
(c) loss of sight of one eye and loss of one limb.
27. What traditional types of non-forfeiture options that are currently available?
There are three traditional options:
- surrender the policy for its cash value;
- use the cash value to purchase paid-up insurance; and
- use the cash value to purchase extended term insurance.
28. What is the main purpose of a Whole Life Insurance Policy?
The purposes served by the Whole Life Insurance policy:
- Provides protection against long-term or permanent needs; and
- Accumulates a savings fund that can be used for general purposes, or to meet specific objectives.
Riders, also known as supplementary benefits, are special policy provisions that provide benefits which are not found in the basic policy contract, or that make adjustments to it. These special provisions are attached to (or “ride” on) a basic policy.
30. What are the common riders offered by insurers?
Some of the common riders offered by insurers are:
- Waiver of Premium Rider;
- Total and Permanent Disability (TPD) Rider;
- Critical Illness Rider;
- Term Riders;
- Payor Benefit Rider;
- Guaranteed Insurability Option Rider;
- Accidental Death Benefit Rider;
- Accidental Death and Dismemberment / Disablement Rider; and
- Hospital Cash (Income) Benefit Rider.