CMFAS Module 9 Key Notes 2
1. What sort of critical illnesses are typically excluded from the coverage?
Critical Illnesses arising from the following are typically excluded from the coverage:
- pre-existing illnesses;
- self-inflicted injury or illness, while sane or insane;
- wilful misuse of drugs and / or alcohol;
- congenital or inherited disorder;
- Acquired Immune Deficiency Syndrome (AIDS) or AIDS-Related Complex (ARC), or infection by any Human Immunodeficiency Virus (HIV);
- bodily injury sustained as a result of travel in or on any type of aircraft, except as a fare-paying passenger, or as a crew member of an international airline operating on a regularly scheduled passenger flight of a licensed commercial aircraft; and
- war or warlike operation, civil war or civil commotion.
2. What circumstances would the Critical Illness Rider be payable?
The benefit under a Critical Illness Rider is payable ONLY if the:
- Critical Illness which the life insured is suffering from is one that is covered under the rider;
- Critical Illness contracted meets the definition of that particular Critical Illness as specified in the policy;
- Critical Illness is not excluded under the exclusion clauses;
- Critical Illness happens after the waiting period;
- The life insured survives the survivor period if it is imposed by the rider;
- Basic policy including the Critical Illness Rider is in force;
- The life insured has not reached the expiry age of the critical illness cover.
3. Is the Guaranteed Insurability Option Rider an insurance cover?
No, the Guaranteed Insurability Option Rider is not an insurance cover, but a right to purchase additional amounts of insurance at specified intervals or when certain events occur over an extended period of time, without evidence of insurability.
4. What are some of the key features of a Term Rider?
Term Rider
- Provides insurance coverage over a specified term.
- Can only be attached to a permanent policy.
- There are three types of term riders:
– Level Term Rider;
– Family Income Benefit Rider; and
– Decreasing Term Rider.
5. What are osme of the common participating products ?
Participating products are typically used for the purpose of meeting savings / investment and protection needs. Common participating products include:
- Participating Whole Life Insurance policy;
- Participating Endowment Insurance policy; and
- Participating Anticipated Endowment Insurance policy.
A common objective of participating policies is to provide competitive and stable medium- to long-term returns to participating policy owners. This is achieved by investing a larger proportion in assets like equities which will give potentially higher returns in the longer term.
7. Why are non-guaranteed benefits or bonuses not guaranteed?
Non-guaranteed benefits or bonuses are not guaranteed, because the level of nonguaranteed bonuses depends on the value of the assets backing the policies, which in turn depends, among other things, on the following key factors:
- investment performance (this is usually by far the most important factor);
- the level of expenses incurred by or allocated to the participating fund; and
- the amounts paid out to meet claims on policies in the participating fund.
While it is the insurer who exercises discretion / makes the final decision on the bonus determination, the insurer has to take into account the following considerations:
- to maintain fairness and equity between different classes and generations of participating policy owners, i.e. by not treating any particular groups of participating policies favourably, and not having practices that are unfair to any participating policies;
- to maintain solvency of the participating fund, i.e. by not declaring excessive bonuses that may threaten the solvency of the participating fund and be detrimental to all participating policy owners; and
- to ensure consistency with the objective of providing stable medium to longterm returns to participating policy owners, i.e. by not allocating bonuses that fluctuate excessively from year to year and from one generation of policies to the next generation.
Insurers are required to have in place the following measures to enable proper exercise of discretion in determining bonuses:
- Risk sharing mechanism to clearly set out risk sharing rules and methodology used to derive from assets backing each participating product group, which forms an important part of the basis for bonus allocation and reserving for future bonuses.
- Bonus allocation process to determine the appropriate annual (e.g. reversionary) bonuses and terminal bonuses to be allocated to participating policies at each year end.
- Reserving for future non-guaranteed bonuses to set aside appropriate reserves for future annual (e.g. reversionary) bonuses and terminal bonuses for participating policies at each year end.
10. What are the key risks that affects the fund performance of participaters?
Key risks affecting participating fund performance include:
- Investment risk;
- Expense risk – acquisition and maintenance;
- Mortality risk;
- Dread disease and other morbidity risks;
- Lapse / surrender risks; and
- Business risks, e.g. non-participating policies and riders.
In making the recommendations for annual and terminal bonuses to be allocated, the Appointed Actuary has to carry out an in-depth analysis taking the following into consideration:
- to maintain equity and fairness between different generations of participating policies;
- to maintain solvency of the participating fund; and
- to ensure consistency with the objective to provide competitive and stable medium to long-term returns to participating policy owners.
12. How does one determine terminal bonuses upon maturity?
To determine terminal bonuses upon maturity, the common way to do it is to set the terminal bonuses at the level such that the total benefits, i.e. both guaranteed and non-guaranteed benefits, payable to these policy owners are approximately equal to the share of participating fund assets backing these policies over the long run.
13. What are reserves for future non-guaranteed bonuses based on?
Reserves for future non-guaranteed bonuses are determined based on both:
- the value of assets backing the participating product group; and
- the assumptions relating to future experience, including future premium collection, investment returns, expenses, claims, etc.
14. What sort of information should the product summary include for the participating policies?
Under Appendix B of Notice No: MAS 320, the insurer shall include the following information in the product summary for its participating policies:
(a) provider of the plan;
(b) nature and objective of the plan;
(c) benefits under the plan;
(d) investment of assets;
(e) type of risks affecting the level of bonuses;
(f) sharing of risks;
(g) smoothing of bonuses;
(h) fees and charges;
(i) adjustments in premium rates;
(j) impact of early surrender;
(k) update on performance;
(l) conflict of interests;
(m) related party transactions;
(n) free look period.
15. What sort of items should the insurer included in the Internal Governance Policy?
The insurer must include in the Internal Governance Policy the items as specified in Notice No: MAS 320, which is available from the MAS website.
The insurer must ensure that:
- the Internal Governance Policy is approved by its Board of Directors;
- the Internal Governance Policy is reviewed annually by its Board of Directors, to ensure that the Internal Governance Policy remains appropriate; and
- the participating fund is managed according to the rules and guiding principles as set out in the internal governance policy
16. How does the level of protection affect cash values?
For regular premium ILPs, it is crucial to understand that, for the premium which the policy owner wishes to pay, there will be a trade off between the amount of insurance coverage provided and the amount available for investment. The higher the level of coverage selected, the more units will be absorbed to pay for the insurance charges, and the fewer units will remain to accumulate cash values under his policy.
17. How are fee and charges paid for ILPs?
Fees and charges for an ILP are paid for through the following ways:
- deduction of premiums; and / or
- sale of purchased units.
18. What are the types of fees and charges that may be incurred in an ILP?
the types of fees and charges that may be incurred in an ILP:
- Initial sales charge;
- Sub-fund management fee;
- Benefit / Insurance charges;
- Policy fees;
- Administrative charges;
- Surrender charges;
- Premium holiday charges; and
- Sub-fund switching charges.
19. What are the benefits of investing in investment-linked sub-funds?
The benefits of investing in investment-linked sub-funds include:
- diversification of investment portfolio;
- different investment fund options;
- professional expertise;
- ease of transactions;
- liquidity; and
- flexibility.
20. What are some of the variations of the annuity policies?
The variations of annuity policies based on their contract provisions are as follows:
- payout options;
- bonus entitlement (i.e. participating or non-participating);
- number of lives covered under the policy; and
- increasing rate annuity.
21. Are annuity payouts free from income tax?
Yes, annuity payouts are free from income tax, unless they are received from the following sources:
- Partnership;
- Supplementary Retirement Scheme (SRS); and
- Annuity policy bought by the employer of the employee, in place of a pension or other employment benefits payable to him during his employment or upon retirement.
22. What are the benefites to annuities?
- Annuity payouts are free from income tax
- They provide guaranteed income.
- Investment returns earned during the accumulation period are tax-free.
- Capital may be guaranteed depending on the type of annuity purchased.
23. What are the limitations of annuities?
The limitations of annuities are as follows:
(i) They cannot be used for death protection, and should be purchased only after provision for premature death is in place;
(ii) They cannot be used to provide for major illness protection;
(iii) Most annuities do not have any feature to counter the effect of inflation; and
(iv) Usually, there is no attaching benefit rider.
A typical proposal form for an adult applicant contains the following information:
- Name and address of the insurer;
- Adviser’s name, Adviser’s code and policy number;
- Warning statement;
- Particulars of the proposed life insured (if the person applying for insurance is not the life to be insured);
- Particulars of the proposer;
- Particulars of the policy applied for, e.g. whether it is a Term Insurance or Endowment Insurance policy;
- Declaration of and replacement of existing policy(ies);
- Family history of the proposed life insured;
- Medical details of the proposed life insured;
- Remarks;
- Confirmation of receipt of compulsory documents; and
- Declaration by proposer and / or proposed life insured.
25. What information should the particulars of the proposed life insured include?
This section of the proposal form asks for the following information:
- title;
- name;
- address;
- telephone numbers (home, office and / or mobile number);
- race;
- nationality;
- place of birth;
- date of birth;
- marital status;
- gender;
- age;
- employment status and occupation;
- name and address of company which the proposed life insured works in;
- position held;
- exact nature of duties involved; and
- backdated to (if applicable)
26. What sort of factors should underwritters determine the insurability of a proposed life insured?
Underwriters determine the insurability of a proposed life insured based on a number of factors as follows:
- age;
- occupation;
- physical condition;
- medical history;
- financial condition;
- place of residence; and
- lifestyle.
If the mortality risk of a proposed life insured is higher e.g. due to hazardous occupation or medical condition, the insurer cannot afford to insure him on the same basis as it insures a standard risk. For such a case, the underwriter may accept it with any one of the following conditions:
- at ordinary rate subject to a lien;
- at ordinary rate but subject to a change in plan, e.g. Term Insurance only or with an additional lien imposed;
- at ordinary rate subject to an exclusion to the cover; or
- with extra premiums.
28. Who are eligible for Group Life Insurance?
Groups eligible for Group Life Insurance include:
- employer-employee groups;
- multiple-employer groups, such as trade associations and labour unions;
- members of professional associations or affinity groups, such as social recreation clubs; and
- debtor-creditor groups which generally consist of a credit granting institution, such as a bank and its debtors.
29. Should a policy owner visit an insurer’s office to pay each renewal premium due?
A policy owner does not have to visit an insurer’s office to pay each renewal premium due. He can pay his premiums by any one of the following methods:
- By Cash Or Cheque
- By Banker’s Order
- By GIRO Deduction
- By Salary Or Payroll Scheme
- Using CPF Ordinary And Special Accounts
- Through Supplementary Retirement Scheme (SRS)
30. What are some of the common alterations that policy owners tend to make?
Some of the common alterations which policy owners make are:
- change of address;
- change of name;
- change of frequency of premium payment;
- reduction in sum assured;
- increase in sum assured;
- change in type of policy;
- change in term of insurance;
- removal of extra premiums;
- extra benefits (riders); and
- change of insurance nominees or beneficiaries.