PRE-CONTRACT

EXAMINATION

STUDY GUIDE

1
The following chart is a consolidated figure on the percentage (%) of
multiple choice questions derived from respective chapters :
Chapter 30
Chapter 29
Chapter 28
Chapter 27
Chapter 26
Chapter 25
Chapter 24
Chapter 23
Chapter 22
Chapter 21
Chapter 13
Chapter 12
%
Chapter 11
Chapter 10
Chapter 9
Chapter 8
Chapter 7
Chapter 6
Chapter 5
Chapter 4
Chapter 3
Chapter 2
Chapter 1
0 1 2 3 4 5 6 7 8 9

Hot exam topics 2

Pre-Contract Examination

Part A
Chapter 1: Introduction to Insurance

Definition of insurance:
Principle of
Economic institution – principal Economic
By Law of large number: of mutuality, form a common Institution mutuality/
Spreading the risk of loss fund, needs arises from chance cooperation
to all parties, pool their occurrences, probability can be
resources to pay for fairly estimated Essential
individual losses features of
insurance
(pg 4-5)
How insurance What is
works (pg 3-4) Introduction insurance? Risk with
Accumulate
to insurance (pg 4-5) occurence can
fund to pay
(pg 1-2) be estimated
for claims

Functions of insurance (pg 5-6) Roles of insurance agent (pg 8)

Bring financial relief – aggrieved
Primary Secondary
dependents or property loss
Cost stabilization Inculcate the discipline of saving
Stimulation of business enterprise Provide insurance related service to
Security for expansion of business public
Equitable distribution of financial
losses Reduction of losses
A means of saving
Sources of capital for investment
Employment for many
Chapter 2: Nature of Risk and Risk Management
Definition of Risk: Peril – A cause of loss
•Uncertainty/Possibility Loss – A reduction / 2 types of hazards:
of loss disappearance of Physical: physical characteristics
•The exposure of danger economic value Moral: Character defect in Basic category of insurance (pg 14-15)
•The subject matter of individual Fundamental: Entire economy of
insurance
large number of persons/group
Particular: Affects individual
Concept of
Pure: Loss or no loss
Measurement of Risk: Risk (pg 12-14)
Speculative: Profit, loss or no loss
Priori: Total numbers of
possible events are known Nature of Risk 1 Identify loss exposures
Empirical: Historical data and Risk
Judgmental: Judgment of Methods of management 2 Evaluating potential loss
the person predicting the handling Risk
Risk Management Selecting risk handling
outcomes (pg 15) 3
Process (pg 16-17) techniques
Implementing risk
Risk Avoidance Loss Control 4
management programme
Avoid person Loss prevention: Reducing Controlling risk
property/activity frequency of loss Insurable risk must fulfill certain 5
management programme
which produces Loss minimization: Reducing characteristics (pg 17-18)
risk severity/amount of loss
Financial value Monetary compensation can be given
Large number of Predict losses more accurately
Risk Retention Risk Transfer
similar risk
Retaining of risk Transferring of risk Pure risk Loss or no loss
1) Insurance contract: transfer of No catastrophic loss Large number of risks incur losses at the same
loss of house perished by fire time/one risk results in huge loss
into fire insurance contract Fortuitous losses Accidental / unintentional loss
2) Non Insurance contract: Insurable interest Must have insurable interest in the property,
potential liability from sale of rights, interest, life, limb or potential liability to
defective product between be insured
manufacturer and Legal Not against public policy
supermarket Reasonable premium Must be reasonable to the potential loss
Chapter 3: The Basic Principles of Insurance and
an Introduction to Takaful
Transfer of rights and
Concept of insurable When must insurable liabilities from one to
Who has insurable interest? another (assignor to
interest interest exists?
assignee)
Subject matter of General insurance: At Property insurance: owner, Prior consent of insurer is
insurance: inception and at time trustee, agent, mortgagee or hirer needed for an assignment
Novation: Insurer gives
of loss to be valid
Property, potential legal Liability insurance: anyone who consent to the
liability, life, limb of Marine insurance: At has potential legal liabilities, legal substitution of the insured
insured under a policy time of loss cost and expenses by new insured, a new
contract created between
Subject matter of Life insurance: At the Life and personal insurance: the insurer and the Exception to the rule:
insurance contract: inception unlimited in his own life and limbs assignee of the original 1) Marine policies
Financial interest of an A person: spouse, child , ward policy (cargo policies) :
insured in the subject under majority age, employee,
Freely assignable
wholly/partly dependent
2) Life policies: Assignable
matter of insurance
by statutory provision
3) Fire policies: Automatic
Insurable interest (pg 23-24) assignment if transfer of
Principle of interest in the subject
Insurance (pg 22-32) Assignment matter of insurance is
(pg 24-25) made by will or
operation of law
Utmost Good Faith (Uberrima Fides) (pg 25-27)

Insurance Contract Subsection 150(2)

The legal principle governing contract: Caveat emptor (let buyer Duty of disclosure does not require the disclosure of a matter that:
beware) 1) Diminishes the risk of insurer
Insured has to disclose all important facts regarding the risk to be 2) Is of common knowledge
insured 3) Insurer knows or in the ordinary course of his business ought to know
4) Insurer has waived any requirement for disclosure
Material facts
Voidable contract – Utmost good faith is breached
Are to be disclosed by insured
Non-disclosure: Fail to disclose the material fact
A fact in deciding the acceptance of risk or premium to be charged
Misrepresentation: Misrepresent the material fact
Chapter 3: The Basic Principles of Insurance and
an Introduction to Takaful
Indemnity Method of indemnity
Restore the insured to
Cash
the same financial Subrogation Subrogation may arise:
Repair
position as he had Out of tort (act of negligence)
Replacement or
enjoyed immediately Insurer who has indemnified an Out of contract (Not covered under a
reinstatement
before the loss insured for a loss may exercise policy)
the insured’s rights to claim from Out of statute (right to recover a loss
The principle of Indemnity (pg 27-28) third party in respect of the loss from third party)
Out of subject matter( Salvage)

The principle of subrogation (pg 28-29)

Principle of
Insurance
The principle of Contribution (pg 29-30) (pg 22-32)

Contribution Condition for contribution to apply: The principle of Proximate Cause (pg 30-32)

Insurer who has Two or more policies of

indemnified an insured indemnity must be in force Proximate Cause Liability
may call upon other Policies must cover a common
insurers liable for the interest Insured perils: perils expressly
same loss to contribute Cover a common peril which give covered by a policy
proportionately to the rise to the loss Uninsured perils: Perils not
Dominant cause of loss
cost of the indemnity Common subject matter covered mentioned in policy, not covered
Onus of proof of loss
payment by policies by policy, unless occur as a result
rests on the insured
of an insured peril
Excluded peril: Perils which have
been excluded from the policy
Chapter 3: The Basic Principles of Insurance and
an Introduction to Takaful
Essential Elements in Takaful Concepts
•Arabic verb – Kafala Piety or individual purification
•Mutual help among Brotherhood via ta’awun or mutual Al Gharar: Uncertainty in
group to support the assistance 1 the contract of insurance
needy within the Charity through tabarru’ or donation
group through a fund Mutual guarantee Takaful and insurance (pg 34) Al Maisir: Gambling as the
contributed by group Self sustaining operations as opposed (Does not conform to Shariah 2 consequence of the presence
members. to profit maximization Requirement) of uncertainty
Al Riba: The existence of
Overview of Takaful (pg 32-34) 3 interest or usury in its
investment activities

Basis of mutual help in Takaful is Takaful

grounded on Islamic Value: Concept of Takaful (pg 34-35)
(pg 32-36)
Sincere intention to help
Compliance to Shariah principles Tabarru‘ Donation, gift or contribution

Contractual agreement
Family Takaful Business (pg 36)
between provider of capital
Mudharabah
and entrepreneur for business
Combination of long term + mutual venture
financial assistance scheme
Objective:
Covers available:
1) To save regularly over a fixed — Contribution is divided into 2 separate accounts —
period Individual family Takaful plans
2) To earn investment return Takaful mortgage plans Participant‘s Special
Participants‘ Account (PA)
Takaful plans for education Account (PSA)
3) To obtain coverage in the event
of death Group Takaful plan Tabarru’ basis Saving and investment
Health/Medical Takaful
Chapter 4: The Insurance Market
Authorized to solicit
Buyer Seller Intermediaries Insurance insurance business, collect
Individual Life insurer (life Insurance agents premiums, issue cover notes
person business) agents and on behalf of insurer
brokers
General Insurer Agent act on behalf of
Insurance
(General agent and normally not tied
Broker
business) to any insurer
Life & General
(Composite
Main
insurer)
Component
(pg 39-43)
— Insurance Professionals (pg 42-43) —
Other Market Component (pg 43-44)
Insurer/Individual skilled in the process of selecting
Underwriter Reinsurer Service Specialist
risks for an insurance company
Insurance which insurers Provide support
Loss Investigating the cause and circumstances of loss and purchase to cover risks service to insured
Adjuster ascertaining the quantum of loss either for insurer / policy underwritten by them and insurers
holder

Loss Assess the extent of damage or loss settlement, assist in

Assessor the preparation and negotiation of claim Text

Marine Survey damaged ships and cargo and report

and Cargo Surveyor on the cause and extent of loss

Deals with financial impact of risk and uncertainty,

Actuary skilled in analysis, evaluation and management of
statistical information

Risk Surveyor Eyes and ears in evaluating the risk where risk
insured is substantial in amount
Chapter 4: The Insurance Market
Organization Structure (pg 44-45)

Administration Department Marketing Department

Office services, building services and Development of sales programs, sales Centralization vs
personnel administration (hiring, training literature and kits, training of sales force Decentralization
and dismissal of employee, determine (pg 47-48)
salary scales
Electronic Data Processing (EDP) Underwriting Department
Centralization Decentralization
Establishing procedures and programs to Sets underwriting guidelines and selection
enable utilization of computers criteria, selects risks and determine
premiums, terms and conditions of new Advantages:
Advantages:
business and renewal - Uniformity,
- Prompt service
Accounting Department Claims Department economics in
Disadvantages:
administration
General accounting record, preparation of Process claims - Duplication of
Disadvantages:
financial statement, control of receipt and resources
- Slow service
disbursement, maintenance of budgetary
control
Investment Department Customer Service Department
Invest all available funds, ensure Provide assistance to policy owners and
investment yield sufficient return, satisfy beneficiaries
company’s requirement for liquidity and
security
Agency and Sales Department Actuarial Department
Identification of field forces, recruitment Design and pricing of new products,
of agents, motivation and supervision of calculation of surrender values, paid up
sales force policy values and bonus rate
Chapter 4: The Insurance Market
Insurance Supervisory Authority and Mandatory Associations
(pg 48-55)

Bank Negara Malaysia (BNM) Motor Insurance Bureau (MIB)

Promoting monetary and financial system stability to
Provide compensation to victims of motor accidents where
achieve sustained economic growth, resolution of
uninsured drivers are able to meet their liability from own
complaints against insurers
personal resources
Malaysian Motor Insurance Pool (MMIP) Actuarial Society of Malaysia (ASM)
Provide motor insurance to vehicle owners who cannot Representative body of actuarial profession in Malaysia
readily find an insurer to provide insurance protection for
their vehicles
Persatuan Insurans Am Malaysia (PIAM) National Insurance Claims Society (NICS)
Association of general insurers Open to life and general insurance companies to develop
best practice relating to insurance claims processes
Life Insurance Association of Malaysia (LIAM) National Association of Malaysian Life Insurance and Financial
Advisors (NAMLIFA)
Self regulation, continuing education and professional skills
development of the agency force and promote greater Association for life insurance agents safeguarding the
discipline interests in life insurance selling and sales management
Malaysian Insurance and Takaful Brokers Association (MITBA) Malaysian Financial Planning Council (MFPC)
Provide training, technical advice, guidance on regulation Promote development of financial planning
and business support
Association of Malaysian Loss Adjusters (AMLA)) Malaysia Insurance Institute (MII)
Carrying business of loss adjusting
Promoting education and training services to insurance
markets of all sectors and agency forces
Chapter 5: Consumer Protection and Statutory
Regulations
Insurance Industry
Consumers have 8 basic rights: (pg 67-68) & The consumer
(pg 67-77)
1) The right to satisfaction Objectives of self regulation
2) The right to information
3) The right to choose Instilling discipline and promoting
4) The right to basic goods and services healthy competition in the industry
5) The right to be heard Providing some elements of protection
Self Regulation (pg 69-70)
6) The right to redress to insurance consumers
7) The right to consumer education
Transaction of insurance business through
8) The right to a safe and clean environment insurance associations:
General insurance’s main association:
1) PIAM
Advantages Disadvantages
2) MITBA
Instill self discipline Voluntary codes of 3) AMLA
among insurance practice do not have the Life insurance’s main association:
company power of law 1) LIAM
Avoids the need to Statements of practice
introduce legislation to and intercompany
regulate the industry agreements drawn up by
Main purpose of regulation
When laws are passed, insurance companies
bureaucratic back up will view consumers’ needs 1) The protection of public interest
be required to enforce from their own 2) The promotion of fairness and equity
them perspective
Self regulatory measures Law are interpreted by 3) The fostering of competence
can respond to changing the court, statements of 4) The playing of a developmental role
needs faster than practice are interpreted
legislations by the drafters
Chapter 6: The Insurance Contract

What is a
contract?
(pg 81-84)

Essential legal requirement of insurance contracts:

Legally binding agreement 1) Intention to create legal relationship

made between two or 2) Offer and acceptance
more parties that is one 3) Consent – consensus ad idem
which the law will enforce 4) Consideration
and recognize in some way 5) Legal capacity to contract
6) Legality of the contract

Defective Contracts (pg 83)

Void Contract Voidable Contract Unenforceable Contract

Law holds to be no contract Remain valid till the Non-compliance with legal
at all, a nullity from the aggrieved party exercises formalities
beginning the option to treat it void
Chapter 7: Law of Agency
— Some key words —
Agent, principal Agency
A person acts on behalf Relationship arises when
Express Authority Implied Authority
of another person, the one person (agent) is
person he represents is engaged by another Given to agent orally or in Not expressed to agent either
principal person (principal) writing orally or in writing (carry with
usual authority)
Intermediaries Relationship
Apparent or Ostensible Authority Ratification
Insurance agents, Between principal and
insurance brokers agent Any representation made by A principal may ratify an act
Between principal and principal that induces a third which was carried out by a
third party party to reasonably believe that person who was in fact his
Between agent and third a particular person is an agent agent but who was exceeding
party of the principal makes the his authority.
principal liable for the agent’s
actions (authority by estoppel)
Legal provisions governing Overview
the law of agency
(pg 88-91)
Authority of
an agent
(pg 89-91)
Duties of an agent (pg 91) Classes of agent
1) Special agent: to carry out specific act
1) To render accounts to the principal or transaction
2) Not to let his interest conflict with his obligations to the
principal 2) General agent: May do anything for his
3) Not to disclose confidentiality information principal within the limits of a general
4) Not to take any secret profit or bribe from any party authority conferred upon him
5) Not to delegate his duties to sub-agent 3) Universal agent: Unlimited authority
6) To comply with his principal’s instruction
Chapter 8: Insurance Marketing and After-Sales
Service
Functions of marketing department (pg 100-101)
1)Planning and controlling
2)Market identification
3)Product development
4)Pricing
5)Selection of distribution channel
6)Promotion Sales vs Marketing Sales
(pg 100-103) (pg 100-105)
Marketing – The management
process responsible for
identifying, anticipating &
satisfying customer requirements
profitably.

Consumer Buying Decision Process (5 stages) The Selling Process (5 basic steps) (pg 104-105)
(pg 103-104)
1) Locating the prospective customer
1) Problem recognition 2) Creating a sales presentation
2) Information search 3) Conducting sales interview
3) Evaluation of alternative policies 4) Handling objections
4) Purchase 5) Closing the sales
5) Post purchase evaluation
Chapter 9: Introduction to Medical and Health
Insurance
MHI policy provides payment of
Definition of medical and health policy : claims up to the following limits, and
A policy of insurance on disease, sickness or does not result to termination of
medical expense that provides specified policy: (pg 116)
benefits against risks of persons becoming 1) Per disability limit
totally or partially incapacitated as a result
2) Overall annual limit
of sickness or infirmity
3) Lifetime limit

Practices of insurance involves the Introduction to

Medical and Cost Containment Measures: (pg 116-117)
processes: (pg 112)
Health Insurance 1) Inner limits
1) Offer and acceptance
(pg 111-117) 2) Schedule of surgical procedures
2) Underwriting
3) Policy processing 3) Maximum period of compensation
4) Claim administration 4) Timeframe during which expenses are payable
5) Reinsurance 5) Co-payment for upgraded rooms
6) Deductibles
7) Panel of hospitals
— Categories of medical and health insurance (pg 116) —
Indemnity policies Benefit policies
Hospitalization and
surgical
- Places the insured in the Hospitalization cash
same financial position as benefit plan, critical Cashless hospital admission: (pg 117)
before the occurrence of illness, disability income By issuance of a letter of guarantee, upon discharge,
the insured risk, subject - Pays a pre-determined claimant only pays for non-reimbursable charges.
to the maximum limits of sum of money if an
the insured amount. insured event occurs.
- Reimbursed for the cost
of medical treatment
Chapter 10: Types of Medical and Health Insurance
— Common Expense participation (pg 123)—
Medical and health insurance
generally comprises the Deductibles Co-payment
following: (pg 121-122) Pay pre-agreed Group medical and Hospitalization cash
1) Medical Expenses Insurance: amount before health insurance benefit insurance
balance eligible Sharing of
- Hospitalization and surgical Single policy is used As stand alone or as
expenses are expenses
insurance to cover many riders to life or
reimbursed. (in between
- Major Medical Expenses different members medical and health
the form of a fixed policyholder
Insurance belonging to a insurance policies
amount, a and insurer
2) Hospitalization cash benefit common entity – Pays a pre-agreed
insurance percentage and a
combination) employer amount for each
3) Critical illness insurance Benefits, rights and day the insured is
4) Disability income insurance obligations of insured hospitalized
5) Clinical Insurance group members are
6) Dental Insurance Types of Medical and stated in master Disability Income
7) Maternity Insurance Health Insurance policy Insurance
(pg 121-122) Contributory basis – Known as
requires participation permanent health
of at least 75% of insurance
Major Medical Expense Insurance (pg 122-124) eligible members Provides periodic
Non-contributory payments when
basis – covers all insured is unable to
eligible members work resulted from
Supplemental Comprehensive Excess
illness, disease or
Similar to basic injury
Extension to basic
hospitalization hospitalization Top up of major
medical insurance Critical illnesses Insurance
and surgical and surgical
insurance policy. insurance policy. policy Pays a lump sum upon insured being diagnosed
Payment of 80% of Incurred expenses having the specified critical illness
incurred expenses exceeding the As stand alone or as rider
and 20% borne by agreed deductible
policyholder is payable in the
event of claim
Chapter 11: Underwriting Medical and Health
Insurance
Overview
(pg 130)
— Insurer consider the following in risk selection (pg 131-134) —
Medical Factor Current physical condition
Definition of Underwriting:
•A process of assessment and Possibility of recurrence Applicant’s statement on
selection of risks, determination of Effect of medical history on application form and medical
premium, terms and conditions applicant’s general health examination results are first
Complication that may indicator of present physical
develop at a later date condition
Normal progression on any
Occupational Factor
impairments
The purpose of underwriting: (pg 130-131) Possible interaction of Class 1: Least hazardous
normal progression with a Class 2: More physical
Guard against anti-selection activity than class 1
Charge a premium that is commensurate future disability from
unrelated cause Class 3: Light manual duties
with the risk assumed or skilled work
Class 4: Heavy manual
Financial Factor duties, there are accidental
hazard
Anti Selection (pg 131) Overall financial situation to
determine the amount and Age and Sex
Situation where more sub-standard risk are level of appropriate
accepted resulting in a less favorable Mortality and morbidity
insurance coverage required.
underwriting result. increases with age
Chapter 12: Policy Administration
— Structure of Medical and Health Insurance policy form
(pg 143-146) —
Heading The schedule of benefit
Provides full name and The benefits provided Endorsement may be issued to record
registered address of by a policy alterations to the contract (pg 146)
the insurance company Variation in amount of benefits
The preamble or recital Attestation or signature Change in any maximum benefit period
clause clause Extension of insurance to cover
additional members of the family
Introduces third party Signed by an
Change in occupation risk
in the contract authorized official of
Cancellation of insurance
the insurer
Overview (pg Change in name and address
The operative or 142-143)
Conditions
insurance clause
May be expressed or Renewable Notices (pg 146-147)
Specifies the perils
under the policy implied 1) Standalone medical and health
insurance products are typically sold on
Exclusions Policy register an renewable basis
Contains perils and Insurer shall maintain 2) Life insurance are long term contract
losses cannot be up-to-date register for where premium are based on pre-
covered under the all policies issued agreed payment frequency of monthly,
policy quarterly, semi-annually or annually

— Document for tax relief for MHI premium payments (pg 147)—
Tax deduction for taxable income of up to a maximum of tax deduction for taxable income of up to a maximum of:

RM3000 – premiums paid for education or medical insurance

RM6000 – Premiums paid life insurance and contributions to approved retirement schemes
Chapter 13: Medical and Health Insurance Claims
Notification of loss (pg 151)

•Policyholder to inform insurer in

writing of any claim within 14-30 days Claim investigation (pg 152-153)
•Furnish with all supporting document,
fully completed claim form with — Claim investigation involved ascertaining the following —
medical report
Validity of a claim Claim documentation

The existence of loss Document drafted to

MHI Claims
If loss is caused by peril gather information
Checking coverage (pg 152) (pg 151-155)
insured under the relevant to assessing
policy claims.
— Preliminary check on a claim —
If loss does not fall Information on the
Conditions of a valid within the scope of an identity of insured, the
Claim form
claim exclusion of the policy insured’s interest in the
Is the policy in Clear instructions If the person making loss, the circumstances
force? on the correct the claim is the rightful of and the extent of
Has premium been procedures to be claimant loss
paid? taken in making
Disputes (pg 154-155)
Is the loss caused claim and list of
by an insured document to be — Disputes may be resolved through the following channels —
peril? submitted with
Is the subject claim form Negotiation and compromise settlement Arbitration
matter affected
Settle through discussion and The hearing of dispute by person
the same as that
Claim register amicable compromise agreed/chosen by them
insured under the
policy? Insurer shall Mediation
Has notice of loss maintain an up-to- Litigation
The financial mediation bureau (FMB)
been given without date register of all Court action may be taken if there is – resolution of consumer complaints
undue delay? insurance claims unhappy outcome of against all financial institution
negotiation/compromise regulated by BNM
Pre-Contract Examination

Part C
Chapter 21: Life Insurance Preliminaries

Introduction: Many factors which enter into

The first known case of a life insurance premium rate calculations: (pg 290)
policy dated back to 1583 in England on the
life of William Gybbon.

•Mortality
•Expenses
•Rate of investment return
•Tax
Overview

Insurable Interest
(pg 291)
Characteristics of life
Aleatory Contract (pg 290-291) insurance products
(pg 290-292)

One party provide something Purchaser of life insurance

of vaue to another party in policy must stand to suffer
exchange for a promise that the financial loss on the death of
other party will perform a the person on whose life the
stated act if a specified, life insurance policy has been
uncertain event occurs bought
Chapter 22: Life Insurance Products and Family
Takaful Business
Introduction
(pg 296-297)
— Products offered by insurers can be broadly categorized
into the following —
Mainly three kinds of life
Participating contract Non-participating Contract
insurance contracts
Mainly used for saving
Ordinary Guaranteed benefits
Home service are sum assured and Mainly for protection
Group Insurance cash value, projected purposes
bonuses and projected
final bonuses

Premiums Guarantees
Level monthly, quarterly, semi- Guaranteed payment of sum
annually or annual premium assured on death within the term
Occasionally single premium, of contract
Term insurance (pg 298-300)
especially short term business and
decreasing term insurance Options
Benefits Term insurance can be renewable
for a limited number of periods at
Payment of sum assured on death the option of the assured and can
No surrender or maturity value also be converted into a
Provides cheap guaranteed permanent life insurance policy
protection

Other features
Non-smoker discounts are normally given
Policies are subjected to strict underwriting
Chapter 22: Life Insurance Products and Family
Takaful Business
Whole life Premiums Guarantees
Assurance
(pg 300-302) Level monthly, quarterly, semi-annually or Guaranteed payment of total sum assured on
annual premium death
Premiums might cease at a certain age or after
a certain term. This helps reduce premium Options
collection costs. This is particularly relevant for Normally there are none
small policies.
Uses
Benefits
This is the cheapest form of permanent
Payment of sum assured on death protection
Usually a minimum guaranteed surrender value Policy will be eligible for the benefits of non-
available, typically after three years. forfeiture regulations, cash surrender value,
Minimum guaranteed paid-up values available loan, paid-up value after a minimum number of
years

Premiums Guarantees
Endowment
Insurance Level monthly, quarterly, semi-annually or Guaranteed payment of total sum assured on
(pg 302-304) annual premium death or at maturity
Benefits Options
For non-participating policies, payment of sum Normally there are none
assured on death or at maturity
For participating policies, payment of the sum
assured plus bonuses on death within the term
of policy
Usually a minimum guaranteed surrender value
available, typically after three years
Minimum guaranteed paid-up value available
Chapter 22: Life Insurance Products and Family
Takaful Business
Annuities (pg 304- Single Life Immediate Annuity Joint Life Annuity
306) Periodic payment for the remainder of the Provides a specified amount of income for two
Periodic payment lifetime of a named life or more persons named in the contract, annuity
made during a fixed Recipient is called annuitant ceasing on the first death among the covered
period of time or for Annuity payment starts immediately lives
the duration of the
survival of a Guaranteed Immediate Annuity Last Survivor Annuity
designated life
Guaranteed payment over a fixed period and Provides for payment until the last death among
thereafter until death. the covered lives
If annuitant dies during the fixed period, the Joint last survivor annuity continues the same
annuity payments will continue to be paid till amount of annuity until the death of the last
the end of the guaranteed period survivor
Income to be reduced following the death of the
Deferred Annuity
first annuitant to two third or one-half of the
The annuitant pays a lump sum at entry or a original income
periodic premiums for a defined period.
On attainment of a specified age, or survival by Reversionary Annuity
annuitant of a defined period, office will pay an Annuity commences at the death of the assured
annuity of a specified amount till death person, provided that the annuitant is then alive
Annuity Certain Installment will continue throughout the lifetime
of annuitant
In return for the payment of a certain sum,
office makes a series of yearly, half-yearly or
quarterly payments for a specified number of
years
Chapter 23: Policy Conditions
— Policy vs Contract —
Policy Contract
Definition:
Any instrument by which the payment of The written document An intangible thing, a
money is assured on death or the which embodies that legally binding
happening of any contingency dependent agreement is in agreement between the
on human life, or any instrument concrete form concerned parties
evidencing a contract which is subject to
payment of premiums for a term Life policy
dependent on human life. (pg 322-329)
— Non-forfeiture Conditions ( pg 323-325) —
Automatic premium loan Paid –up policy
— Privileges (pg 323-324)—
Days of grace Paid –up policy Each premium is paid Permits the assured to elect to
automatically as it falls due after exchange the net amount of the
Thirty days are allowed as A policy which cash value the grace period with interest. cash value for a paid up
days of grace for payment available is used as a Provides for continuation of insurance of the same type as
of yearly, half yearly, single premium to insurance cover in cases where the original policy for a reduced
quarterly and monthly provide for an insurance the assured, through either face amount
on the original terms, for carelessness or inability, fails to
a reduced sum assured. pay a premium, and it allows
the assured to restore the
Policy loans Extended Term Assurance
original status by repaying the
Surrender Value Granted up to 92% of the amount owed Permits the assured to exchange
The value which attach to acquired cash value of a No evidence of insurability is the acquired cash value for a
a policy of life insurance policy necessary to bring the policy to paid up term insurance for the
after premiums have The loan with accrued its original status full sum assured but with a
been paid for a certain and outstanding interest shorter duration of coverage.
will form the first charge Reinstatement Condition The length of term insurance
minimum number of
years in favor of the life Permits a person to apply for depends on the available
company and will be the reinstatement of the amount of cash value applied as
deductible before any contract net single premium at the time
payment is made under Medical and other evidence may of conversion.
the policy be required
Chapter 24: Practice of Life Insurance – New
Business – Selection of Lives and Other Issues
Risk Management
Identifying the risk factors — Objective of selection (pg 337) —
The selection of lives to be insured
Quantifying risk To decide if the risk the life
Costing risk Overview office is asked to cover is:
Monitoring the insurance fund (pg 332-343) 1) Within normal limits:
payment of standard
premium rates
— Risk Factors (pg 333-335) — 2) Below average: subject to
Mortality Occupation Personal Habits and family some restriction, referred
history as sub-standard
Mortality increases with Extra loading will be 3) Below average to the
age incurred due to Personal habits and some
extent that is not
additional risk posed by form of ailments have
acceptable at the time of
Age different occupations influence on mortality
consideration
and morbidity
Female mortality is lower Social status 4) Below average to the
than male Avocation extent that the applicant
Female morbidity is Closely tied to the cannot be accepted under
occupational factor Some form of avocation any conditions
higher than male
are dangerous and
morbidity Geographical Location expected to experience
Lower life insurance
Urban area have easy higher than average
premium for females
access to better medical mortality rate
Ethnicity facilities
Foreign Residence
Attributed to cultural Marital status Residences in unhealthy
heritage, eating habits,
Single male experience areas have effect of
and attitude towards
higher mortality than increasing mortality and
other aspects of life
married male morbidity
Chapter 24: Practice of Life Insurance – New
Business – Selection of Lives and Other Issues
Mode of accepting sub-
standard lives (pg 337-339)
— Extra risks may be allowed for in several ways
Extra risk can be classified into three main according to the group into which the extra
groups: mortality falls —

Increasing premium Bonus adjustment

Increasing Extra Decreasing Extra
Level Extra Mortality The adjusting of
Mortality Mortality Standard rate of
premium may be bonuses in a
An impairment increased by a participating policy.
which causes Types of risk stated amount
increasing extra which are based on the
mortality is one Extra risk that present at the Alternative policy plan
remain constant expected
which with younger ages but
increasing from year to year which will lessen increased rate of Suggesting another
duration, becomes in later life mortality policy arrangement may
an increasingly provide an acceptable
potent factor in Decreasing Death solution.
the failure to Benefit
survive The additional Exclusion of a particular
risk may be hazard
covered by a
provision to the Policy may carry a
effect that the clause limiting the
sum insured shall liability of the life office
be reduced by a if death occurs directly
stated or indirectly as the
percentage result of a particular
should death impairment or
occur during a participation in a
named period specific form of activity
Chapter 25: Practice of Life Insurance – New
Business – Premium Rating
Pooling of Similar Risks Law of Large Numbers

A considerably large number of lives

When a large number of are insured, the fluctuation in the
similar risks are combined rate of death will not be very
into a group, there will be Quantifying significant.
less uncertainty about the The Risk The past forms a guide to the future
amount of loss likely to be (pg 346-349) It is assumed that the deaths among
incurred within a certain a group follow a pattern similar to
periods. that of an identical known group in
the past.

Overview
(pg 346-358)
— Costing the risk (pg 350-351) —
Mortality Expenses
Standard mortality tables are derived from the Initial Expenses: Expenses incurred in the first year of policy in order
combined mortality experience of life insurers to be placed on the book
operating in a territory Renewal expenses: Expenses incurred (not necessarily) every year
throughout the duration of the policy
Investment return Termination expenses: Expenses incurred when the policy leaves the
office
Insurer has to make prudent estimates of likely
rates of returns from investments over the Other factors
medium to long term
Financing cost
Reinsurance cost
Tax Bonus loading
Insurance company incurs tax liabilities Cost for options and guarantee
Cost of maintaining statutory reserves and solvency margins
Chapter 26: Practice of Life Insurance – Monitoring
The Insurance Fund
— The assets of life insurance Risk Capital Framework:
company from premiums received •Requires insurer to maintain a 1 Test if the company is solvent
minus claims and expenses — capital adequacy level
Valuation of assets commensurate with its risk profile Determine if the amount of
2
surplus – dividend/surplus
Cash in hand/banks
Investment in Purpose of valuation 3 Test the adequacy of premium
government or semi- exercise (pg 362) scales
government securities Introduction
Shares in corporate Any changes in company
(pg 361-363) 4
bodies operations
Loans and debentures Comply with statutory
in corporate bodies 5
requirement
Properties, land and
building — Methods of distributing surplus (pg 364-366) —
Loans to policy holders — Difference between value
Simple reversionary bonus Compound reversionary bonus placed on assets and liabilities
Furniture, fittings,
motor cars and other Bonus is declared as a Bonus allotted is in proportion (pg 363-364) —
office equipment proportion of the sum assured to the sum assured and the
Sources of surplus
and is payable in the same bonuses accumulated under
Methods of valuing assets: circumstances as the original the policy 1)Interest
Cost price: Price at sum assured 2)Mortality
Maturity/Terminal bonus
which assets was Cash bonus 3)Expense
acquired Bonus is into claims either by
Book value: Value Bonus takes the form of cash maturity or death 4)Miscellaneous: Surrenders,
placed on the assets in distribution lapses, new business and
company’s account Guaranteed bonus alterations
Interim bonus
books
Bonus declared at the Bonus are guaranteed each
Market value: Value for
valuation date for the policy year, usually non-participating
which assets can be
year policies
sold in the open market
Chapter 27: Practice of Life Insurance – Policy
Documents The examination includes:

Height and weight

Information in a proposal Pulse and blood pressure
form readings
Personal particulars Chest and abdomen
Details of insurance measurement
Occupation, residence, Condition of the heart, lung,
travel and hazardous nervous system, urine analysis
pursuits Treatment given to the applicant in
Personal and family the past, the duration, diagnosis and
history his observation
Declaration and Medical
authorization report/special
investigations
(pg 371-372)
Attending
The proposal physician‘s
Form statement
(pg 370-371) Sources of (pg 371)
information for
risk assessment
(pg 369)

Previous
Agent‘s report Agent’s impression about the
records
(pg 371) applicant’s habits, appearance,
(pg 372)
character and financial status
Reference to previous records
on the same life
Chapter 27: Practice of Life Insurance - Policy
Documents

— Policy form and its structure (pg 372-373) —

Heading The schedule
Name and registered Name and address of — Endorsement can be done at (pg 373-374) —
address of company assured, date of The time of issue of policy After issue of policy
commencement, sum
The preamble assured, type of
Introduces the parties insurance, the Affecting the premium or Mode of premium payment
to the contract premium, date of frequency of payment
birth/age, date of
The operative clause maturity, special Affecting sum assured or Alteration to the form of contract
condition mode of payment
Specifies the events
upon which the policy Attestation
becomes operative Imposition or removal of extra
Incorporating special benefits
Signed by certain premiums
The proviso officers
Declaration that Incorporating special Surrender of bonus
answers given in the Conditions and privileges restrictions
proposal and medical
Limiting the scope
report forms shall form
Enlarging the scope
the basis of the
Explaining the scope
contract
Chapter 28: Practice of Life Insurance – Claims

— Termination of life insurance contract is marked by settlement of claim —

Claim can arise under the following situations:
Introduction
Death of insured
(pg 378)
Maturity of the insurance policy
Sickness or disability benefits claims
Claims arising under supplementary contracts

— Death Claims (pg 379-380) —

Notification of death Proof of age Proof of title and ownership
Beneficiary or claimant should A deed of assignment
Insurer request for proof
provide: A probate of the will obtained from a
of age of deceased
1) Policyholder’s name and court of law
identify card number A letter of administration issued by a
2) Policy number and Concessions under Sec 169 court of law
policyholder’s address insurance act 1996 Money would be paid to trustee for
3) Date and cause of death Payment of claim policy affected under Sec 23 of Civil Law
proceeds without letters Act
Proof of death
of probate or Interest on claim amount
Death certificate administration under the
Coroner’s report following conditions: Under Sec 161 Insurance Act 1996:
An order pronouncing a 1) Full amount if the policy A claim upon the death of the policy
statutory presumption of death proceeds do not exceed owner is not paid within 60 days of
Certificate evidencing the RM100,000 receipt of intimation of claim, the insurer
death of service personnel 2) RM100,000 if the policy shall pay a minimum compound of
Certificate showing that death proceeds exceed 4%/per annum or such other rate as may
has occurred at sea RM100,000 be prescribed on the amount of policy
Medical certificate by last monies upon expiry of 60 days till the
medical attendant date of payment
Chapter 28: Practice of Life Insurance – Claims

— The following are required for maturity claim settlement —

Maturity Claims
When the policyholder is the When the policyholder is not Settlement options (pg 380)
life assured the life assured
Cash maturity proceeds
A deed of assignment Conversion of the maturity
Proof of age
A simple statement that proceeds into an annuity
Proof of survival
the insured is alive if he is Leaving the maturity proceeds
Discharge voucher
unable or not available to as a deposit with the insurer on
The policy document
sign the survival agreed term
certificate Drawing the cash by
installments over a number of
years, interest will be credited
for outstanding balances

Total Permanent Disability Claims

— Documents required for TPD claims —
(pg 381)
Due to natural causes or illness Due to accident

Medical certification by attending

Medical certification by attending
doctors
doctors
Certified true copy of life assured’s
Certified true copy of life assured’ s
identification
identification
Completed claim form
Completed claim form
Certified true copy of police report
Chapter 29: Life Insurance – Some Mathematics

Calculation of age (pg 385) Using rate book for premium calculation (pg 387-391)

Age last birthday — Premium charged varies in relation to

Age next birthday the following factors —
Age nearest birthday Impaired/sub-
Standard lives
standard lives
Age and sex of the
Overview proposer
(pg 385-391) Current state of
health of proposer Subject to extra
Type of policy premiums with
required detailed
Sum assured underwriting
Term of policy
Premium payment
mode
Interest Charge (pg 391)

Outstanding premium charges

A lapsed policy may be reinstated with (pg 391):
Arises with the
following Policy loan repayments Evidence of continued good health
circumstances Payment of outstanding premiums with
Policy revival accumulated interest charges
Chapter 30: Practice of Life Insurance – Ethics and
Code of Conduct

Code of ethics (Statement of philosophy) The seven principles underlying the

(pg 397) guidelines (pg 398)
Life insurance business is based on To avoid conflict of interest
philosophy of risk sharing To avoid misuse of position
Business based on trust and honesty To prevent misuse of information
Confidence of policy owner and To ensure completeness and accuracy
members of public in the integrity of relevant records
and honesty of life insurers shall be To ensure confidentiality of
safeguarded and enhanced Overview communication and transactions
Life insurers shall at all time see that between life insurance company and
their business is soundly managed its policyholder and clients
and ensure safety of policyholder’s To ensure fair and equitable
savings treatment of all policy owners
Life insurer shall maintain a policy of To conduct business with the utmost
efficient and prompt service to policy good faith and integrity
owner

Definition of Twisting (pg 400): Detriment arise from twisting: (pg 400)
To discontinue a policy or to have a 1) Must commence again the qualifying period
policy made paid-up and then to
effect a new one in another company 2)Premium rate based upon the insured’s then attained age
or the same company 3)Initial costs of life insurance policies are charged against the cash
value in the earlier policy years where policy holder will sustain the
burden of these cost twice
4)The suicide clause and the incontestable clause begin anew in a
new policy