CH:6 Life insurance products Flashcards
1
Q
What are the key features of life insurance contracts?
A
- Often long-term
- Typically only one claim
- Claim amount may be known with certainty
- Used for protection against financial impact of death or ill health and for savings
- May be sold to individuals or on a group basis
2
Q
How is profit calculated for a LI product
A
+ Premiums net reinsurance paid
+ Investment income and gains
- Claims (death, sickness, maturity and withdrawal) net reinsurance recoveries
- Expenses + Commission
- Increase in revisions
- Increase in capital
- Tax
= Profit
3
Q
Key risks to consider with Life insurance contracts
(10)
A
- Mortality (too many deaths)
- Morbidity (sickness)
- Longevity (living too long)
- Investment risk
- Expenses not met by premiums
- Withdrawal before expenses has been recouped
- New business volume too high -> too much new business strain
- New business too low -> cannot spread expenses
- Credit risk (failure of reinsurer)
- Operational risk (fraud, system failure, reg changes)
4
Q
Why is it important to monitor the experience of LI contracts and name items to monitor (6)
A
Important: Long Term nature
Items:
* Rates: Claim, mortality, morbidity, withdrawal
* Reinsurance premiums and recovery experience
* Competitors rates and benefits
* Investment returns
* Expenses
* Sale mix
5
Q
Pure endowment
- Definition
- Customer needs
- Group version
A
- Definition: Provides benefit on survival to a known date
- Customer needs: Saving vehicle, e.g. provides limp sum on retirement or a means to repay a loan
- Group version: Yes, e.g. employer can provide benefits at retirement
6
Q
Endowment assurance
- Definition
- Customer needs
- Group version
A
- Definition: Provides a lump sum on the death before a certain date or maturity (can also have surrender benefits)
- Customer needs: Provides protection for dependents
- Group version: Yes, e.g. employer can provide benefits at retirement and in-service death
7
Q
Whole life assurance
- Definition
- Customer needs
- Group version
A
- Definition: Provides a lump sum benefit on death
- Customer needs: Mainly used to provide protection for dependents, e.g. can be used to meet funeral or inheritance tax liabilities.
- Group version: No
8
Q
Term assurance
- Definition
- Customer needs
- Group version
A
- Definition: Provides lump sum on the death of a life assured provided it occurs within the term selected at outset (no surrender benefit)
- Customer needs: Cheap as a benefit will not always be paid out, and does not have surrender benefits, Provides protection for dependents
- Group version: Yes, an employer provides benefits for in-service death / credit card companies death of debitor.
9
Q
Decreasing term assurance
- Definition
- Customer needs
- Group version
A
- Definition: Provides lump sum on the death of a life assured provided it occurs within the term selected at outset, sum assured decreases as it gets closer to maturity.
- Customer needs: Used to repay balances on outstanding loans, can also provide income to dependents until a time the dependents can fend for themselves
- Group: Employers can use to fill gap between in-service benefits and retirement benefits
10
Q
Convertible/ renewable term assurance
- Definition
- Customer needs
- Group version
A
- Customer needs: Combine cheap TA cover with the certainty of being able either to convert to a permanent contract when it becomes affordable or renew TA for further period (with no medical underwriting, unless benefits increase)
- Group version: Yes, e.g. individual in a group scheme to convert to individual form once they leave the scheme
11
Q
Immediate annuity
- Definition
- Customer needs
- Group version
A
- Definition: Single premium income that commences immediately provides income stream
- Customer needs: Meet income needs for the remainder of policyholder’s life (temporary annuities also exist and is only for a limited time, e.g. pay school fees +impaired annuities for individuals in poort health)
- Group version: Yes, an employer can use to fund pension of employees at or after retirement
12
Q
Deferred annuity
- Definition
- Customer needs
- Group version
A
- Definition: Annuity where there is difference between purchase date and income start date (paid with single or regular premiums)
- Customer needs: Build up pension that becomes payable on retirement (can also chose cash option with regular income payments)
- Group version: Yes, by employers to fund pension for employees
13
Q
Income protection
- Definition
- Customer needs
- Group version
A
- Definition + Customer needs: Provide income for self and dependents in the event of insured risk occurring (e.g. LT illness or incapacity to work due to accident), Typically terminates at retirement and paid out one month after claim because assume insured has enough resources to survive
- Group version: Yes, employers use to provide sick pay scheme
14
Q
Critical illness
- Definition
- Customer needs
- Group version
A
- Definition: Provides lump sum on the diagnosis of a critical illness. Explicitly lists which specific critical illnesses are cover (can also be standardised across all contracts). Usually offered as a rider
- Customer needs: Use to provide nursing and other care to maintain financial security
- Group version: Yes, employers use to provide financial security
15
Q
Investment bonds
- Definition
- Customer needs
- Group version
A
- Definition: Single premium contracts, normally whole life, designed to enable policyholders to invest for the medium to long term
- Customer needs: Earn higher return on funds that are not required currently. With the minimum payout of the premium in the event of death, as well as ability to withdraw funds during the term.
- Group version: No
