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F202 Life Insurance Fellowship > Chapter 3: South African specific products > Flashcards

Chapter 3: South African specific products Flashcards

1
Q

List the different individual life insurance product types: (5)

A
  1. Risk products
  2. Investment products
  3. Universal life products
  4. Annuity products
  5. Conventional with-profits products
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2
Q

Define Risk Products:

A

Risk products (or protection products) are products that provide mainly risk cover. This implies that benefits are provided in the case of a life event, such as death disability or critical illness.

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3
Q

The following aspects of a policy may vary from one policyholder to the next: (7)

A
  1. Term of the policy
  2. Choice of disability and critical illness benefits
  3. Standalone or accelerator benefits
  4. Premium frequency
  5. Premium paying pattern with level or increasing premiums
  6. Level of cover
  7. Future cover option
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4
Q

The risk to the company (of risk products in general):

A
  1. Pricing of the events covered.
  2. Risk of anti-selection
  3. Selective withdrawals
  4. Reputational risk
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5
Q

The following are ways to mitigate the risks to the company: (7)

A
  1. Underwriting
  2. Waiting preiods
  3. Premiums are often only guaranteed for a limited number of years, after which the insurer can revise the rates
  4. In general, age limits are applied to the various benefits
  5. Clear disclosure, to mitigate reputational risk
  6. Reinsurance
  7. Retention incentives, for example cash back benefits
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6
Q

Critical illness benefits

A

The benefit under a critical illness policy is typically a lump sum that is payable if the policyholder suffers one of the defined conditions.

The product may also be structured to provide regular income.

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7
Q

The critical illness benefit may be payable in any of the following ways:

A
  1. Upon the happening of an event, independent of the extent.
  2. On reaching a defined degree of impairment.
  3. On undergoing a surgical procedure
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8
Q

There are four characteristics of an illness or condition that make it appropriate for inclusion in a critical illness product: (4)

A
  1. It is a condition perceived by the public to be serious and to occur frequently.
  2. Each condition covered can be defined clearly so that there is no ambiguity at claim stage.
  3. Sufficient data is available to price the benefit.
  4. There is ability to avoid anti-selection.
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9
Q

List the four major diseases covered by SCIDEP: (4)

A
  1. Cancer
  2. Heart attack
  3. Coronary artery bypass graft (CABG)
  4. Stroke
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10
Q

From the policyholder’s perspective, a variety of needs are met by a critical illness policy: (6)

A
  1. Income can be provided from the lump sum via the purchase of an annuity when the individual cannot work as a result of his/her critical illness.
  2. Medical costs can be funded when the critical illness requires surgery or other expensive treatment.
  3. The benefit can be be designed to repay a mortgage or other loan when the policyholder’s health is in question following the diagnosis of critical illness.
  4. Business partners can purchase critical illness policies on the lives of each other such that the benefits will fund the buyout of the stake in the partnership.
  5. It can meet needs such as recuperation after illness, taxation planning, and medical aids.
  6. A change in lifestyle can be funded where it is necessary to improve the claimant’s health, for example, moving to a less stressful (and lower-paying) job following a heart attack.
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11
Q

Permanent disability cover:

A

Permanent disability cover complements critical illness cover, despite the different nature of the criteria for payment.

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12
Q

For permanent disability benefits, there are three main definition types: (3)

A
  1. Occupation based
  2. Related to activities of daily living (ADLs) and activities of daily working (ADWs) as claim criteria
  3. Referring to functional impairment and physical impairment.
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13
Q

Definitions of activities of daily living (ADLs), as per SCIDEP, include: (6)

A
  1. Feeding
  2. Dressing
  3. Washing
  4. Toileting
  5. Mobility
  6. Transfer
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14
Q

Income protection (IP):

A

The aim of an income protection product is to replace part of the income that an insured would have earned if he/she becomes unable to work due to accident or illness.

The product there pays a benefit in the form of a regular income, usually on a monthly basis, during the period of incapacity.

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15
Q

Risks to the company of IP products: (4)

A
  1. Morbidity risk - there is a risk of greater than expected claims.
  2. The administration, underwriting, and claims management are typically more complex than for other life insurance products.
  3. Claims assessment is difficult due to non objective criteria for claims.
  4. There is also a risk of moral hazard.
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16
Q

South African Risk products:

A
  1. Critical Illness benefits
  2. Permanent disability benefits
  3. Income protection products
  4. Key person insurance
  5. Credit life products
  6. Funeral assurance
17
Q

Key person insurance:

A

Key person insurance policies are “employer-owned” policies, which are typically purchased by an employer to protect itself in the event of death, disability or severe illness of a key individual.

18
Q

Funeral assurance:

A

Funeral insurance provides an amount of money in the event of the death of the policyholder or member of his/her family.

The policy would normally provide cover for the policyholder, his/her spouse and one or two children.

19
Q

South African investment products: (2)

A
  1. Retirement annuities

2. Deferred compensation contracts

20
Q

South African investment products, which are sold under a life license, can generally be split into two types of products: (2)

A
  1. Endowments

2. Retirement annuities (RAs)

21
Q

Types of underlying portfolios for investment products: (3)

A
  1. Marke-linked portfolio, with or without investment guarantees
  2. Smooth bonus portfolio
  3. Guaranteed product
22
Q

Types of underlying portfolios for investment products: (3)

A
  1. Market-linked portfolio, with or without investment guarantees
  2. Smooth bonus portfolio
  3. Guaranteed product
23
Q

Deferred compensation contracts:

A

Deferred compensation contracts are employer-owned policies that are typically purchased by an employer to reward key individuals whose services the employer wishes to retain.

24
Q

Investment products are flexible with respect to the following features:

A
  1. Term of the policy
  2. Premium frequency
  3. Premium paying pattern for recurring premium products.
  4. Paid-up policies
  5. Premium size
  6. Premium waiver
25
Q

Universal life products:

A

Universal life products combine risk cover with an investment component.

26
Q

Annuity products in South Africa can be split into two broad categories: (2)

A
  1. Traditional with-profits or nonprofit annuities

2. Living annuities

27
Q

Traditional annuities can also be split into four groups that indicate when the payments stop: (4)

A
  1. Single life annuity
  2. Joint life annuity
  3. Temporary annuity
  4. Term certain annuity
28
Q
  1. GROUP PRODUCTS
A
29
Q

Group business refers to insurance where ____:

A

Group business refers to insurance where a policy is issued to a policyholder other then an individual to cover a group of persons identified by reference to their relationship to the entity buying the contract.

30
Q

For group products, a “group” is defined as: (5)

A
  1. a group of company employees
  2. trade unions
  3. professional bodies
  4. borrower from credit institutions
  5. clients or account holders of retail stores
31
Q

There are different ways in which employee benefits can be structured (group scheme structures): (3)

A
  1. An employer can directly take out a group insurance policy for the employees.
  2. An employer can establish a pension or provident fund (retirement funds) to facilitate and organise the investment and payout of employees’ retirement funds. Retirement funds can also offer members certain risk benefits.
  3. Umbrella funds are pension or provident funds that pool the retirement investments of multiple, unrelated employers into a single legal structure.
32
Q

2.1 GROUP RISK PRODUCTS

A
33
Q

Group risk benefits are similar in nature to individual risk benefits. The following benefits are commonly available: (8)

A
  1. Death benefits
  2. Spouse’s death benefit
  3. Spouse’s and children’s annuities
  4. Income protection benefits
  5. Lump sum disability benefits
  6. Lump sum critical illness benefits
  7. Funeral benefits
  8. Credit life products
34
Q

Retirement products - Life insurance companies can be involved in the following ways: (3)

A
  1. Life insurance companies can administer pension and provident funds.
  2. Life insurance companies can offer investment portfolios for pension and provident funds.
  3. Life insurance companies can offer insurance products to pension or provident funds
35
Q

Pension and provident fund have the following features: (8)

A

F202 Life Insurance Fellowship (16 decks)

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