Certificate Examination In Investment-Linked Life Insurance (CEILLI) Tutorial

Transcription

1 Certificate Examination In Investment-Linked Life Insurance (CEILLI) Tutorial

2 Certificate Examination In Investment-Linked Life Insurance (CEILLI) TUTORIAL 2

3 TMTDA Ground Rules Be Punctual Switch Off/Silent Handphone No Smoking No Side Talking Proper Attire Maintain Cleanliness 3

4 Course Objectives This course will help participants to : 1.Learn and understand basic knowledge about investment-linked life insurance 2.Prepare to sit for the CEILLI examination 4

5 CEILLI Chapters Overview 1. Introduction to Investment-Linked Life Insurance 2. Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 3. Mechanisms and Features of Single Premium Investment-Linked Life Insurance 4. Considerations for purchasing an Investment-Linked Policy 5. Investment Considerations 6. Types of Investment Vehicles and Potential Risks 7. Common Types of Investment-Linked Funds 8. Pertinent Guidelines on Investment-Linked Business 9. Agents Professional Approach and Guidelines 5

6 Chapter 1 INTRODUCTION TO INVESTMENT-LINKED LIFE INSURANCE

7 Introduction to Investment-Linked Life Insurance The Life Insurance Association of Malaysia s (LIAM) report Total number of Investment- Linked insurance grew between 2012 and Distribution of annual premium that has gone into Investment-linked Insurance policies has increased. 284,679,163,295 Sum assured (2013) 248,305,252,495 Sum assured (2012) 48.4% (2012) 55.2% (2013) Part of this growth is due to the fact that, Insurance companies in Malaysia have stepped up their efforts in designing and offering very good plans that continue to meet customers needs. 7

8 Introduction to Investment-Linked Life Insurance Investment-Linked policy owners can choose :- 1. Amount of coverage needed With selected annual premium 2. Choose min. sum assured Based on age Opt for higher coverage amount 3. Accrue returns Long-term savings 8

9 Introduction to Investment-Linked Life Insurance Investment Policyholder Pay premium to purchase fund Protection Death TPD Fund managed by Insurer Value of Policy Directly linked linked Special Unitised Fund Investment Performance Depends On (Everyday fluctuations of market forces) 9

10 Introduction to Investment-Linked Life Insurance Investment-linked insurance offers investors policies where: Premiums are used to purchase funds Value of policy linked to units in a special unitised fund Value of units directly reflect the value of the underlying fund Wide range of investment modes covering equity, fixed interest and money market. 10

11 After 2 years Introduction to Investment-Linked Life Insurance RM3/unit 5,000 units x RM3/unit = RM 15,000 RM 5,000 for 5,000 units (RM1/unit) RM0/unit Lose all premiums paid and coverage provided Therefore, policyholders who choose to take Investment-Linked policies must realize that they are also responsible to monitor the performance of their policy to ensure a reasonable return, other than the fund manager. 11

12 Introduction to Investment-Linked Life Insurance Malaysia/ Singapore / UK UK U.S.A. U.S.A. Investment- Linked Unit-Linked Variable Life Refers to the same thing 12

13 Sample Questions 1. What are the factors that have contributed to the steady growth of the life insurance industry in Malaysia since 2000? I. The Malaysian Government granting more flexibility to life insurance companies to run business operations based on their own management philosophies and at their own prudent discretion. II. III. IV. Malaysia s dynamic economic growth experience. Life insurers designing and offering customer-centric plans. The introduction of investment-linked insurance and the steady growth of this product. A. I and II B. II and III C. III and IV D. II 13

14 Sample Questions 2. Which of the following is the correct description of an investment-linked life policy? A.A participating policy offering lifetime coverage B.A capital guaranteed policy C.An endowment policy which provides minimum returns D.A policy offering protection while also investing in funds which form the basis for returns to the policy owner 14

15 Sample Questions 3. An investment-linked life insurance policy is also known as the following in some parts of the world: I. Mutual fund-linked policy II. Unit-linked policy III. Variable life policy IV. Universal life policy A. I, II, III and IV B. I, II and III C. II, III and IV D. II and III 15

16 Sample Questions 4. Investment-linked funds are managed by I. The insurer s own professional managers in its internal investment department II. III. IV. Fund managers/fund houses appointed by the insurer through outsourcing Outsourcing to the funds of unit trust companies since investment-linked funds are similar to unit trust funds The insurer s board of directors who can make special decisions on the types of investment vehicles to offer to policy owners A. I, II, III and IV B. I C. I and II D. I and IV 16

17 Sample Questions 5. Since investment-linked insurance has an investment element, a prospective policy owner is allowed to opt for I. a nominal amount of sum assured of his selection. II. III. IV. A. I no life protection at all. at least the minimum amount of sum assured according to age, basic premium paid and a formula set by the relevant regulator. the sum assured offered by the insurer concerned based on its internal underwriting guidelines in relation to the financial status and circumstances of the intended policy owner. B. I and II C. III D. IV 17

18 6. Which of the following statements are correct? I. Policy owners of investment-linked plans should be made to understand that they wholly bear the gains or losses from the investment portion of their policies. II. III. IV. As responsible corporations, life insurers are obliged to be partly responsible for any drastic drop in prices of funds under their custody; thus, they have to bear part of the losses suffered by policy owners if such incidents occur. For investment-linked policies, an individual can invest in a diversified portfolio with a sum as low RM1,200 per year. This is possible as the overall collected premiums contributed by investment-linked policy owners form a sufficiently large pool for spreading over varied stocks or securities in the market. An average income earner may not possess ready sufficient liquidity to invest in a spread of assets if he wants to do it in the open market on his own. A. I, III and IV B. II and III C. I and II D. I, II, III and IV 18

19 Chapter 2 Mechanisms and Features of Regular Premium Investment- Linked Life Insurance

20 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance Introduction 1)To understand the mechanisms and features of regular premium (investment-linked) in order to explain the product effectively to clients. 2)To understand the primary focus for regular premium (investment-linked) is protection. 20

21 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 1. Minimum Regular Premium a) Minimum annual premium varies from RM1,200 to RM1,800 depends on the product and the marketing directions of an insurer. b) Regular premium investment-linked insurance (RP-IL) more inclined towards protection than investment. 21

22 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 2. Allocated and Unallocated Premium Insurance Premiums Allocated: For Investments Unallocated: For Insurer Add Investment Returns Less insurance charges, policy fee and fund management fee Less agent s commissions and management expenses 22

23 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance Allocated Premium It is an account for buying units in vehicles earmarked by the various funds offered by the insurer. Monthly COI, annual fund management fee, one-time policy fee, other charges (nominal administrative, service charge) will be deducted from this account. While the value of invested units called account value continues to accrue in the policy. Ratio will increase First year 40 50% Rate increase until 7 th year After 7 th year, ratio will be 100% 23

24 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 3. Regular and Ad Hoc Top-Up Premium Regular Top-Up Purpose of TU = To enhance accumulation of units. Each TU to be deducted by 5% (upfront charge). Others placed into policy owner s fund/s. Regular TU paid together with basic RP at each due date. 24

25 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 3. Regular and Ad Hoc Top-Up Premium Ad Hoc Top-Up Pay any time. No limit to the amount and frequency. Keep a policy in force when account value gets depleted 25

26 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 4. Sum Assured Multiple Rule (SAM) Imposed by Bank Negara Malaysia (BNM). Min. amount of coverage based on basic annual regular premium amount and age of new policy owner. SAM factor for age range: (1-16) is 60 (56 and above) is

27 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 4. Sum Assured Multiple Rule (SAM) Example: 56 year old man wants to insure himself = Rm 5000 a year. He will have to be covered for at least RM (5000 X 15). 16 years old minimum coverage is RM 300,000 (5000 X 60). **Regular premium excluded when calculating the min. sum assured. 27

28 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 4. Sum Assured Multiple Rule (SAM) Age SAM Factor 1 to to to to to and above 15 28

29 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 4. Sum Assured Multiple Rule (SAM) Premium-Paying Rider (PPR) excluded for the purpose of SAM calculation. Unit-Deducting Rider (UDR) caters for the deduction of COI from account value. Treatment depends on 2 types of UDR: a) Riders with Sum Assured (SA) payable on death b) Riders without SA payable on death 29

30 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance SAM formula for UDR: Total Sum Assured (Total Annual Premium Notional Premium of Riders) a) Example 1 (Riders with SA): Man at age 30 wants: 1)RM 300,000 (basic coverage) + RM 300,000 (critical illness cov.) = RM 600,000 2)RM 600,000/50 (SAM factor from 30 years old) = RM 12,000 (Annual premium) 30

31 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance b) Example 2 (Riders without SA) To deduct notional premium. Man at age 24: 1. set aside RM 3,600 a year for basic plan. -Notional premium for rider = RM The minimum SA for basic coverage will be RM 3,400 2.(Notional premium) X (multiple factor depending on age) (RM 3, ) X 55 = RM 187,000 31

32 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 5. Optional Riders Riders available either: Premium-Paying Rider (PPR) OR Unit-Deducting Rider (UDR) PPR requires extra regular premium to be paid for the rider with the basic premium. UDR need not extra regular premium but it entails the additional COI charge for the rider to be deducted from investment account value. **Agency commissions are payable from PPRs, not from UDRs. 32

33 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 6. Account Value Receive value of units if surrender policy. After deduction of tax and all applicable charges. Value of policy depends on 2 factors: 1. Value of each units 2. Number of units the policy has accumulated to date Number of units value of each unit with every premium invested & = Value of policy However, value of policy may depreciate if fund s investments fall in value. 33

34 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 7. Partial Withdrawal, Surrender and Charge Most insurer do not limit the frequency of withdrawal. But remaining account value must not go below a certain minimum (e.g. RM 1,000). Depletion of account value due to withdrawals may cause balance to be insufficient to meet higher COI at older age. Alternative option: a) Make ad hoc Top Ups b) Surrender of policy - Depending on number of years of a policy before cut-off point. 34

35 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 8. Fund Switching and Switching Fee Switch part of all their investment from one fund to another fund Switching between funds may o Be offered free or o Free for only a limited number of switches for a period of time 35

36 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 9. Premium Holiday Options: Using the account value to cover premiums when due premium is not paid. Deduct COI and other management charges Allowed to cover basic sum assured only - riders will lapse UNLESS account value is sufficient to cover both BSA and riders 36

37 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 10.Free-Look Period 15 days free look period from date of policy delivery. To cancel plan within this period, the insurer will refund :- Unallocated premiums value of units - allocated at the unit price at the next valuation date Insurance charges and policy fee that have been deducted 37

38 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 11. No Lapse Guarantee Period Investment-Linked (IL) policy WILL NOT LAPSE in the first few years. Condition? 1. Regular premium has been paid without fail 2. No premium holiday has been affected 3. No changes have been effected to the policy (including partial withdrawal and fund switching) 38

39 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 12. Death Benefit Mechanism Basic sum assured plus the accrued account value. Thus, DB amount cannot be lesser than the basic SA Dual Pricing and Single Pricing 39

40 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 13. Dual Pricing and Single Pricing Dual pricing = bid-offer spread (5% difference). Offer price per unit (unit purchase price) Bid price per unit (unit sale price) Single pricing = either acquisition or disposal of units in a fund is at the same price per unit. Charges for acquisition (upfront charge) or disposal (back end charge). 40

41 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 14. The Long Horizon Leverage cumulative effect from protection and investment perspectives. Protection amount (Death benefit) increases over the years (SA coupled with the cumulative account value) Investment in long run, the Dollar Cost Averaging creates positive impact on the cumulative effect of the account value. 41

42 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 15. Dollar Cost Averaging Concept: Prices Prices in value. Means leveraging price fluctuations., acquire more units at lower prices, units acquired at lower prices will appreciate 42

43 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 16. Spread-Out Risk among Varied Assets Overall impact is the averaging effect on the price of the fund with the spreading out of risk. 17. Retirement plan, Medical plan, and Education plan 43

44 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 1) Wife & 1 Son 4)Taxable income 2013 = Rm50k Mr. A 2) Active unit trust agent 3)No EPF, no life insurance 44

45 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 17.Retirement plan, Medical plan, and Education plan Taxable income 2013 = Rm50k = Rm 50k income, according to tax rate (as of 2013) tax payable would be Rm 2,850 45

46 Mechanisms and Features of Regular Premium Investment-Linked Life Insurance 17.Retirement plan, Medical plan, and Education plan BUT Buy investment-linked life plan for retirement income medical plan cover medical expenses & education plan for child s education. Pay RM 6,000 a year for regular premium (ILP), protected for RM 300,000. Accumulating units in an investment fund Paid RM 1,500 a year for qualified investment-linked med plan Paid RM 1,500 a year for investment-linked educational plan RM 6,000 + RM 1,500 + RM 1,500 = RM 9,000 tax relief. Chargeable income would be RM 41,000 instead of RM 50,

47 Sample Questions 1. Which options are open to policy owners of a regular premium investment-linked plan? I. A policy owner may opt for higher a sum assured than the minimum amount stipulated by the Sum Assured Multiple rule. II. III. IV. A policy owner can pay top-up premium to accelerate the accumulation of the account value in the policy. A prospective policy owner can apply to combine a single premium plan with a regular premium plan into one policy. A prospective policy owner can select the death benefit based on either the sum assured or the account value, whichever is higher. A. I and II B. I, II and III C. II and III D. I, III and IV 47

48 Sample Questions 2. Which of the following statements are correct? I. Top-up premiums can either be paid on a regular basis or at any time. II. III. IV. Most insurers impose a minimum amount for both regular topups and ad hoc top-ups. Most insurers allow ad hoc top-ups once a year and impose a maximum amount. An upfront charge, normally around 5 per cent, is deducted from each top-up. A. II, III and IV B. I, II and IV C. I and IV D. I,II,III and IV 48

49 Sample Questions 3. A female, aged 30 years, has budgeted to set aside RM3,000 a year for a basic regular premium investment-linked plan with a Unit-Deducting Hospitalization Rider. According to the SAM formula, the multiple factor for her age is 50 times. How would you calculate the minimum sum assured for the basic plan? A.RM3,000 minus the notional premium for the rider, multiply by 50. B.RM3,000 multiply by 50. C.RM3,000 multiply by 55 times. D.RM3,000 minus the notional premium, then multiply by 55 times. 49

50 Sample Questions 4. Which of the statements below are correct? I. All life insurers impose an early partial withdrawal charge and an early surrender charge. II. III. IV. High partial withdrawals may cause the future account value to be insufficient to cover the higher cost of insurance at older ages. Therefore, it is prudent for a policy owner to make ad hoc top-ups to replenish the units and the account value. Depending on the practices instituted by individual life insurers, all fund switches may be processed free of charge, or be free for the first switch or first few switches within a policy year and a fee is charged for subsequent switches. The investment risk profile of a young investor or policy owner may likely change from the aggressive category to the conservative category as he advances in age; hence, he may want to progressively shift more of his equity assets to fixed income or bond fund until he gets close to retirement age. A. I, II, III and IV C. I, III and IV B. II and III D. II, III and IV 50

51 Sample Questions 5. Identify the correct statements from those given below. I. The free-look period is 15 days commencing from the date of delivery of policy contract to the policy owner. II. III. IV. The no-lapse guarantee clause stipulates that as long as premiums are paid without fail by the grace period and there was no previous premium holiday or partial withdrawal, the regular premium investment-linked policy will never lapse over the entire policy tenure although the account value may be insufficient to cover the cost of insurance at any point in time. The no-lapse guarantee clause stipulates the regular premium investmentlinked policy will not lapse in the first few years (e.g. 2 years) even though the account value is not sufficient to cover the cost of insurance, provided: All premiums were paid during the period No premium holiday was exercised during the period There was no partial withdrawal or fund switching during the period As the basic death benefit of a regular premium investment-linked policy is basic sum assured plus account value, the life insurer will continue to deduct the cost of insurance for the basic coverage as long as the policy remains in force. A. I, III and IV C. II, III and IV B. II and III D. I, II, III and IV 51

52 Sample Questions 6. Select the correct statements from the following. I. The Dollar Cost Averaging phenomenon leverages the long term or the acquisition of more fund units when prices are down and the appreciation of units already acquired when prices go up. II. III. IV. Some assets in a fund may perform well in a given short period while some may not, but the overall impact is the averaging effect due to the spreading out of risk. With prudent management by fund managers, the unit price is likely to be higher in the longer run. The maximum tax relief for a qualified regular premium investmentlinked medical plan and an education plan is RM3,000 a year. If a policy owner has both, the combined limit is also RM3,000. Whether a policy owner has a qualified regular premium investmentlinked medical plan or an education plan, or both, he qualifies for a tax relief of up to RM6,000 a year. A. I, II and IV B. I, II and III C. I and III D. II and IV 52

53 Chapter 3 Mechanisms and Features of Single Premium Investment- Linked Life Insurance

54 Mechanisms and Features of Single Premium Investment-Linked Life Insurance Introduction Priority for policy owners of single premium investment-linked would be investment, protection second. 1. Minimum Basic Single Premium RM5,000 to RM20, One-Time Unallocated Premium Charge Unallocated portion spans over the first 6 years in reducing ratios. Normal charge is around 5%. Top-ups = same charge. If 5% is the upfront charge, the balance of 95%will acquire units in fund/s. 54

55 Mechanisms and Features of Single Premium Investment-Linked Life Insurance 3. Sum Assured Formula Basic sum assured = 125% of single premium (SP) paid. Allows insurers lower it to 105% of SP. 4. Death Benefit Formula All TUs excluded from BSA formula. 55

56 Mechanisms and Features of Single Premium Investment-Linked Life Insurance 5. Cost of Insurance Deduction and Sum at Risk Mechanism If account value exceeds BSA, DB will be the account value. Unless account value is still below BSA, COI will be deducted. COI deduction cover the shortfall between account value and SA. Shortfall difference = Sum at Risk (SAR) Account value increases, COI reduces. If account value exceed basic SA, COI cease. If account value drops again below BSA, COI deduction resume. 56

57 Mechanisms and Features of Single Premium Investment-Linked Life Insurance 57

58 Sample Questions 1. Single premium investment-linked insurance is said to be more inclined towards investment than protection because A. generally, about 95% of the single premium is allocated for investment in fund units. B. the policy owner has the discretion to opt out of any protection coverage so that no cost of insurance will be deducted from the account value. C. the usual sum assured is 25 per cent above the single premium outlay and may be lowered to 5 per cent above the premium for older age groups, i.e. RM125,000 for SP of RM100,000, RM105,000 for senior ages with the same premium. D. once the account value exceeds the basic sum assured, the death benefit will be the account value, not inclusive of the sum assured. 58

59 Sample Questions 2. Mrs. A, aged 45, signs up for a single premium investmentlinked plan by paying an initial RM100,000. Six months later, she pays another RM100,000 as top-up. The total sum assured in her policy after payment of the top-up is A. RM250,000. B. RM125,000. C. RM205,000. D. RM210,000 59

60 Sample Questions 3. Which of the statements below are correct regarding single premium investment-linked insurance? I. Most insurers set their minimum basic single premium as ranging from RM5,000 to RM20,000, depending on product design. II. All insurers set the minimum basic single premium at RM5,000. III. IV. Top-up premiums, if any, also bear the same normal upfront or unallocated premium charge ratio of around 5% as the basic single premium. Cost of insurance will be deducted regardless of whether the account value is above or below the basic sum assured at any point in time. A. I, III and IV B. I and III C. II and IV D. II, III and IV 60

61 Sample Questions 4. Which statement/s relate(s) to the application of cost of insurance (COI) in single premium investment-linked insurance? I. COI is based on the sum assured or account value, whichever is higher. II. III. IV. When the account value of a single premium investmentlinked policy is still below the sum assured, the shortfall gap between the two levels is called sum at risk. Deduction of COI is based on the shortfall amount from the account value level to the sum assured level. COI is based on the difference between the sum assured and account value at any point in time. A. I B. III C. II and III D. IV 61

62 Sample Questions 5. Top-ups for single premium investment-linked plans are encouraged when I. the market is on the upturn and unit prices are rising. II. III. IV. a market downturn sets in not long after policy inception, thus causing the sum at risk to prolong longer than expected, based on the initial premium outlay. the nation is experiencing a period of strong economic or GDP growth. the policy owner believes in the impact of Dollar Cost Averaging and wants to leverage that to boost the account value instead of relying on just one single outlay. A. I, II, III and IV B. I and III C. II and IV D. I, II and III 62

63 Sample Questions 6. The few mechanisms and features of single premium investment-linked plans which differ from regular premium investment-linked plans are: I. The sum assured formula for single premium plans is different than that for regular premium plans. II. III. IV. The death benefit formula for single premium plans is not guided by the same minimum Sum Assured Multiple rule applicable to regular premium plans. The allocated premium ratio for single premium plans is different from that for regular premium plans. While the policy is kept in force, the cost of insurance deductions for single premium plans may not be continuous because the formula is based on sum at risk, unlike regular premium plans which are based on sum assured. A. I and IV B. I, II, III and IV C. II, III and IV D. I, III and IV 63

64 Chapter 4 CONSIDERATIONS FOR PURCHASING AN INVESTMENT-LINKED POLICY

65 Considerations for Purchasing an Investment-Linked Policy Benefits Flexibility Expertise Transparency Benefits Access Pooling/ Diversification Administration 65

66 Considerations for Purchasing an Investment-Linked Policy Benefits 1) Pooling or Diversification Offer an access to a pooled or diversified portfolio of investments. The fund normally consist of wide range of equity stocks and fixed income securities. A well-diversified investment-linked fund has better risk characteristics than a less-diversified one. 66

67 Considerations for Purchasing an Investment-Linked Policy Benefits 2) Flexibility Change level of premium payment Switch between funds Premium holiday Flexibility Single premium top-ups Withdrawals Change level of sum assured 67

68 Considerations for Purchasing an Investment-Linked Policy Benefits 3) Expertise Professional fund managers 4) Access Gain access to well diversified investment-linked funds 5) Administration Day-to-day administration of investment. Keep track of investment through the unit statement provided regularly and the unit price published in financial pages of major newspaper. 68

69 Considerations for Purchasing an Investment-Linked Policy Benefits 6) Transparency Transparency relating to official sales materials presented at the point of sale. Transparency details example: Proposal summary Name of basic plan, names of riders, coverage amounts, overall premium. Descriptions of benefits and excluded risk Statement of Cost Of Insurance (COI) Statement of Premium Holiday (PH) Statement of Investment returns For plans and riders Cost Of Insurance (COI) will be levied monthly and deducted from fund/s up to maximum tenure. PH will be applied when due premium is not received Based on assumed rates of return 69

70 Considerations for Purchasing an Investment-Linked Policy Special Advisory Highlights Policy owner can maximize the investment element by opting to pay the minimum basic annual premium and the balance as regular top-up. Can increase sum assured without a corresponding increase in annual premium. Policy may lapse if insufficient account value for deduction of charges due to higher COI. Can add top-ups or reduce basic sum assured (within min. Sum Assured Multiple rule) in the later years to maintain policy. Charges may change by insurer, giving 3 months notice. COI increases with attained age. All investment risks are borne by the policy owner. 70

71 Considerations for Purchasing an Investment-Linked Policy Elements contained in the table of illustrated values and benefits are: Breakdown of annual premium and coverages Selected fund/s and proportion ratio, if more than 1 fund (in %) Amount of allocated and unallocated premium according to policy years. Support by a table of allocated premium ratio for first 6 years Basic sum assured COI amount for basic sum assured and riders Amount of other charges policy years Amount of annual fund management fee Projected cumulative account value high and low scenario Projected cumulative death benefit amount Commission amount 71

72 Considerations for Purchasing an Investment-Linked Policy Assumed rates of return of funds Actual historical returns Short descriptions With high and low scenarios for first and after 20 years according to Bank Negara Guidelines Funds in the past 5 years Underlying assets of each available fund Policy Disclosure Sheet (PDS) Policy owner to read PDS and general terms and conditions Requirement for intended policy owner to sign Acknowledgement upon reception and understood the contents of sales quotation and PDS. 72

73 Considerations for Purchasing an Investment-Linked Policy Risks 1) Investment Fluctuations The sum assured guaranteed but the value of units is not guaranteed. Risks of short-term fluctuations in cash value 2) Charges The administration fee, insurance charge, fund management fee are usually not guaranteed. Subject to regular review and can be changed by giving a written notice over a specific period e.g. 3 months 73

74 Considerations for Purchasing an Investment-Linked Policy No Regular Premium Investment-Linked Plan 1 Whole life coverage up to age 100 Whole Life Participating Plan Whole life coverage up to age Account value is not guaranteed Cash value is guaranteed 3 Surrender value based on an accrual in account value payable 4 Death benefit payable from sum assured plus account value. Maturity benefit is payable from account value. 5 Policyholder can choose from funds Surrender value based on cash value plus vested bonus or dividend Death or maturity benefit payable from sum assured plus vested bonus or dividend Investment instruments by insurer 74

75 Considerations for Purchasing an Investment-Linked Policy No Regular Premium Investment-Linked Plan 6 Policyholder can choose a higher sum assured with same premium 7 Can add riders via COI deduction from account value. Whole Life Participating Plan Premium amount is based on sum assured Has to pay extra premium for riders 8 Top-up premium allowed Top-up premium not allowed 9 Partial withdrawal from account value No partial withdrawal allowed from cash value except surrender value of bonus or dividend 10 No policy loan feature Policy loan available with interest 75

76 Considerations for Purchasing an Investment-Linked Policy No Regular Premium Investment-Linked Plan Whole Life Participating Plan 11 Can choose to request PH Automatic premium loan feature with interest chargeable 12 Tax relief Tax relief 13 Min. age 18 apply own life Min. age of require parental consent. 76

77 Sample Questions 1. The benefits of an Investment-Linked policy are: I. It provides access to a diversified investment portfolio. Thus, it has better risk characteristics than a non-diversified portfolio. II. It offers flexibilities III. Fixed nominal charges are levied on the policy. IV. The life insurer insulates the policy owner against market risks. A. I and II. B. II and IV. C. I and III. D. I, II, III and IV. 77

78 Sample Questions 2. When an investment-linked policy reaches maturity, the maturity value will be A. The basic sum assured and the account value. B. The account value. C. The account value plus terminal/maturity bonus. D. The basic sum assured and the account value plus terminal/maturity bonus. 78

79 Sample Questions 3. What are two similarities between a regular premium investmentlinked plan and a whole life participating plan? I. Both plans provide lifetime coverage up to maximum age 100. II. Both plans allow the addition of rides without additional premium. III. Both are entitled to the same income tax relief treatment for premiums paid. IV. The minimum age for an individual to apply on own life, and not as juvenile application arrangement, is age 16 for both products. A. I and II. B. II and III. C. I and III. D. I, II, III and IV. 79

80 Sample Questions 4. Which of the following statements are correct? I. The minimum age for applying a regular investment-linked policy on own life is age 18 last birthday. II. III. IV. A minor aged 16 last birthday who is applying for an investment-linked policy on own life needs parental consent. A minor aged 16 last birthday can apply for a whole life participating policy without parental consent. Minors aged 10 to 15 last birthday can apply for a whole life participating policy with parental consent. A. I, II, III and IV. B. I, II, and III. C. I and III. D. I, III and IV. 80

81 Sample Questions 5. As the sales illustration document printed by any life insurer is meant for reference and view by a prospect, a sales intermediary is expected to observe certain rules. These are: The sales intermediary must I. get the new policy owner to sign the illustration as acknowledgement of having understood the contents. II. get the new policy owner to sign the policy disclosure sheet and also to sign it himself to declare that proper presentation has been carried out and the non-guaranteed elements have been explained. III. highlight that all investment risks are borne by the policy owner, that all fees and charges may be changed by the insurer giving 3 months notice, and that the cost of insurance increases with attained age. IV. explain that the projected returns may be deemed likely returns of the selected funds based on the past 5 years historical performance. A. I, II, III and IV. B. I, II, and III. C. I, III and IV. D. I and III. 81

82 Sample Questions 6. Which of the following statements regarding a life insurer s sales illustration/quotation document are correct? I. The projection of future returns is based on the past 5 years performance experience of a specific fund or funds proposed to the prospect. II. III. IV. Projected returns are based on assumed rates for the high and low scenarios of the specific fund/s. Normally, the actual historical returns of the various offered funds in the past 5 years are also shown for the purpose of transparency. Projection of values is based on assumed rates of return up to 20 years. A. I and III. B. II, III, and IV. C. I, III and IV. D. II and III. 82

83 Chapter 5 INVESTMENT CONSIDERATIONS

84 Investment Considerations Introduction 1. There is an increasing need for sound and proper advice on how, what, when, where and why investments must be done. 2. Client should know the basic considerations in order to make a sound judgment on investments. 84

85 Investment Considerations 1. Investment Objectives 2. Availability of Funds 3. Risk or Security 4. Investment Horizon 5. Accessibility of Funds 6. Taxation Treatment 7. Investment Performance 8. Diversification 85

86 Investment Considerations 1. Investment Objectives Fundamental Investment Objectives Safety Growth Income - Returns conservative - Try its best to create a hedge against inflation To hold the stocks for a long time to derive profits from the growth of the investments. To see a steady stream of income 86

87 Investment Considerations 1. Investment Objectives Other Investment Objectives Comfortable standard of living Funds for dependents Funds for death Income in retirement Improvement in financial position Funds for children education Hedging inflation Liability cancellation Achieving Financial Freedom 87

88 Investment Considerations 2. Availability of Funds Clients have to do analysis to make sure that they: 1. Have enough money to put aside for investment. 2.Will be able to follow through with the investments. 88

89 Investment Considerations Warrant Buffet advises you need to first set aside money for investment before thinking about spending it. 89

90 Investment Considerations 2. Availability of Funds There are two types of fund analysis : a. Simple Monthly Cash Flow Analysis b. Simple Net Worth Analysis 90

91 Investment Considerations 2. Availability of Funds a) Simple Monthly Cash Flow Analysis No Income RM Expenditure RM 1. Salary 3, Housing Loan Payments 1, Rental Groceries and Utilities Commissions 1, Childcare/Parents allowance Others 1, Education Expenses Loans 2, (Car, Credit Cards, etc.) 6. Insurance Premiums Savings Misc. 1, TOTAL 7, , Income Expenditure = RM 3,500- RM2,500 = RM 1,000 *Client can utilize the RM1,000 to fund an investment plan. 91

92 Investment Considerations 2. Availability of Funds b) Simple Net-Worth Analysis No Assets RM Liabilities RM 1. House 220, Housing Loan Balance 200, Car 30, Car Loan Balance 35, EPF 20, Credit Card Balance 5, Savings Account 1, Personal Loan Balance 10, Insurance Cash Value 20, Others 15, TOTAL 291, , Assets Liabilities = RM 240,000 - RM200,000 = RM 40,000 *Client can utilize the RM40,000 to fund an investment plan. 92

93 Investment Considerations 3. Risk or Security Risk/ Return Trade-off Returns are directly proportional to the risk in investment. Risk Return 93

94 Investment Considerations 3. Risk or Security The difference between high risk and low risk: Risk High risk/ aggressive Low risk/ conservative Description A mutual fund or stock can potentially achieve higher returns because of greater volatility. A mutual fund or stock will trade close to its historical average prices and will tend to be quite stable. 94

95 Investment Considerations 3. Risk or Security Know your Investment risk profile (e.g. age, family situation, experience ) to determine how best to allocate your savings amongst various risk asset. Risk Averting (Conservative) Risk Indifferent (Neutral) Risk Taking/Seeking (Aggressive) INDIVIDUALS REACT TO RISK DIFFERENTLY LOW OR NO RISK HIGH RISK MODERATE RISK 95

96 Investment Considerations 3. Risk or Security What is the concept of risk in investment? 1.Is the Volatility or how widely the price of a stock or mutual fund fluctuates. 2. Fluctuations Risk, because you stand to make and also lose more money, compared to a fund that doesn t fluctuate as wildly. 96

97 Investment Considerations 4. Investment Horizon 1. The length of time a sum of money is expected to be invested (when and how much money will be needed), or can be defined as the total length of time that an investor expects to hold a security or a portfolio. 2. Generally, the shorter the investor's horizon, the lower the risk he/she should be willing to accept. 97

98 Investment Considerations 5. Accessibility of Fund A client will need the money to settle a specific event. With this in mind, we can divide the accessibility of funds into 3 components : 1. The time when the client needs the fund. 2. Cost/ penalty that the client has to pay if client exits early. 2. Initial/set up cost in setting up or buying into the investment. 98

99 Investment Considerations 6. Taxation Treatment Knowing the implication of tax treatment for the particular investment portfolio is important before the investment decisions are made. It would have the impact on the actual return. No special tax laws on investment-linked insurance. The tax status is the same as traditional with profit life insurance products. 99

100 Investment Considerations 7. Performance of the Investment The performance depends on the following factors: : Country s and global economic factors. The competencies and capabilities of the management team. The invested company s level of costs. Past experience. History of the company. Life cycle of the investment. 100

101 Investment Considerations 8. Diversification Diversification is the process of investing across different asset classes and across different market segments. Minimize Risks & Maximize Returns Do not put all your eggs in one basket Important: Diversification DO NOT completely eliminates the risk of investing in stocks in a portfolio.. 101

102 Sample Questions 1. An example of investment in Money Markets is A. 5-Year Bond. B. Currencies and Forex. C. Treasury Bills. D. Savings account. 102

103 Sample Questions 2. People generally want to invest I. to lead a comfortable lifestyle. II. to be comfortable during retirement. III. to amass great wealth. IV. to provide adequate funding for their children s education and their upbringing. A. II, III and IV. B. I, II, and III. C. I, II and IV D. II, III and IV. 103

104 Sample Questions 3. Which statement below explains what a simple (current) net worth analysis involves? A. The forecast of a person s future net wealth and financial status (e.g. middle income, upper middle income, etc.) B. A calculation of the sum of assets in current monetary terms that a person presently owns, not including any future inheritance C. The total sum of all assets owned by a person in present value minus the existing total sum of all liabilities he is obliged to settle. The balance, if any, is his present net worth to his family in the event of his early demise. D. A personal plan outlining the targets for values of current and future assets to be achieved at a certain time in the future. 104

105 Sample Questions 4. The main purpose of an agent conducting a risk profile on his potential client is A. to assess whether the potential client is willing to use a major portion of his savings or liquid assets to purchase a large investment-linked plan. B. to help the potential client understand his own risk profile, i.e. whether he has conservative, aggressive or balanced risk characteristics, and also to consider the type of asset categories suitable for his profile. C. to assess whether the potential client will be attracted to the product/s being offered. D. to assess whether the potential client is willing to forego some of his existing liquid assets in order to buy an investment-linked product. 105

106 Sample Questions 5. Which of the statements below are true? I. A person s investment horizon is the length of time that he is prepared to hold a particular asset before he liquidates it. II. III. IV. The investment horizon of an individual, among other factors, also depends when he needs liquidity in the future date for specific objective/s. The cost or penalty that an investor has to pay in the event he needs to liquidate the asset earlier than expected also has a bearing on his choice of investment horizon. It is pertinent for an agent to strike a clear understanding with a potential client as to how much the latter is willing to set aside or commit for acquiring an asset A. I, II, III and IV. B. I, II, and III. C. II, III and IV D. I, II and IV. 106

107 Sample Questions 6. Which of the following statements is correct? A. Diversification means spreading out investment in different asset categories or fund types. B. Diversification not only means spreading out investment in different asset categories or fund types, but also acquiring various assets of the same category or fund type. C. Investment-linked funds in Malaysia confine the investment diversification to assets in the country as a way of discouraging the outflow of funds. D. When the stock market shows signs of going up, an investor should give key focus to leverage the market trend and switch all fixed income or bond assets to equities. 107

108 Chapter 6 TYPES OF INVESTMENT VEHICLES AND POTENTIAL RISKS

109 Types of Investment Vehicles and Potential Risks Common instruments available include: 1 Cash and Deposits 2 Fixed Income Securities 3 Shares 4 Unit Trusts 5 Properties 6 Real Estate Investment Trusts 7 Sukuk 8 Bonds 9 Capital Guaranteed Funds 10 Commodities 109

110 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit 1. Refers to all liquid instruments that carry little or no risk. 2. Cash has no value in itself. It is of value only as a medium of exchange. 3. The definition of cash in this course will include short-term debt instruments : Treasury Bills Bank accounts 110

111 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit a) Treasury Bills Tax alone is insufficient to finance amenities such as roads and schools, government come up with borrowing on a short-term basis. Treasury Bills are short-term government funding vehicles issued on a regular basis with repayment within a year. They are :» Issued by Bank Negara Malaysia» Safest type of investments 111

112 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit a) Treasury Bills Issued at discount rate Central Bank Institution Discharged at face value Short Term investment. Usually < 1 year The government guarantees the investment. I.e: No risk (Exception: Political instability) 112

113 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit b) Bank Accounts These are fixed deposits placed with banks for fixed periods with fixed interest rates for that period. For example: Current Accounts, Fixed Deposits, Time Deposits and Offshore Accounts. 113

114 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit b) Bank Accounts The factors that may influence the choice of deposits: 1. Funds available for investment. 2. The duration the funds can remain in the account. 3. Will there be emergency withdrawals. 4. Prevailing market conditions. 114

115 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit b) Bank Accounts Deposit insurance: Established by the Government to protects depositors against the loss of their insured deposits Launched in September 2005 Managed by PIDM 115

116 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit b) Bank Accounts (I) PERBADANAN INSURANS DEPOSIT MALAYSIA (PIDM): A government agency established under the Akta Perbadanan Insurans Deposit Malaysia OBJECTIVES: 1. Administer a deposit insurance system. 2. Provide insurance against the loss of part or all of deposits of a financial institution. 3. Provide incentives for sound risk management in the financial system. 4. Promote and contribute to the stability of the Malaysian financial system. 116

117 Types of Investment Vehicles and Potential Risks 1) Cash and Deposit b) Bank Accounts PERBADANAN INSURANS DEPOSIT MALAYSIA (PIDM): The benefits of deposit insurance are: 1.The protection is automatic. 2.PIDM protects depositors holding deposits with banks. 3.There is no charge to depositors for this insurance 4.Should a bank fail, PIDM will promptly reimburse depositors their deposits. 117

118 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities It is a security or certificate showing that the investor has lent money to the issuer, in return for fixed interest income and repayment of principal at maturity. Investor lend money to issuer (government or company) Return in fixed interest Capital repayment at maturity Regarded as IOUs Traded in secondary market 118

119 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities 1. Active secondary market Can be bought and sold at anytime Opportunity to realize capital gains 2. Inactive secondary market The investors money is locked up for the full life span of the security. 119

120 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities There are three types of Fixed Income Securities: a) Government Bonds b) Corporate Bonds c) Preference Shares 120

121 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities a) Government Bonds It is a financial instruments used by the government to borrow money from the public. The investor gets the interest + capital on maturity. Advantages vs. Disadvantages No. Advantages Disadvantages 1 Very safe. In times of high inflation, capital can be eroded. 2 Guaranteed marketability and income for the future. 121

122 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities b) Corporate Bonds It is a financial instruments used by the companies to borrow money from the public to fund the growth of their companies operations. There are three categories of Corporate Bonds: Debenture stocks Loan Stocks Convertible Stocks 122

123 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities b) Corporate Bonds Debenture Stocks Secured Loan Trustees are appointed to supervise the way the company performs In the event of a default, the trustees act for the investors. Interest rates for corporate bonds tend to be higher than government bonds and the security is lower than government bond. 123

124 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities b) Corporate Bonds Loan Stocks Unsecured Loan The investor may or may not get back his capital depending on the company s performance. Compared to debentures, loan stocks are much less secure and therefore carry a higher interest rate. 124

125 Types of Investment Vehicles and Potential Risks 2) Fixed Income Securities b) Corporate Bonds Convertible Stock Convertible to ordinary shares of a company on a fixed date Become part of an owner & entitled to profits through dividends declaration 125

126 Types of Investment Vehicles and Potential Risksc 2) Fixed Income Securities b) Corporate Bonds Advantages and Disadvantages of Corporate Bonds Advantages 1 Higher return than government bonds 2 More marketable and can be sold for capital gains Disadvantages More riskier than government bonds 126

127 Types of Investment Vehicles and Potential Risks 3) Shares 1. A shareholder owns part of the company and possesses voting right. 2. Shareholders are not liable for the debts of the company. 3. The cost of buying and selling shares includes: Stockbroker s commission The difference between buying price and selling price. 127

128 Types of Investment Vehicles and Potential Risks 3) Shares There are two kinds of shares : a)ordinary b)preference a)ordinary shares The holder is a part owner of the company and is entitled to share in its profits in the form of : a) Dividends (paid net of basic tax rate) b) Capital gain from the shares by an increase in the share price (not liable to tax) 128

129 Types of Investment Vehicles and Potential Risks 3) Shares b) Preference shares 1. Holder has a right to a fixed dividend provided that there are enough profit made. 2. This right takes precedence over the right of ordinary shareholders to dividends. 3. They are slightly more secure than ordinary shares but less profitable. 129

130 Types of Investment Vehicles and Potential Risks 3) Shares Share price influenced by: Currency performance Market s view on company Country s economy Interest rate levels Inflation rate Company s earning 130

131 Types of Investment Vehicles and Potential Risks 3) Shares Advantages and Disadvantages of Shares Advantages 1 Investors participate directly in the future of the company 2 Good dividends and capital appreciation 3 Very liquid (can be traded in the open market) Disadvantages High risk 131

132 Types of Investment Vehicles and Potential Risks 4) Unit Trusts 1. A pool of funds contributed by many investors kept in trust by a trustee (usually a bank) and managed by a professional fund manager. 2. Regulatory body will be Security Commission. 132

133 Types of Investment Vehicles and Potential Risks 4) Unit Trusts Investors Trustee Open-ended fund (usually bank) kept the fund; govern by trust deed. Fund Manager to manage. Regulatory Body: Securities Commission 133

134 Types of Investment Vehicles and Potential Risks 4) Unit Trusts Trust Deed: A unit trust is established by a trust deed. This deed enables a trustee to hold the pool of money and assets in trust on behalf of the investors. A trust deed is set up of: Power for fund managers to invest Price structures Registration of unit-holders Remuneration of fund managers Accounting & auditing rules 134

135 Types of Investment Vehicles and Potential Risks 4) Unit Trusts 3. Unit trusts have no fixed redemption date. 4. The investment in unit trusts could generate income in the form of a) Dividends b) Interest c) Capital gains. 135

136 Types of Investment Vehicles and Potential Risks 4) Unit Trusts Advantages and Disadvantages of Unit Trusts : Advantages 1 Lower risks, compared to shares 2 Professional investment services are provided 3 Investor can utilize a portion of his EPF from account A to purchase EPF approved unit trusts Disadvantages Bewildering array of funds Extra costs or charges 136

137 Types of Investment Vehicles and Potential Risks 137

138 138

139 Types of Investment Vehicles and Potential Risks 5) Properties 3 types of real estate investment: a. Agricultural property b. Residential property c. Commercial/ industrial property The price of an agricultural property depends on: a. Quality of land b. The location of the land c. The types of crops grown d. The value of the buildings on the land / Existing facilities on agricultural property 139

140 Types of Investment Vehicles and Potential Risks 5) Properties Advantages Good capital appreciation Steady flow of income Low risk By mortgaging, capital can be free Disadvantages Difficult to be disposed off during recession 140

141 Types of Investment Vehicles and Potential Risks 6) Real Estate Investment Trust (REITs) 1. A new asset class investment which has similar concept like unit trust, e.g. STAREIT 2. REITs based companies will invest, manage and distribute rental as dividend back to the investors. 3. REIT returns averagely in develop market is around 3-5%. 4. Similar concept like unit trust 141

142 Types of Investment Vehicles and Potential Risks 6) Real Estate Investment Trust (REITs) 5. Invest, manage and distribute rental as dividend back to investor 6. Trade in Bursa Kuala Lumpur with ease of buying and selling back like a normal equity 7. Invest into high profile and high value properties for better return 8. Long term retirement plan. 142

143 Types of Investment Vehicles and Potential Risks 6) Real Estate Investment Trust (REITs) Advantages Good capital appreciation and steady flow of income Low risk Mortgaging the property, capital can be freed Disadvantages Economic recession, property could be difficult to be disposed off

144 Types of Investment Vehicles and Potential Risks 7) Sukuk Bond 1. Sukuk is the Arabic name for financial certificates. 2. Islamic equivalent of bonds 3. Sukuk securities are comply with Islamic law 4. Commercial paper which gives the investor a share of ownership in the underlying asset. 5. Its investment principles which prohibits the charging, or playing of interest 144

145 Types of Investment Vehicles and Potential Risks 7) Sukuk Bond 6. The Sukuk are equity securities which have the following characteristics: i. Pooled funds (Mutual funds) ii. Hard assets that generates steady income; iii. May be guaranteed or not by originators; iv. Investors receive a fee equal to the income of the underlying assets; v. Securities issued by Special Purpose Vehicles (SPVs); vi. Most Sukuk are issued in dollars; vii. Differ from conventional bonds because based on tangible assets, not debt. 145

146 Types of Investment Vehicles and Potential Risks 8) Capital Guaranteed Fund 1. Investment vehicle offered by institutions that guarantees investor s initial capital investment from any losses provided that investor don t redeem your investment before the maturity date. 2. However, the amount of return is capped at a specific rate although the actual investment may be higher. 146

147 Types of Investment Vehicles and Potential Risks 9) Commodities 1) Represent an avenue for investors to venture out of stocks or bonds. 2) Gaining from price movements. 3) One of the way is by futures contract Agreement of buy/sell specific quantity, specific price Categorized as a derivative product Entails speculating future price movements 149

148 Sample Questions 1. Malaysian Treasury bills are debt instruments that are considered safe because I. they are issued by the Government of Malaysia. II. they are short-term instruments. III. they are guaranteed by the World Bank. IV. their tenure is normally 12 months. A. I, II, III and IV B. I, II, and III C. I and II D. I, II and IV 150

149 Sample Questions 2. Which of the following statements are correct? I. Normally, when interest rates fall, the prices of fixed income or bond assets may rise; when interest rates rise, their prices may drop. II. III. IV. Government bonds are safer than corporate bonds but their returns are comparatively lower. The maturity period of short-term government bonds is usually less than 5 years; for the medium-term ones, it is usually 5-10 years and for the long-term ones, it is usually above 15 years. Preference shares are hybrid securities with both equity and fixed income characteristics. In the event the company concerned winds up, preferred shareholders have the first right to be compensated from the company assets first before normal shareholders. A. I, II, III and IV B. II, III and IV C. I, II and III D. I and IV 151

150 Sample Questions 3. The similarities and differences between unit trusts and single premium investment-linked plans are: I. The investment approach of both are similar. II. III. IV. The life insurance protection element is not part and parcel of unit trust products, whereas for single premium investment-linked plans, it is. Unit trusts do not impose cost of insurance and policy fee charges since the life protection element is absent. A trustee must be appointed for unit trusts but this is not compulsory for single premium investment-linked plans. A. I and II B. I, II, III and IV C. II, III and IV D. I and III 152

151 Sample Questions 4. Which of the following statements about Real Estate Invest Trusts (REITs) is NOT true? A. REITs operate in a way similar to unit trusts. B. Rental income from the properties invested by a REIT is distributed to investors in the form of dividend. C. A REIT can invest in a wide range of properties like malls, office blocks, apartments, commercial lots, hotels, etc. D. REITs may acquire shares in property development companies. 153

152 Sample Questions 5. Which of the statements below is incorrect? A. Sukuk are like bonds but they are based on Shariahcompliant principles. B. Malaysia is the world s largest issuer of sukuk. C. Sukuk securities are issued by Malaysia in Ringgit only. D. Sukuk securities issued by Malaysia can be in USD. 154

153 Sample Questions 6. The protection offered by PIDM on the deposits placed in banking institutions and policies bought from insurance companies operating in Malaysia is granted I. to all banks, insurance companies, takaful operators, reinsurance companies and retakaful operators which have business operations in Malaysia. II. III. only to banks, insurance companies and takaful operators which are member institutions of PIDM. with a levy charged to all member institutions and nonmember institutions at differing rates. IV. with a levy charged to member institutions. A. I and III B. I and IV C. II and IV D. III 155

154 Chapter 7 COMMON TYPES OF INVESTMENT-LINKED FUNDS

155 Common Types of Investment-Linked Funds Types of IL Funds There are seven types of IL funds: 1. Fixed Income/Cash and Money Markets Funds. 2. Equity Funds. 3. Property Funds and REITs. 4. Managed Funds. 5. Balanced Funds. 6. Specialised Funds. 7. SUKUK 8. Risk vs Returns of investment-linked Funds. 157

156 Common Types of Investment-Linked Funds Types of IL Funds Cash Types of Funds Bond/Income /Fixed Income Investment Vehicles Cash/bank deposits Remark Low risk, secure Government/Corporate bonds - Equity Property and REITs Equity assets (stocks & shares) Real estates/property shares Capital appreciation Illiquid asset 158

157 Common Types of Investment-Linked Funds Types of IL Funds Types of Funds Managed Balanced Specialised Investment Vehicles Wide variety of asset allocation Funds invest fixed proportion of specified assets. 70% in equity 30% in fixed income Based on geographical regions or particular industries ASEAN fund, China fund, mining, plantation, etc. Remark Moderate - Risk of currency exchange 159

158 Common Types of Investment-Linked Funds Types of IL Funds Types of Funds Investment Vehicles SUKUK Comply with Islamic law Based on tangible assets instead of debt Remark Low risk 160

159 Common Types of Investment-Linked Funds Risk-return Risk Bonds Funds Cash Funds Managed Funds Balanced Funds Equity Funds Property Funds Derivatives Return 161

160 Common Types of Investment-Linked Funds Risk-return of Investment-Linked Funds Bond Equities Debt funds Features Stocks and shares Lower risk Risk Higher risk Stable Return Higher (Depending on stock market) **To lower risk of loss in equity fund: mechanism of Dollar Cost Averaging via continuous contributions to fund over a long horizon spread-out to various stocks in one equity basket. 162

161 Common Types of Investment-Linked Funds Risk potential correlates with return potential Actual local bond fund: 1. P Bond Fund of C Bank Group (a) Current Average Volatility July 2014: % Calendar Year Performance (%) 5.84% 5.69% 3.87% 3.51% 2.35% Year Average Performance:

162 Common Types of Investment-Linked Funds Risk potential correlates with return potential Actual local bond fund: 2. FBM-KLCI Index (a) 1 Year Volatility (%) : 6.5 (b) Total Return 2013 (%) : 14.0 To Conclude: a) Bond fund: Low Risk/Volatility = Low Return b) Equity fund: High Risk/Volatility = Higher Return BUT! **Note that higher risk (Equity fund) will face a steeper drop in return than bond funds when market faces downturn 164

163 Common Types of Investment-Linked Funds Risk-return of Investment-Linked Funds Advantage of IL funds Services from professional fund managers 165

164 Sample Questions 1. Sukuk is gaining ground in terms of transaction volumes in Malaysia, including for investment-linked funds because I. this investment vehicle is becoming more popular among investors. II. III. IV. of the strong support from the Government and mega corporations, especially Malaysian ones. of its higher return experience compared to conventional bonds because of special incentives provided by the Government. it is traded only in Malaysian Ringgit. A. I, II and III B. I and II C. II and III D. I, II, III and IV 166

165 Sample Questions 2. The average yield of Malaysian Treasury bills with tenures of 6 to 12 months is I. around or slightly better than 3%. II. normally around 4 to 5 per cent. III. normally of very low volatility ratio but in periods when the Government embarks on mass mega projects and needs funding, it may issue bills with yields as high as corporate bonds. IV. with wide variance, depending on the type of bill. A. I B. II and IV C. I, II, III and IV D. IV 167

166 Sample Questions 3. If is safer to rely on professional fund managers appointed for investment-linked funds than to invest directly in the stock market because I. an ordinary individual is generally not equipped to identify the right stock that will reap gain. II. III. IV. the professional fund managers role is to ensure the assets and vehicles achieve a certain minimum growth rate according to the various stages of time span; otherwise, the fund managers and life insurer will be obligated to make up the shortfall. it is not easy for an ordinary individual to pick the right time to buy and the right time to sell for optimising capital gains. ordinary individuals, especially those occupied with work, do not have the time and knowledge to properly monitor market trends. A. I, II, III and IV B. I, III and IV C. I, II and III D. II, III and IV 168

167 Sample Questions 4. Malaysian bonds are deemed to be I. more volatile than global bonds. II. less volatile than global bonds. III. rated at very high preference because the country s economy is growing vibrantly. IV. experiencing better yields than global bonds for many years. A. I and III B. II C. III and IV D. IV 169

168 Sample Questions 5. Compared to government bond funds, corporate bond funds have I. lower yields and lower risks. II. higher yields and higher risks. III. more or less similar yield and risk ratios. IV. a longer tenure. A. I, II, III and IV B. II C. III and IV D. IV 170

169 Sample Questions 6. If an insurer has an investment-linked fund tracking the FBM-KLCI index, it means I. the fund manager refers to the index as the benchmark for guiding the fund s investment strategy and also the return targets in the ensuing years. II. III. IV. the insurer is obligated to grant the returns according to the ratios experienced by the index. If the actual return of the fund in any period is lower than that shown by the index, the insurer will top up the difference.. the fund invests in the same stocks of the companies identified by the index. the fund invests in stocks of companies in the same industries as the companies identified by the index. A. I and IV B. II C. I and II D. III 171

170 Chapter 8 PERTINENT GUIDELINES ON INVESTMENT-LINKED BUSINESS

171 Guidelines on Investment-Linked Business IL Guidelines issued by Bank Negara (Ref. BNM/RH/GL ) Professional and proper conduct in the sales of investment-linked policies Valuation of units Carry out every business day Insurers can undertake unit splits, with the conditions: Once in a financial year When there is appreciation in the NAV over a 6-month period 173

172 Guidelines on Investment-Linked Business IL Guidelines issued by Bank Negara (Ref. BNM/RH/GL ) Premium holidays Insurers to seek policy owners consent before deducting Requirement for min. death benefits not applicable with top-up premiums 174

173 Guidelines on Investment-Linked Business IL Guidelines issued by Bank Negara (Ref. BNM/RH/GL ) Policy cancelled with 15 days free-look period, insurer refund: Unallocated premium Value of units (allocated) at unit price on next valuation date Deducted insurance charges and policy fee Initial offer period shall not exceed two months Min. fund size not reached, insurer shall refund monies contributed with interest/investment profits earned 175

174 Guidelines on Investment-Linked Business IL Guidelines issued by Bank Negara (Ref. BNM/RH/GL ) Insurers shall: Provide separate Fund Fact Sheet for each IL funds Provide statement on the value of policy Provide report on the performance of each IL fund to policy owners Publish latest NAV per unit of IL funds daily in newspapers or insurer s website 176

175 Guidelines on Investment-Linked Business IL Guidelines issued by Bank Negara (Ref. BNM/RH/GL ) Maximum gross rates for sales illustrations Illustrated Return for Generic Funds X% Y% Equity 2% 9% Managed 3% 8% Bond 4% 7% * Max. period of projection should not exceed 30 years **The guidelines also apply to family takaful products. To sell family takaful products by takaful operators must pass the Takaful Basic Examination. 177

176 Sample Questions 1. Valuation of units in an investment-linked fund must be done A. six days in a week, including Saturdays (half day). B. every business day. C. every day. D. seven days a week. For a day that falls on a weekend or a public holiday, valuation processed by the automated system will be based on the same unit price as the previous business day. 178

177 Sample Questions 2. The guidelines stipulated by the regulatory authority in allowing a life insurer to undertake unit splits for an investment-linked fund once a year is on the condition that there is sustainable appreciation on net asset value (account value) over a six-month period preceding the split. Which statements below is correct regarding the above statement? A. This means that appreciation over the 6-month period must be considered substantial by reasonable standard compared to the previous 6 months. B. This refers to an appreciation rate of at least 20 per cent at the end of the current 6 months over the previous 6 months. C. This refers to an increase in the average monthly net asset value (account value) consecutively for 6 months. D. This means that the discretion to define sustainable appreciation may lie with the life insurer as long as there is growth in the fund in the prevailing 6 months over the previous 6 months, subject to the approval of the board of directors. 179

178 Sample Questions 3. Since part of the initial premium of a regular premium investment-linked plan may already have been allocated and invested to acquire fund units by the time the customer decides not to take the plan within the 15 days free-look period, in what manner will the refund be made? A. Refund of full initial premium B. Refund of full initial premium minus policy fee and medical examination expenses (if any) incurred by the life insurer C. Refund of unallocated premium + net asset value (account value) at next valuation date + insurance charges and policy fee already deducted - medical examination fees if any D. Refund of unallocated premium + net asset value (account value) cost of insurance and policy fee-medical examination fees if any 180

179 Sample Questions 4. Life insurers offering investment-linked insurance are obligated to provide certain fundamental transparencies as required by regulatory guidelines. These are: I. a separate Fund Fact Sheet for each of the funds. II. III. IV. a statement on the policy owner s net asset value (account value) details at least once a year. a performance report on each fund of the policy owner at least once a year. publishing of fund unit prices daily in at least one national English newspaper and one national Bahasa Malaysia newspaper, and on the insurer s website. A. II, III and IV B. I, II and III C. I and II D. I, II, III and IV 181

180 Sample Questions 5. Which of the statements below regarding sales illustrations for investment-linked plans are correct? I. The low and high projection for an equity fund should not be above 2% and 9% respectively for the first 20 years. II. III. IV. The low and high projection for a managed fund should not be above 3% and 8% respectively for the first 20 years. The low and high projections for a fixed income/bond fund should not be above 4% and 7% respectively for the first 20 years. For projected illustrations beyond 20 years, insurers must abide by the low scenario rates of 2%, 3% and 4% for equity funds, managed funds and bond funds respectively. The high scenario rates for the same three funds are 6%, 5.5% and 5% respectively. A. I, II, III and IV B. I, II and III C. I and II D. II, III and IV 182

181 Sample Questions 6. What are the prerequisites for the launch of a new investment-linked fund? I. A minimum fund size can be set by the insurer. II. III. IV. The initial offer period shall not be more than 2 months from the date of launch. If the minimum fund size is not reached by the end of the initial offer period, the insurer can call off the fund and refund all premiums collected. The insurer will also have to pay interest or profit from the premiums collected during the initial offer period to the intended policy owners. A. I and II B. I, III and IV C. I, II, III and IV D. I, II and III 183

182 Chapter 9 AGENTS PROFESSIONAL APPROACH AND GUIDELINES

183 Agents Professional Approach & Guidelines Marketing Objective: The management process responsible for identifying, anticipating and satisfying customers requirements profitably The objective of satisfying customers requirement can be achieved through: usage of financial needs analysis knowing customer tools sales illustrations 185

184 Agents Professional Approach & Guidelines To engage in personal selling requires: Product Knowledge Market Knowledge Knowledge of Buying Process Knowledge of Selling Process Selling Techniques 186

185 Agents Professional Approach & Guidelines Customer Buying Decision Process vs. Selling Process Buying Decision Process 1. Problem recognition 2. Information search 3. Evaluation of alternative process 4. Purchase 5. Post purchase evaluation Selling Process 1. Locating of prospective customer 2. Creating sales presentation 3. Conducting sales interview 4. Handling objections 5. Closing the sales 187

186 Agents Professional Approach & Guidelines Customer Buying Decision Process vs. Selling Process Purchase Post- Purchase Evaluation Problem Recognition Information Search Evaluation of Alternative Policies 188

187 Agents Professional Approach & Guidelines Customer Buying Decision Process 1) Problem Recognition Customer Fact-Find (CFF) form Minimum details required to be recorded in CFF are :- 1. Personal details 2. Personal and family circumstances 3. Objectives regarding needs, i.e. protection, retirement 4. Risk appetite or tolerance 5. Elements identified in a financial needs analysis 6. Advice by agent/intermediary 7. Recommendation of appropriate product by the agent/intermediary 8. If policy owner prefers specific product information only, he/she should declare in form 9. Signature by new policy owner 10.Signature by agent/intermediary 189

188 Agents Professional Approach & Guidelines Customer Buying Decision Process 2) Information Search Need has been perceived, consumer search for information. This effort depends on :- a) The consumer s experience in purchasing product b) Importance of the purchase (benefits) c) Value involved 3) Evaluation of Alternative Policies Important factors for the selection of an insurer are :- a) Reputation of the insurer (60%); b) Quality of coverage and services provided (26%); c) Policy benefits (14%); Other factors which have influence on the consumer decision are : a) Agent s personality and friendliness; b) Agent s professional capability; c) Premium and other terms. 190

189 Agents Professional Approach & Guidelines Customer Buying Decision Process 4) Purchase Make the decision to purchase one of the alternative products 5) Post-purchase evaluation Keeps in contact with customers Provides important information of risk evaluation Better chance of securing the loyalty of the customer 191

190 Agents Professional Approach & Guidelines The Selling Process Locating Prospective Customer Sales Presentation Conducting Sales Interview Handling Objections Closing the sale 192

191 Agents Professional Approach & Guidelines The Selling Process 1) Locating the Prospecting Customer Prospecting = Identify, contacting, & qualifying potential customers a) Current and past customers b) Friends c) Business associates d) Seminars or education classes e) Promotion and advertising activities campaigns 2) The Sales Presentation Visual aids Must use sales brochures or sales illustrations authorized by insurer 3) Conducting the Sales Interview Creating interest Create a product to satisfy prospect s need 193

192 Agents Professional Approach & Guidelines The Selling Process 4) Handling Objections 5) Closing the Sale Follow-up interview Locating Prospects Closing Presentation Handling Objections Interview 194

193 Agents Professional Approach & Guidelines After-Sales Services 1. Cognitive Dissonance (psychological state) where customers feel uncertain. 2. After sales service can reinforce the customers original decision to buy the product. 3. Opportunities as such: Address post-sales concerns Remind about future financial needs Obtain names of referred leads Strengthen relationship with customer Encourage persistency 195

194 Agents Professional Approach & Guidelines After-Sales Services Explain contractual provisions Policy owner sign delivery acknowledgement slip Agents return signed slip to insurer **15 days cooling-off period commences from the date of policy delivery acknowledged by policy owner. 196

195 Agents Professional Approach & Guidelines LIAM Guidelines on the Code of Conduct PART I Guidelines on the Code of Conduct 1. Statement of Philosophy 2. Coverage 3. Monitoring Devices 4. Seven Principles of the Guidelines 5. Code of Conduct Part II Life Insurance Selling 1. Introduction 2. General Sales Principles 3. Explanation 4. Disclosure of Underwriting Information 5. Accounts and Financial Aspects Part III- Statement of Life Insurance Practice 1. Introduction 2. Claims 3. Proposal Forms 4. Policies and Accompanying Documents 5. Sales Materials/Adver tisements 197

196 Agents Professional Approach & Guidelines Part I: Guidelines on the Code of Conduct A. Statement of Philosophy 1. Behaving with Complete Integrity and ethics in an Insurance Agent's Professional Life. Business based on trust, honesty, responsibility, professionalism 2. Complying with the Law and with the Best Principles and Practice relating to Financial Advice. 198

197 Agents Professional Approach & Guidelines Part I: Guidelines on the Code of Conduct B. Monitoring Devices The management of a life insurance company shall establish the following minimal procedures : 1.All employees and intermediaries to sign a declaration. 2.Heads of department to ensure compliance with the guidelines. 3.Breaches report to disciplinary committee & Board of Directors. 4.Submit quarterly reports to Bank Negara Malaysia on breaches. 5.Maintain centralized records of breaches. 6.Report immediately cases of fraud to the police and BNM. 199

198 Agents Professional Approach & Guidelines Part I: Guidelines on the Code of Conduct C. The Seven Principle 1. To avoid conflict of interest. 2. To avoid misuse of position. 3. To prevent misuse of information. 4. To ensure completeness and accuracy of relevant records. 5. To ensure confidentiality of communication and transactions 6. To ensure fair and equitable treatment of all who are associated with the life insurance company. 7. To conduct business with the utmost good faith and integrity. 200

199 Agents Professional Approach & Guidelines Part I: Guidelines on the Code of Conduct D. Code of Conduct only a Guide 1. Purpose of guidelines: a) Promoting proper standards of conduct b) Prudent business practices 2. When in doubt relating to code of conduct, employees are to seek guidance from company s management or Bank Negara Malaysia 201

200 Agents Professional Approach & Guidelines LIAM s Guidelines on Code of Conduct PART 1 Guidelines on the Code of Conduct Part II Life Insurance Selling Part III- Statement of Life Insurance Practice 1. Statement of Philosophy 2. Coverage 3. Monitoring Devices 4. Seven Principles of the Guidelines 5. Code of Conduct 1. Introduction 2. General Sales Principles 3. Explanation 4. Disclosure of Underwriting Information 5. Accounts and Financial Aspects 1. Introduction 2. Claims 3. Proposal Forms 4. Policies and Accompanying Documents 5. Sales Materials/Adver tisements 202

201 Agents Professional Approach & Guidelines Part II: Life Insurance Selling Introduction The term 'life insurance' used in the Code of Ethics and Conduct covers all types of: 1. Ordinary life insurance 2. Annuities 3. Pension Contracts 4. Investment-linked insurance 5. Permanent Health Insurance 203

202 Agents Professional Approach & Guidelines Part II: Life Insurance Selling A. General Sales Principles Intermediaries SHOULD: Produce Registered Intermediary Authorization Card Ensure the policy proposed is suitable to the needs Give advice only Treat all information as completely confidential Make clear comparisons on characteristics with other types of policies Render continuous service to policyholders 204

203 Agents Professional Approach & Guidelines Part II: Life Insurance Selling A. General Sales Principles Intermediaries SHOULD NOT: Make inaccurate or unfair criticism of any insurers Attempt to persuade a prospective policyholder to cancel any existing policies unless these are clearly unsuited to the policyholder s needs (twisting) 205

204 Agents Professional Approach & Guidelines Part II: Life Insurance Selling A. General Sales Principles Twisting is to persuade clients in discontinuing a policy or to have a policy made paid-up or to be replaced by a new policy regardless in another company or the same company 206

205 Agents Professional Approach & Guidelines Part II: Life Insurance Selling A. General Sales Principles Detriments arising from twisting are: 1. Qualifying period will have to recommence. 2. Higher premium rates based on attained age. 3. Paying Initial costs twice. 4. Suicide clause, incontestable clause & other clauses have to start all over again. 207

206 Agents Professional Approach & Guidelines Part II: Life Insurance Selling B. Explanation of the Contract 1. Intermediary shall: Explain provisions of contract Draw attention to restrictions applying to policy Draw attention to long tern nature of policy Draw attention to whether the policy qualifies for tax relief 2. Participation in profits depending on variable factors 3. Projected benefits illustrated 208

207 Agents Professional Approach & Guidelines Part II: Life Insurance Selling C. Disclosure of Underwriting Information Intermediary shall: 1. Avoid influencing proposer answers or statements while filling up proposal form 2. Point out the consequences of non-disclosure and inaccuracies to proposer D. Accounts and Financial Aspects Intermediary shall: 1. Acknowledge insurer receipt and maintain a proper account of all monies received in connection with insurance policy. 209

208 Agents Professional Approach & Guidelines LIAM s Guidelines on Code of Conduct PART 1 Guidelines on the Code of Conduct Part II Life Insurance Selling Part III- Statement of Life Insurance Practice 1. Statement of Philosophy 2. Coverage 3. Monitoring Devices 4. Seven Principles of the Guidelines 5. Code of Conduct 1. Introduction 2. General Sales Principles 3. Explanation 4. Disclosure of Underwriting Information 5. Accounts and Financial Aspects 1. Introduction 2. Claims 3. Proposal Forms 4. Policies and Accompanying Documents 5. Sales Materials/Adver tisements 210

209 Agents Professional Approach & Guidelines Part III : Statement of Life Insurance Practice Introduction Aim is to reduce formalities involved in the issue of new policies and payment of a claim. Audit/disciplinary committee of insurer monitors the insurer s compliance with guidelines. 211

210 Agents Professional Approach & Guidelines Part III : Statement of Life Insurance Practice A. Claims Guidelines: a) Insurer may not reject claim unreasonably b) Claims have to be settled without delay c) Insurer shall not collect claim processing fees from policy owner B. Proposal Forms Proposal forms based on Code of Good Practice for Life Insurance business (Part III) a) Proposal form Disclosure of material facts should be stated in the declaration 212

211 Agents Professional Approach & Guidelines Part III : Statement of Life Insurance Practice C. Policies and Accompanying Documents Proposal for whole-life or endowment insurance contract features should be mentioned: 1. Long-term contracts 2. Surrender values Policy will not have cash value on termination unless premium paid for 3 years or more 213

212 Agents Professional Approach and Guidelines Guidelines on Minimum Standards for Treating Customers Fairly 1. Issued by Life Insurance Association of Malaysia 2. Agents to take note: a) Customers are fully informed about the key benefits, key risks and exclusions. b) Agents well trained in investment and savings products. c) Products sold based on customer s needs and suitability. 214

213 Sample Questions 1. Which of the following statements are correct? I. Agents must utilise the sales materials and sales illustrations provided by their respective principal in their sales process. II. III. IV. Agents must utilise the sales materials and sales illustrations provided by their respective principal in their sales process. However, they may have the discretion to supplement these provided the facts do not deviate from those in the materials and illustrations provided by the principal. Only the signature of the intended new policy owner must be obtained on an insurer s Customer Fact-Find (CFF) form. The sales intermediary must also sign the CFF form as witness after the intended new policy owner has signed. A. I, II and IV B. I and III C. II and IV D. II and III 215

214 Sample Questions 2. As soon as a policy contract has been issued by a life insurer, I. the insurer is to mail (by registered mail) the policy contract to the correspondence address of the new policy owner. The registered mail slip should suffice as evidence that the contract has reached the policy owner. II. III. IV. the agent should deliver the policy contract without delay. the delivery process should entail the explanation of the contractual provisions and re-explaining the benefits. The agent then has to request the new policy owner to sign the delivery acknowledgement slip. Finally, the agent must return the signed acknowledgement slip to the insurer for recording and filing. if the new policy owner is unavailable at the first time of personal delivery by the agent, acknowledgement of receipt of the policy contract signed by a representative of the policy owner s household or office shall be deemed valid. The agent does not need to follow up on this. A. I and II B. II and III C. I, II, III and IV D. I, III and IV 216

215 Sample Questions 3. Agents who have sold investment-linked plans should conduct reviews with their clients ideally once a year. The purposes are I. to provide updates on the performance progress of fund/s selected by the clients. II. III. IV. to discuss and ascertain whether the client s financial objectives might have changed due to certain circumstances. to discuss and ascertain whether the original risk profile of the client has changed due to certain circumstances. to discuss alternative next steps where necessary. A. I, II and IV B. II, III and IV C. I, II, III and IV D. III and IV 217

216 Sample Questions 4. The Code of Conduct pertaining to life insurance selling applies to I. all agents. II. all employees of life insurers. III. insurance brokers. IV. agents and insurance brokers. A. I, II, III, and IV B. I and III C. I and II D. I, II, and IV 218

217 Sample Questions 5. Which of the following statements are correct? I. Agents may design their own financial planning form to gather financial data and financial information of their prospective clients for analysis. However, the format must be approved by their principal. II. III. The Customer Fact-Find form of a life insurer officially documents important facts concerning the financial data concerning a prospective policy owner and his family. Cancellation of a policy is allowed if the request by a new policy owner falls within the 15 days free- look period. The period commences from the date the policy contract is passed to the agent for delivery. IV. The free-look period commences from the date the client signs the acknowledgement slip upon receiving the policy. A. I, II, and III B. I, II, and IV C. II and IV D. I and IV 219

218 Sample Questions 6. The pertinent points highlighted by the Guidelines on Minimum Standards for Treating Customers Fairly (TCF) for agents attention are: I. Agents should inform customers fully about the key benefits, key risks and exclusions. II. III. IV. Agents must first be well-trained, especially involving the sale of investment and savings products. Agents must guide the customers as to what details are necessary to declare and what are not necessary so that the concise personal information captured in the application documents will cater for a smooth underwriting process. The product being proposed to a customer should be based on suitability, needs and risk appetite. A. I, II, and IV B. I, II, and III C. II and III D. I, II, III, and IV 220

219

220 All rights reserved. No part of this publication may be produced, translated, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying and recording without the prior written permission of the copyright the developer and owner. CEILLI Training, 7 th Edition, 26 th August 2015 Tokio Marine Training & Development Academy (TMTDA), Tokio Marine Life Insurance Malaysia Berhad ( X)

221 Thank You 223