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iiqe paper 3 – Full Access
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- Question 1 of 30
1. Question
Which of the following life insurance products are usually offered in terms of personal needs?
I. Partner benefits
II. Disability income
III. Retirement Income
IV. Educational fundsCorrectThe modern scene tends to look upon available life insurance products from the perspective of meeting various needs. These we may think of as:
(a) Personal needs:
(i) dependants’ living expenses;
(ii) final (end of life) expenses;
(iii) educational funds;
(iv) retirement income;
(v) mortgage repayment fund;
(vi) emergencies fund (usually needed to meet unexpected expenses);
(vii) disability income.IncorrectThe modern scene tends to look upon available life insurance products from the perspective of meeting various needs. These we may think of as:
(a) Personal needs:
(i) dependants’ living expenses;
(ii) final (end of life) expenses;
(iii) educational funds;
(iv) retirement income;
(v) mortgage repayment fund;
(vi) emergencies fund (usually needed to meet unexpected expenses);
(vii) disability income. - Question 2 of 30
2. Question
Which of the following is/are not part of the business needs in the life insurance products?
I. Employees’ spouse
II. Business owners
III. Employee benefits
IV. Key personsCorrectThe modern scene tends to look upon available life insurance products from the perspective of meeting various needs. For business needs, it is:
(i) key persons;
(ii) business owners;
(iii) partnerships;
(iv) employee benefits.IncorrectThe modern scene tends to look upon available life insurance products from the perspective of meeting various needs. For business needs, it is:
(i) key persons;
(ii) business owners;
(iii) partnerships;
(iv) employee benefits. - Question 3 of 30
3. Question
Which of the following situations is/are where life insurance are considered as useful tools?
I. Temporary needs/threats
II. Retirement
III. Investment
IV. SavingsCorrectAs life insurance became more established, it was realised what a useful tool it was for a number of situations, which would include:
(a) Temporary needs/threats
(b) Savings
(c) Investment
(d) RetirementIncorrectAs life insurance became more established, it was realised what a useful tool it was for a number of situations, which would include:
(a) Temporary needs/threats
(b) Savings
(c) Investment
(d) Retirement - Question 4 of 30
4. Question
Which of the following is/are the Principles and Practice of Insurance?
I. Indemnity: the insurer providing partial financial compensation
II. Contribution: insurers sharing an indemnity payment
III. Utmost Good Faith: a duty to reveal material information actively
IV. Insurable Interest: the legal right to insureCorrectQuality Assurance Scheme, “Principles and Practice of Insurance”, the principles of insurance were studied in detail. By way of reminder, but not detailed comment at this stage, these principles are:
(a) Insurable Interest: the legal right to insure;
(b) Utmost Good Faith: a duty to reveal material information actively;
(c) Proximate Cause: determining the effective cause of a loss in the context of insurance claims;
(d) Indemnity: the insurer providing an exact financial compensation;
(e) Contribution: insurers sharing an indemnity payment;
(f) Subrogation: the indemnifying insurer taking over and then exercising the insured’s rights of recovery against third parties.IncorrectQuality Assurance Scheme, “Principles and Practice of Insurance”, the principles of insurance were studied in detail. By way of reminder, but not detailed comment at this stage, these principles are:
(a) Insurable Interest: the legal right to insure;
(b) Utmost Good Faith: a duty to reveal material information actively;
(c) Proximate Cause: determining the effective cause of a loss in the context of insurance claims;
(d) Indemnity: the insurer providing an exact financial compensation;
(e) Contribution: insurers sharing an indemnity payment;
(f) Subrogation: the indemnifying insurer taking over and then exercising the insured’s rights of recovery against third parties. - Question 5 of 30
5. Question
Sections 64C and 64D of the Insurance Ordinance states which of the following as important provisions?
I. No more than the amount of the interest the insured has in the life insured is recoverable under the contract.
II. A contract of life insurance is made void where the person for whose use or benefit or on whose account it is made has no interest.
III. The person interested in the life insured, or for whose use or benefit or on whose account the contract is entered into, must be named in the contract.
IV. A person who owes you money may insure his life for the amount of the loan, plus accrued interest.CorrectSections 64C and 64D of the Insurance Ordinance: these Sections have two other important provisions:
(i) the person interested in the life insured, or for whose use or benefit or on whose account the contract is entered into, must be named in the contract;
(ii) no more than the amount of the interest the insured (i.e. policyowner) has in the life insured is recoverable under the contract [this provision is significant only where the life insurance concerned is effected on an indemnity basis, credit life insurance being an exampleIncorrectSections 64C and 64D of the Insurance Ordinance: these Sections have two other important provisions:
(i) the person interested in the life insured, or for whose use or benefit or on whose account the contract is entered into, must be named in the contract;
(ii) no more than the amount of the interest the insured (i.e. policyowner) has in the life insured is recoverable under the contract [this provision is significant only where the life insurance concerned is effected on an indemnity basis, credit life insurance being an example - Question 6 of 30
6. Question
Which of the following is legally defined as ‘every circumstance which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will accept the risk’
CorrectThis concerns another important insurance principle, that of utmost good faith. Put simply, utmost good faith requires the applicant to disclose all material facts, whether the insurer requests them or not. A material fact is legally defined as ‘every circumstance which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will accept the risk’
IncorrectThis concerns another important insurance principle, that of utmost good faith. Put simply, utmost good faith requires the applicant to disclose all material facts, whether the insurer requests them or not. A material fact is legally defined as ‘every circumstance which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will accept the risk’
- Question 7 of 30
7. Question
Which of the following perils is/are what concerns the insurer in the application of proximate cause?
I. Relative perils
II. Uninsured perils
III. Expected perils
IV. Insured perilsCorrectThe application of proximate cause is very much concerned with different kinds of perils such as
(i) Insured Perils: are those which are covered by the policy. Non-life policies may specify the perils which are covered, and one of those must be the proximate cause of the loss or it is irrecoverable. In life insurance, the cause of death is not critical, unless a suicide exclusion clause operates or an accidental death benefit rider applies.
(ii) Excepted (or Excluded) Perils: in non-life insurance, all policies carry some exclusions. If one of these operates with a claim, the insurer is not liable for the whole of or part of the loss, depending on the specifics of the exclusion. Life insurance policies seldom have exclusions (but see Note 1 below).
(iii) Uninsured Perils: these are causes of loss which are neither included nor excluded, for example water damage with fire insurance. If property is damaged by water (e.g. by rain) with no other cause involved, the damage is not covered. But if the water damage is proximately caused by an insured peril (say fireman fighting a fire with water hoses), the water damage is covered. Such complexities are unlikely to arise with life insurance claims.
IncorrectThe application of proximate cause is very much concerned with different kinds of perils such as
(i) Insured Perils: are those which are covered by the policy. Non-life policies may specify the perils which are covered, and one of those must be the proximate cause of the loss or it is irrecoverable. In life insurance, the cause of death is not critical, unless a suicide exclusion clause operates or an accidental death benefit rider applies.
(ii) Excepted (or Excluded) Perils: in non-life insurance, all policies carry some exclusions. If one of these operates with a claim, the insurer is not liable for the whole of or part of the loss, depending on the specifics of the exclusion. Life insurance policies seldom have exclusions (but see Note 1 below).
(iii) Uninsured Perils: these are causes of loss which are neither included nor excluded, for example water damage with fire insurance. If property is damaged by water (e.g. by rain) with no other cause involved, the damage is not covered. But if the water damage is proximately caused by an insured peril (say fireman fighting a fire with water hoses), the water damage is covered. Such complexities are unlikely to arise with life insurance claims.
- Question 8 of 30
8. Question
Which of the following statements is not true in regards to indemnity?
CorrectIndemnity: this means an exact financial compensation for the loss sustained and is very important in most types of General Insurance. As far as life insurance is concerned, however,
(i) it is immediately obvious that the policy proceeds (or ‘insurance proceeds’) in no way pretend to (or can) represent an exact financial compensation. That is why life policies are called benefit policies, not indemnity policies;
(ii) it is impossible to over indemnify. It is because the insurable interests (closely linked with indemnity) in the majority of cases is unlimited
IncorrectIndemnity: this means an exact financial compensation for the loss sustained and is very important in most types of General Insurance. As far as life insurance is concerned, however,
(i) it is immediately obvious that the policy proceeds (or ‘insurance proceeds’) in no way pretend to (or can) represent an exact financial compensation. That is why life policies are called benefit policies, not indemnity policies;
(ii) it is impossible to over indemnify. It is because the insurable interests (closely linked with indemnity) in the majority of cases is unlimited
- Question 9 of 30
9. Question
A corollary is a sub-principle and indemnity has which of the following corollaries?
I. Contribution
II. Subjugation
III. Indemnification
IV. SubrogationCorrectIndemnity corollaries: a corollary is a sub-principle and indemnity has two corollaries, Contribution and Subrogation.
(i) Contribution: in most General Insurance classes, if by some chance a person has more than one policy covering a loss, he does not get paid twice. Each policy contributes to (shares) the loss rateably. On the other hand, if the insured has effected more than one policy purposely, a vigilant claims handler might well take that as an indication of fraud!
(ii) Subrogation: this relates to the legal right of the insurer who has provided an indemnity to take over any remedies the “policyholder” (the UK equivalent of the American term “policyowner”) possesses against third parties, to seek to recover his payment to the policyholder. This does not apply to life insurance.
IncorrectIndemnity corollaries: a corollary is a sub-principle and indemnity has two corollaries, Contribution and Subrogation.
(i) Contribution: in most General Insurance classes, if by some chance a person has more than one policy covering a loss, he does not get paid twice. Each policy contributes to (shares) the loss rateably. On the other hand, if the insured has effected more than one policy purposely, a vigilant claims handler might well take that as an indication of fraud!
(ii) Subrogation: this relates to the legal right of the insurer who has provided an indemnity to take over any remedies the “policyholder” (the UK equivalent of the American term “policyowner”) possesses against third parties, to seek to recover his payment to the policyholder. This does not apply to life insurance.
- Question 10 of 30
10. Question
Which of the following classic criteria(s) are usually applied to life insurance premiums?
I. Achievable
II. Finance-able
III. Equitable
IV. AdequateCorrectThe classic criteria usually applied to life insurance premiums are that they should be:
(a) adequate: so that the insurer will have money to pay the benefit and meet other obligations under the contract; and
(b) equitable (fair): so that each policyowner is paying an amount in line with the risk and contracted benefits.
IncorrectThe classic criteria usually applied to life insurance premiums are that they should be:
(a) adequate: so that the insurer will have money to pay the benefit and meet other obligations under the contract; and
(b) equitable (fair): so that each policyowner is paying an amount in line with the risk and contracted benefits.
- Question 11 of 30
11. Question
The net premium in regards to the calculation of life insurance premium has to be subject to a loading to take care of all expected and probable expenses. These will include all which of the following?
I. Internal operating costs
II. Commissions
III. Tax
IV. OverheadsCorrectExpenses: the net premium has to be subject to a loading (surcharge or additional sum) to take care of all expected and probable expenses. These will include all internal operating costs, commissions, tax and overheads to which any business is subject. With life insurance, there is also the possibility (however remote) of unusual mortality rates from some new disease or other disaster – and existing premiums cannot be increased later to deal with changed circumstances. Loading the net premium will include an amount to cover that kind of contingency.
IncorrectExpenses: the net premium has to be subject to a loading (surcharge or additional sum) to take care of all expected and probable expenses. These will include all internal operating costs, commissions, tax and overheads to which any business is subject. With life insurance, there is also the possibility (however remote) of unusual mortality rates from some new disease or other disaster – and existing premiums cannot be increased later to deal with changed circumstances. Loading the net premium will include an amount to cover that kind of contingency.
- Question 12 of 30
12. Question
Which of the following is/are considered as a unique feature in a life insurance policy?
I. It is a dividend policy
II. It is a participating policy
III. It is a non-participating policy
IV. It is a non-dividend policyCorrectOne unique feature of life insurance is that a policy is either a “participating” (PAR) policy or a “non-participating” policy (NON-PAR). The owner of a participating policy is entitled to receive a varying share of (or to “participate” in) the divisible surplus, if any, of the insurer, normally on the policy anniversary dates. Such proceeds are termed policy dividends or dividends. Though no policy dividends are guaranteed, participating policies are subject to higher premium rates than equivalent Non-Participating policies.
IncorrectOne unique feature of life insurance is that a policy is either a “participating” (PAR) policy or a “non-participating” policy (NON-PAR). The owner of a participating policy is entitled to receive a varying share of (or to “participate” in) the divisible surplus, if any, of the insurer, normally on the policy anniversary dates. Such proceeds are termed policy dividends or dividends. Though no policy dividends are guaranteed, participating policies are subject to higher premium rates than equivalent Non-Participating policies.
- Question 13 of 30
13. Question
Which of the following is/are considered to be the other various factor that could affect premiums for new policies?
I. Expenses
II. Competition
III. Economic changes
IV. Public healthCorrectAs mentioned, premiums for existing policies cannot be changed. Life insurance belongs to long term business, and this implies that the contract not only is very likely to last several years, but also it cannot be cancelled or amended by the insurer without the consent of the policyowner. Therefore, other factors which may arise from time to time can only affect premiums for new policies. Some of the influences which might have an effect on life premium rating are mentioned below:
(a) PAR or NON-PAR: this is extremely important. One unique feature of life insurance is that a policy is either a “participating” (PAR) policy or a “non-participating” policy (NON-PAR).
(b) Competition: no insurer enjoys a monopoly position. What the market is charging cannot be ignored.
(c) Economic changes: extended times of affluence or recession will doubtlessly have an impact on all product prices, including insurance.
(d) Public health: abnormal developments in this area (e.g. the AIDS epidemic) cannot be ignored in rating.
(e) Fiscal changes: a lasting increase in tax levels must be reflected in higher premium rates.
(f) Company objectives and marketing strategies: if a company is determined to increase its market share, competitive premium rating is surely one of the possible marketing strategies.IncorrectAs mentioned, premiums for existing policies cannot be changed. Life insurance belongs to long term business, and this implies that the contract not only is very likely to last several years, but also it cannot be cancelled or amended by the insurer without the consent of the policyowner. Therefore, other factors which may arise from time to time can only affect premiums for new policies. Some of the influences which might have an effect on life premium rating are mentioned below:
(a) PAR or NON-PAR: this is extremely important. One unique feature of life insurance is that a policy is either a “participating” (PAR) policy or a “non-participating” policy (NON-PAR).
(b) Competition: no insurer enjoys a monopoly position. What the market is charging cannot be ignored.
(c) Economic changes: extended times of affluence or recession will doubtlessly have an impact on all product prices, including insurance.
(d) Public health: abnormal developments in this area (e.g. the AIDS epidemic) cannot be ignored in rating.
(e) Fiscal changes: a lasting increase in tax levels must be reflected in higher premium rates.
(f) Company objectives and marketing strategies: if a company is determined to increase its market share, competitive premium rating is surely one of the possible marketing strategies. - Question 14 of 30
14. Question
Which of the following built-in features is/are the reasons why the natural premium system is not viable?
I. Vulnerable to anti-selection.
II. Increasing premiums with increasing age and decreasing disposable resources or earning power of the policy owner.
III. Too constant throughout the policy term.
IV. Premiums for existing policies increased every year.CorrectThe natural premium system (or the natural premium pricing system) was used by some life insurers in the early days of the business. It was very logical, but it was doomed to failure because of its built-in features which virtually guaranteed that it could not work long-term in practice.
Such features were:
(a) Premiums: these were not to be constant throughout the policy term, but individually calculated each year so that they reflected the natural risk position (age, etc.) of the life insured at each policy anniversary.
(b) Short-term consequences: with increasing age, there is increased mortality risk. Premiums for existing policies therefore increased every year.
(c) Longer-term consequences: these, in hindsight, were very predictable and included:
(i) increasing premiums with increasing age and, in later years, decreasing disposable resources or earning power of the policyowner, often presented real problems with continuation of insurance;
(ii) the system was vulnerable to anti-selection (also known as selection against the insurer), whereby the better risks -those in good health and with real prospects of a long life – dropped out of the scheme as it became more expensive, and the bad risks would normally decide to continue, for obvious reasons. This creates an imbalance of risks, or a failure to satisfy a criterion of the law of large numbers
(d) Present day: the Natural Premium System is no longer practised, at least not for policies which are truly “long-term”.IncorrectThe natural premium system (or the natural premium pricing system) was used by some life insurers in the early days of the business. It was very logical, but it was doomed to failure because of its built-in features which virtually guaranteed that it could not work long-term in practice.
Such features were:
(a) Premiums: these were not to be constant throughout the policy term, but individually calculated each year so that they reflected the natural risk position (age, etc.) of the life insured at each policy anniversary.
(b) Short-term consequences: with increasing age, there is increased mortality risk. Premiums for existing policies therefore increased every year.
(c) Longer-term consequences: these, in hindsight, were very predictable and included:
(i) increasing premiums with increasing age and, in later years, decreasing disposable resources or earning power of the policyowner, often presented real problems with continuation of insurance;
(ii) the system was vulnerable to anti-selection (also known as selection against the insurer), whereby the better risks -those in good health and with real prospects of a long life – dropped out of the scheme as it became more expensive, and the bad risks would normally decide to continue, for obvious reasons. This creates an imbalance of risks, or a failure to satisfy a criterion of the law of large numbers
(d) Present day: the Natural Premium System is no longer practised, at least not for policies which are truly “long-term”. - Question 15 of 30
15. Question
Which of the following is/are the features of the level premium system?
I. Possible to quote an annual premium that would remain level (unchanged) for the duration of the contract.
II. Able to change it’s existing policy to short term whenever the policy owner decides to upgrade to a better policy.
III. Able to lower the amount of insurance premium should the policy owner decide that he cannot or does not wish to pay any further premiums
IV. Able to create a fund or reserve against the future liability Once the initial expenses and costs of setting up a policy have been absorbed.CorrectThe level premium system (or the level premium pricing system) is now the norm and its features are described below:
a) Basic concept: by the judicious use of mortality tables and actuarial calculations, it was realised that it was possible to quote an annual premium that would remain level (unchanged) for the duration of the contract, based upon the age, sex and individual underwriting features of the life to be insured.(b) Short-term consequences:clearly, the level premium system envisages a long-term contract, where an unchanging annual premium will effectively “average out” over the years. It implies that the annual premium is “too much” for the risk involved in early years, and may be “too little” for the risk involved in later years.
(c) Longer-term consequences:
(i) Cash value and surrender value: When a policy has been in force long enough to “clear” the set-up costs, part of the premiums received – after the risk premium for the past period has been deducted – can be considered to be “not yet earned” by the insurer; it is referred to as a “cash value”. Therefore, when a policyowner cancels a policy that is carrying a cash value, there should be a sum of money payable to him, representing a refund of premiums “unearned” by the insurer. This sum is known as “surrender value”.
(ii) Policy loan: the cash value is an acceptable collateral security for a loan. Borrowing money from the insurer using the cash value as security is now a right under modern policy terms.
(iii) Nonforfeiture: without specific policy provisions to the contrary, a life insurance policy will lapse (i.e. discontinue) if renewal premiums are not paid when due. However, its cash value, if sufficient, may be used voluntarily by the policyowner or sometimes automatically under policy terms, to keep the insurance in force
(iv) Paid-up insurance: should the policyowner decide that he cannot or does not wish to pay any further premiums, he may, as an alternative to policy surrender, pay up the policy. This means that he is not paying any more premiums and yet the policy stays in force exactly as before (so that a participating policy will continue to yield dividends), except that he is now insured for a lower amount of insurance called the “paid-up value”, in line with the net cash value and the premiums saved as a result of his choice.IncorrectThe level premium system (or the level premium pricing system) is now the norm and its features are described below:
a) Basic concept: by the judicious use of mortality tables and actuarial calculations, it was realised that it was possible to quote an annual premium that would remain level (unchanged) for the duration of the contract, based upon the age, sex and individual underwriting features of the life to be insured.(b) Short-term consequences:clearly, the level premium system envisages a long-term contract, where an unchanging annual premium will effectively “average out” over the years. It implies that the annual premium is “too much” for the risk involved in early years, and may be “too little” for the risk involved in later years.
(c) Longer-term consequences:
(i) Cash value and surrender value: When a policy has been in force long enough to “clear” the set-up costs, part of the premiums received – after the risk premium for the past period has been deducted – can be considered to be “not yet earned” by the insurer; it is referred to as a “cash value”. Therefore, when a policyowner cancels a policy that is carrying a cash value, there should be a sum of money payable to him, representing a refund of premiums “unearned” by the insurer. This sum is known as “surrender value”.
(ii) Policy loan: the cash value is an acceptable collateral security for a loan. Borrowing money from the insurer using the cash value as security is now a right under modern policy terms.
(iii) Nonforfeiture: without specific policy provisions to the contrary, a life insurance policy will lapse (i.e. discontinue) if renewal premiums are not paid when due. However, its cash value, if sufficient, may be used voluntarily by the policyowner or sometimes automatically under policy terms, to keep the insurance in force
(iv) Paid-up insurance: should the policyowner decide that he cannot or does not wish to pay any further premiums, he may, as an alternative to policy surrender, pay up the policy. This means that he is not paying any more premiums and yet the policy stays in force exactly as before (so that a participating policy will continue to yield dividends), except that he is now insured for a lower amount of insurance called the “paid-up value”, in line with the net cash value and the premiums saved as a result of his choice. - Question 16 of 30
16. Question
Which of the following are the circumstances in which the death benefit(s) are made payable?
I. Payment on death only if it occurs during a specified period
II. Payment on death at any time
III. Payment on death at a later date specified in the policy
IV. Payment on a specified date or on earlier deathCorrectBasic functions: it is good to distinguish the various products offered by life insurers by what the products seek to do. Another way of thinking about that is to ask the question: “Under what circumstances is/are the death benefit(s) payable?” Some basic formats are:
(i) payment on death only if it occurs during a specified period;
(ii) payment on death at any time;
(iii) payment on a specified date or on earlier death.IncorrectBasic functions: it is good to distinguish the various products offered by life insurers by what the products seek to do. Another way of thinking about that is to ask the question: “Under what circumstances is/are the death benefit(s) payable?” Some basic formats are:
(i) payment on death only if it occurs during a specified period;
(ii) payment on death at any time;
(iii) payment on a specified date or on earlier death. - Question 17 of 30
17. Question
Which of the following is/are not the basic variables in regards to the life insurance policy?
CorrectBasic variables: some additions/modifications to the above are:
(i) the type of policy (called the plan) may be convertible, i.e. able to be changed into a different plan, at the policyowner’s option;
(ii) renewable, if originally for a limited time period (e.g. five years);
(iii) Par or Non-par:
(iv) various Riders, i.e. endorsements, are often added to the basic policy to provide additional cover.IncorrectBasic variables: some additions/modifications to the above are:
(i) the type of policy (called the plan) may be convertible, i.e. able to be changed into a different plan, at the policyowner’s option;
(ii) renewable, if originally for a limited time period (e.g. five years);
(iii) Par or Non-par:
(iv) various Riders, i.e. endorsements, are often added to the basic policy to provide additional cover. - Question 18 of 30
18. Question
Which of the following is/are the traditional types of life insurance?
I. Traceable term insurance
II. Family income insurance
III. Increasing term insurance
IV. Decreasing term insuranceCorrectTRADITIONAL TYPES OF LIFE INSURANCE
Term Insurance
Level term insurance
Decreasing term insurance
Credit life insurance
Family income insurance
Mortgage redemption
Increasing term insuranceIncorrectTRADITIONAL TYPES OF LIFE INSURANCE
Term Insurance
Level term insurance
Decreasing term insurance
Credit life insurance
Family income insurance
Mortgage redemption
Increasing term insurance - Question 19 of 30
19. Question
Which of the following is/are the limitations of the renewable term insurance?
I. The premium is renewable annually or at other interval for a set period
II. The premium rate for a renewable term policy is usually higher than that for a comparable non-renewable term policy.
III. The number of renewals permitted may be restricted
IV. Renewals may only be for the original face amount or smaller face amountsCorrect(a) Renewable term insurance: at first sight, this seems to be a contradiction, because a term insurance is for a fixed period, and this extends the period. The key point, however, is that the right to renew the policy is exercisable without submitting evidence of insurability (health) and the premium for the further period is increased to reflect the increased age of the life insured. (The new premium is said to be based on the attained age.) Because such a plan can lead to anti-selection. some limitations such as the following may be put in place:
(i) renewals may only be for the original face amount or smaller face amounts;
(ii) the number of renewals permitted may be restricted (e.g. three times);
(iii) the premium rate for a renewable term policy is usually higher than that for a comparable non-renewable term policy.Incorrect(a) Renewable term insurance: at first sight, this seems to be a contradiction, because a term insurance is for a fixed period, and this extends the period. The key point, however, is that the right to renew the policy is exercisable without submitting evidence of insurability (health) and the premium for the further period is increased to reflect the increased age of the life insured. (The new premium is said to be based on the attained age.) Because such a plan can lead to anti-selection. some limitations such as the following may be put in place:
(i) renewals may only be for the original face amount or smaller face amounts;
(ii) the number of renewals permitted may be restricted (e.g. three times);
(iii) the premium rate for a renewable term policy is usually higher than that for a comparable non-renewable term policy. - Question 20 of 30
20. Question
Which of the following are the restrictions placed on a convertible term insurance?
I. The face amount of the permanent plan will be limited to that of the term insurance
II. Conversion may not be permitted beyond a certain age
III. Conversion may not be permitted after the policy has been in force for say 50% of its specified term
IV. Conversion may not be permitted before an upfront full payment of the previous policy premiumCorrectConvertible term insurance: such a plan gives the policyowner a conversion privilege, i.e. the right to convert (change) the policy to a permanent plan without providing evidence of insurability (health). Because anti-selection is again a possibility with such a plan, restrictions are usually put in place:
(i) conversion may not be permitted beyond a certain age (say 55 or 65);
(ii) conversion may not be permitted after the policy has been in force for say 50% of its specified term (or a specified number of years);
(iii) the face amount of the permanent plan will be limited to that of the term insurance (probably less after the term policy has been in force for some specified time).IncorrectConvertible term insurance: such a plan gives the policyowner a conversion privilege, i.e. the right to convert (change) the policy to a permanent plan without providing evidence of insurability (health). Because anti-selection is again a possibility with such a plan, restrictions are usually put in place:
(i) conversion may not be permitted beyond a certain age (say 55 or 65);
(ii) conversion may not be permitted after the policy has been in force for say 50% of its specified term (or a specified number of years);
(iii) the face amount of the permanent plan will be limited to that of the term insurance (probably less after the term policy has been in force for some specified time). - Question 21 of 30
21. Question
Which of the following insurance plan will pay the face amount when the life insured survives a specified term?
I. Endowment insurance
II. Lone Term Insurance
III. Renewable insurance
IV. Convertible InsuranceCorrectAn endowment plan will pay the face amount when the life insured survives a specified term but upon death in case he dies within the term. When the life insured survives the insurance period, the policy is said to mature. As with term insurance, the description of the policy must include reference to the number of years of insurance, e.g. a 20-year endowment.
IncorrectAn endowment plan will pay the face amount when the life insured survives a specified term but upon death in case he dies within the term. When the life insured survives the insurance period, the policy is said to mature. As with term insurance, the description of the policy must include reference to the number of years of insurance, e.g. a 20-year endowment.
- Question 22 of 30
22. Question
Which of the following statements is/are not accurate in regards to the endowment plan?
CorrectAn endowment plan will pay the face amount when the life insured survives a specified term but upon death in case he dies within the term. When the life insured survives the insurance period, the policy is said to mature. As with term insurance, the description of the policy must include reference to the number of years of insurance, e.g. a 20-year endowment. Features to be noted with this plan are:
(a) Premiums: are not cheap, since under normal circumstances the face amount must become payable not later than the specified term in the future; premiums are level, normally paid annually, although single premium endowments are possible;
(b) Technically: the plan is a combination of a term insurance and a pure endowment for equal amounts. (A pure endowment is a contract under which the death benefit is only payable if the life insured survives the term);
(c) Par or non-par: such a plan may be on a participating (with-profit) or non-participating (without-profit) basis, at an appropriate premium;
(d) Popularity: because in principle such a plan provides the best of both worlds (premature death protection and personal savings for the policyowner if the policy matures), these have an apparent attraction. However, probably because of the relatively high premium rates, such plans do not have great popularity here, or in many other markets at present.IncorrectAn endowment plan will pay the face amount when the life insured survives a specified term but upon death in case he dies within the term. When the life insured survives the insurance period, the policy is said to mature. As with term insurance, the description of the policy must include reference to the number of years of insurance, e.g. a 20-year endowment. Features to be noted with this plan are:
(a) Premiums: are not cheap, since under normal circumstances the face amount must become payable not later than the specified term in the future; premiums are level, normally paid annually, although single premium endowments are possible;
(b) Technically: the plan is a combination of a term insurance and a pure endowment for equal amounts. (A pure endowment is a contract under which the death benefit is only payable if the life insured survives the term);
(c) Par or non-par: such a plan may be on a participating (with-profit) or non-participating (without-profit) basis, at an appropriate premium;
(d) Popularity: because in principle such a plan provides the best of both worlds (premature death protection and personal savings for the policyowner if the policy matures), these have an apparent attraction. However, probably because of the relatively high premium rates, such plans do not have great popularity here, or in many other markets at present. - Question 23 of 30
23. Question
Whole life insurance premiums are level, but may be subject to different provisions, including which of the following?
I. Premium Subject to an age-related limitation
II. Payable throughout life
III. Payable for a limited period
IV. Payable upon age 80 and aboveCorrectThe relevant policy features to note are:
(a) Premiums: are level, but may be subject to different provisions, including:
(i) payable throughout life: in which event the policy may be called a straight life insurance policy, or a continuous premium whole life policy;
(ii) payable for a limited period: the policy may specify a number of years during the lifetime of the life insured for premium payments;
(iii) premium subject to an age-related limitation: instead of specifying a number of years, the policy may stipulate an age (say 65) after which no more premiums are required. As with (ii) above, premiums are only payable up to the date of death if it occurs before the specified years/ageIncorrectThe relevant policy features to note are:
(a) Premiums: are level, but may be subject to different provisions, including:
(i) payable throughout life: in which event the policy may be called a straight life insurance policy, or a continuous premium whole life policy;
(ii) payable for a limited period: the policy may specify a number of years during the lifetime of the life insured for premium payments;
(iii) premium subject to an age-related limitation: instead of specifying a number of years, the policy may stipulate an age (say 65) after which no more premiums are required. As with (ii) above, premiums are only payable up to the date of death if it occurs before the specified years/age - Question 24 of 30
24. Question
Which of the following features is/are not included in the universal life insurance policy?
I. Subject to flexible premiums
II. Adjustable death benefit
III. Unbundled pricing structure
IV. Accumulates a cash valueCorrectUniversal Life Insurance In an attempt to provide greater consumer choice and flexibility, this product has been developed, in the form of a variation of the whole life insurance. It has been well described as a life insurance contract which:
(a) is subject to flexible premiums;
(b) has an adjustable death benefit;
(c) has an “unbundled” pricing structure; and
(d) accumulates a cash value.IncorrectUniversal Life Insurance In an attempt to provide greater consumer choice and flexibility, this product has been developed, in the form of a variation of the whole life insurance. It has been well described as a life insurance contract which:
(a) is subject to flexible premiums;
(b) has an adjustable death benefit;
(c) has an “unbundled” pricing structure; and
(d) accumulates a cash value. - Question 25 of 30
25. Question
Which of the following statements is/are true in regards to the flexible premium in regards to the universal life insurance?
I. It is heavily influenced by the amount of premiums paid by the policyowner.
II. It is subject to a minimum level of first-year premium payment(s).
III. The insurer separates and individually discloses, both in the policy and in an annual report to the policy owner.
IV. After the first policy year, the policy owner can even premium payments.CorrectFlexible premiums: subject to a minimum level of first-year premium payment(s), the policyowner is allowed to enjoy the feature of flexible premiums. After the first policy year, he can even skip premium payments. Of course, the amounts of cover and cash value depend on how much premium has been paid and when the cash value is inadequate to cover the next, say 60 days of expense and mortality charges, the policy will lapse.
IncorrectFlexible premiums: subject to a minimum level of first-year premium payment(s), the policyowner is allowed to enjoy the feature of flexible premiums. After the first policy year, he can even skip premium payments. Of course, the amounts of cover and cash value depend on how much premium has been paid and when the cash value is inadequate to cover the next, say 60 days of expense and mortality charges, the policy will lapse.
- Question 26 of 30
26. Question
Which of the following is/are the pricing factors of the “unbundled” pricing in regards to the universal life insurance policy?
I. The cost of protection
II. Interest
III. Age
IV. ExpensesCorrect“Unbundled” pricing: the insurer separates and individually discloses, both in the policy and in an annual report to the policyowner, the three basic pricing factors, i.e.:
(i) the pure cost of protection (covering the death risk);
(ii) interest; and
(iii) expenses. (The calculation of life insurance premiums includes an item for expenses, called loading. Normally this is not disclosed to the policyowner, but with universal life insurance the expenses and other charges element is specifically disclosed to a purchaser.)Incorrect“Unbundled” pricing: the insurer separates and individually discloses, both in the policy and in an annual report to the policyowner, the three basic pricing factors, i.e.:
(i) the pure cost of protection (covering the death risk);
(ii) interest; and
(iii) expenses. (The calculation of life insurance premiums includes an item for expenses, called loading. Normally this is not disclosed to the policyowner, but with universal life insurance the expenses and other charges element is specifically disclosed to a purchaser.) - Question 27 of 30
27. Question
Which of the following is/are included in the annual reports that is sent out to the policyowner?
I. The premiums paid during the year
II. The expenses deducted during the year
III. The guaranteed and excess interests earned on the cash value
IV. The pure costs of insurance deductedCorrectAnnual report: each year the policyowner receives a report which shows the status of the policy. The information given includes:
(i) the death benefit option selected (see (e) above);
(ii) the specified amount of insurance in force;
(iii) the premiums paid during the year;
(iv) the expenses deducted during the year;
(v) the guaranteed and excess interests earned on the cash value;
(vi) the pure costs of insurance deducted;
(vii) policy loan outstanding;
(viii) cash value withdrawals; and (ix) the cash value balance.IncorrectAnnual report: each year the policyowner receives a report which shows the status of the policy. The information given includes:
(i) the death benefit option selected (see (e) above);
(ii) the specified amount of insurance in force;
(iii) the premiums paid during the year;
(iv) the expenses deducted during the year;
(v) the guaranteed and excess interests earned on the cash value;
(vi) the pure costs of insurance deducted;
(vii) policy loan outstanding;
(viii) cash value withdrawals; and (ix) the cash value balance. - Question 28 of 30
28. Question
The unit-linked long term policy is one whose value is directly linked to, or directly reflects, the performance of the investments that have been purchased with the premiums paid. This is also know as?
CorrectAlso known as a “linked long term policy” and “investment-linked long term policy”, the unit-linked long term policy is one whose value is directly linked to, or directly reflects, the performance of the investments that have been purchased with the premiums paid.
IncorrectAlso known as a “linked long term policy” and “investment-linked long term policy”, the unit-linked long term policy is one whose value is directly linked to, or directly reflects, the performance of the investments that have been purchased with the premiums paid.
- Question 29 of 30
29. Question
Which of the following is the common factor of the variety of forms in regards to unit-linked policies?
CorrectUnit-linked policies may come in a variety of forms, but there is a common factor. All or part of the premiums will be used to purchase units in a fund at the price applicable at the time of purchase. The value of the policy will then fluctuate according to the value of the units allocated to it.
IncorrectUnit-linked policies may come in a variety of forms, but there is a common factor. All or part of the premiums will be used to purchase units in a fund at the price applicable at the time of purchase. The value of the policy will then fluctuate according to the value of the units allocated to it.
- Question 30 of 30
30. Question
Which of the following statements in regards to annuity is/are true?
I. It is a contract whereby an insurer promises to make a series of periodic payments to a designated individual for an agreed period.
II. It is a contract whereby an insurer promises to make a series of periodic payments to a designated individual throughout the lifetime of a person.
III. It comes with a guaranteed minimum value.
IV. The payee, annuitant and contract holder are usually the same person.CorrectAnnuity: a contract whereby an insurer promises to make a series of periodic payments (called “annuity benefit payments”) to a designated individual (called the “payee”) throughout the lifetime of a person (called the “annuitant”) or for an agreed period, in return for a single payment or series of payments made in advance (called “annuity considerations”) by the other party to the contract called the “contractholder” (or “annuity purchaser”). Very often, the payee, annuitant and contractholder are the same person.
IncorrectAnnuity: a contract whereby an insurer promises to make a series of periodic payments (called “annuity benefit payments”) to a designated individual (called the “payee”) throughout the lifetime of a person (called the “annuitant”) or for an agreed period, in return for a single payment or series of payments made in advance (called “annuity considerations”) by the other party to the contract called the “contractholder” (or “annuity purchaser”). Very often, the payee, annuitant and contractholder are the same person.