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- Question 1 of 30
1. Question
Which of the following document(s) does an insurance intermediary help an applicant complete before the applicant agrees or makes a decision in relation to the purchase of a New Policy?
I. Customer Twisting Code
II. Replacement Declaration
III. Customer Waiver Form
IV. Customer Protection DeclarationCorrectCustomer Protection Declaration (CPD) Form: This is a very important document which an insurance intermediary must help an applicant complete before the applicant agrees or makes a decision in relation to the purchase of a New Policy.
IncorrectCustomer Protection Declaration (CPD) Form: This is a very important document which an insurance intermediary must help an applicant complete before the applicant agrees or makes a decision in relation to the purchase of a New Policy.
- Question 2 of 30
2. Question
Which of the following is/are prepared in conjunction with the CPD Form?
CorrectPrepared in conjunction with the CPD Form, the “Explanatory Notes to Customer Protection Declaration Form” explains in detail the duties of the insurance intermediary regarding the completion of the CPD Form and how to complete it
IncorrectPrepared in conjunction with the CPD Form, the “Explanatory Notes to Customer Protection Declaration Form” explains in detail the duties of the insurance intermediary regarding the completion of the CPD Form and how to complete it
- Question 3 of 30
3. Question
The insurance intermediary is required to explain and discuss which of the following with the applicant in regards to the Code?
I. Claims eligibility implications
II. Financial Implications
III. Insurability Implications
IV. Productive Service ImplicationsCorrectThe Code requires LIMs to provide training to help their insurance agents to get familiar with the contents of the CPD Form, of which the most important features can be found below:
(i) the form is designed to discover any replacement being recommended.
(ii) the insurance intermediary is required to explain and discuss with the applicant the full implications of his replacement, if any, in the following areas.
(1) Financial implications
(2) Insurability implications
(3) Claims eligibility implicationsIncorrectThe Code requires LIMs to provide training to help their insurance agents to get familiar with the contents of the CPD Form, of which the most important features can be found below:
(i) the form is designed to discover any replacement being recommended.
(ii) the insurance intermediary is required to explain and discuss with the applicant the full implications of his replacement, if any, in the following areas.
(1) Financial implications
(2) Insurability implications
(3) Claims eligibility implications - Question 4 of 30
4. Question
The following statements in regards to the financial implications of The Code in the Customer Protection Declaration form are true except?
CorrectFinancial implications:
Estimated loss:
(a) It is stated on the CPD Form for reference only that the policy set-up cost is usually two years’ premiums or 10% of single premium of the basic life insurance policy replaced or to be replaced. No reason is required if the estimated loss stated is equal to or higher than this reference. The insurance intermediary may use other reference for the estimated loss provided he could reasonably justify the estimation. In addition, if he states that the policy replacement will result in no loss, or that the estimated loss is less than two years’ premiums or 10% of single premium, he must give the reason and justification in the space provided. Annualised premiums:(b) The insurance intermediary is required to write down whether the new policy attracts higher annualised premiums for the same sum insured and, if a negative answer is given, the reasons for that. Guaranteed cash values:
(c) Besides, the applicant should take note that the projection of future values of the new life insurance policy may be higher than the existing life insurance policy, but the projected values in most cases depend on the insurers’ performance, which may not be guaranteed. On the other hand, the insurance intermediary is required to fill in the respective guaranteed cash values of the existing life insurance policy(ies) and the new life insurance policy on the policy anniversary dates immediately after the applicant reaches age 65. But where any of the policies matures before this age, he should fill in the guaranteed cash values on the policy anniversary dates of each policy in the earliest maturity year.
IncorrectFinancial implications:
Estimated loss:
(a) It is stated on the CPD Form for reference only that the policy set-up cost is usually two years’ premiums or 10% of single premium of the basic life insurance policy replaced or to be replaced. No reason is required if the estimated loss stated is equal to or higher than this reference. The insurance intermediary may use other reference for the estimated loss provided he could reasonably justify the estimation. In addition, if he states that the policy replacement will result in no loss, or that the estimated loss is less than two years’ premiums or 10% of single premium, he must give the reason and justification in the space provided. Annualised premiums:(b) The insurance intermediary is required to write down whether the new policy attracts higher annualised premiums for the same sum insured and, if a negative answer is given, the reasons for that. Guaranteed cash values:
(c) Besides, the applicant should take note that the projection of future values of the new life insurance policy may be higher than the existing life insurance policy, but the projected values in most cases depend on the insurers’ performance, which may not be guaranteed. On the other hand, the insurance intermediary is required to fill in the respective guaranteed cash values of the existing life insurance policy(ies) and the new life insurance policy on the policy anniversary dates immediately after the applicant reaches age 65. But where any of the policies matures before this age, he should fill in the guaranteed cash values on the policy anniversary dates of each policy in the earliest maturity year.
- Question 5 of 30
5. Question
The insurance intermediary is required to help the applicant in which of the following ways in regards to Customer Protection Declaration Form?
I. Answer the question of whether the insurance intermediary has advised the applicant of any alternatives to replacing the existing life insurance policy.
II. List riders/supplementary benefits that are granted under the existing life insurance policy(ies) but not under the new life insurance policy.
III. List the reasons why the new life insurance policy is more suitable for the applicant unless the applicant declares on the CPD Form that that is not his concern
IV. Explain to the applicant the vulnerabilities if he opts for reinstatement of his existing policy following an incident of twisting.CorrectThe insurance intermediary is also required to help the applicant:
(a) list those riders/supplementary benefits that are granted under the existing life insurance policy(ies) but not under the new life insurance policy. The insurance intermediary has to obtain the riders/supplementary benefits under the existing life insurance policy(ies) from the applicant unless the applicant declares on the CPD Form that he does not want to disclose such information;
(b) list the reasons why the new life insurance policy is more suitable for the applicant unless the applicant declares on the CPD Form that that is not his concern; and
(c) answer the question of whether the insurance intermediary has advised the applicant of any alternatives to replacing the existing life insurance policy.
IncorrectThe insurance intermediary is also required to help the applicant:
(a) list those riders/supplementary benefits that are granted under the existing life insurance policy(ies) but not under the new life insurance policy. The insurance intermediary has to obtain the riders/supplementary benefits under the existing life insurance policy(ies) from the applicant unless the applicant declares on the CPD Form that he does not want to disclose such information;
(b) list the reasons why the new life insurance policy is more suitable for the applicant unless the applicant declares on the CPD Form that that is not his concern; and
(c) answer the question of whether the insurance intermediary has advised the applicant of any alternatives to replacing the existing life insurance policy.
- Question 6 of 30
6. Question
Which of the following statements is/are part of the protocols if a client complains about suspected twisting?
I. The complaint has to be forwarded to the selling office.
II. The selling office has to write to the client to acknowledge receipt of the complaint.
III. The selling office has to investigate and follow the same process as if it had itself discovered a suspected or actual incident of twisting.
IV. The complaint should be received by the HKFI.CorrectClient initiated: if a client complains about suspected twisting,
(1) the complaint, received by the HKFI or other party, has to be forwarded to the selling office;
(2) then the selling office has to investigate and follow the same process as if it had itself discovered a suspected or actual incident of twisting. It also has to write to the client to acknowledge receipt of the complaint and commit to notify the client, within 30 days of the receipt, of its findings and any suggested arrangements.
IncorrectClient initiated: if a client complains about suspected twisting,
(1) the complaint, received by the HKFI or other party, has to be forwarded to the selling office;
(2) then the selling office has to investigate and follow the same process as if it had itself discovered a suspected or actual incident of twisting. It also has to write to the client to acknowledge receipt of the complaint and commit to notify the client, within 30 days of the receipt, of its findings and any suggested arrangements.
- Question 7 of 30
7. Question
Which of the following is/are the subsequent actions needed to be taken once twisting is identified as likely to have occurred?
I. The client has to be kept informed of any material facts or arrangements which may affect his interest.
II. Any follow up actions or arrangements affecting the interest of the policyholder has to be completed within 45 days.
III. Agreement must be reached speedily within a period of 30 days after the identification of the twisting.
IV. Provide the quickest agreement possible for clients with new policy.CorrectOnce twisting is identified as likely to have occurred, the offices concerned should attempt to reach agreement. This imposes an obligation on the offices to keep the client’s interest foremost. The client has to be kept informed of any material facts or arrangements which may affect his interest. Agreement must be reached speedily within a period of 30 days after the identification of the twisting and any follow up actions or arrangements affecting the interest of the policyholder has to be completed within 45 days, i.e. the next 15 days.
IncorrectOnce twisting is identified as likely to have occurred, the offices concerned should attempt to reach agreement. This imposes an obligation on the offices to keep the client’s interest foremost. The client has to be kept informed of any material facts or arrangements which may affect his interest. Agreement must be reached speedily within a period of 30 days after the identification of the twisting and any follow up actions or arrangements affecting the interest of the policyholder has to be completed within 45 days, i.e. the next 15 days.
- Question 8 of 30
8. Question
The selling office must do which of the following when it is agreed that twisting has occurred?
I. Claw back the commission paid on the case(s) in question.
II. Write to the client, explaining that he may have been sold policy(ies) unprofessionally, and giving him the option to end the arrangements.
III. Report the insurance agent to the Insurance Agents Registration Board.
IV. Suspend the insurance agent from selling any further new life insurance.CorrectIf it is agreed that twisting has occurred, the selling office must immediately:
(1) report the insurance agent to the Insurance Agents Registration Board (IARB), or the insurance broker to the relevant broker body or the Insurance Authority as appropriate;
(2) suspend the insurance agent from selling any further new life insurance, or suspend accepting any further new life insurance sold by the insurance broker’s chief executive/technical representative who did the twisting;
(3) claw back the commission paid on the case(s) in question; and
(4) write to the client, explaining that he may have been sold policy(ies) unprofessionally, and giving him the option to end the arrangements, request the return of all the premiums paid on the New Policy, and reinstate the Existing Policy(ies). The client will have 30 days to make a decision. He also has to be told that the selling agent has been suspended and has no further authority to represent the selling office to sell new life insurance, or that the selling office has suspended accepting any further new life insurance business sold by the insurance broker’s chief executive/technical representative who did the twisting.
IncorrectIf it is agreed that twisting has occurred, the selling office must immediately:
(1) report the insurance agent to the Insurance Agents Registration Board (IARB), or the insurance broker to the relevant broker body or the Insurance Authority as appropriate;
(2) suspend the insurance agent from selling any further new life insurance, or suspend accepting any further new life insurance sold by the insurance broker’s chief executive/technical representative who did the twisting;
(3) claw back the commission paid on the case(s) in question; and
(4) write to the client, explaining that he may have been sold policy(ies) unprofessionally, and giving him the option to end the arrangements, request the return of all the premiums paid on the New Policy, and reinstate the Existing Policy(ies). The client will have 30 days to make a decision. He also has to be told that the selling agent has been suspended and has no further authority to represent the selling office to sell new life insurance, or that the selling office has suspended accepting any further new life insurance business sold by the insurance broker’s chief executive/technical representative who did the twisting.
- Question 9 of 30
9. Question
The following statements is/are the standard information included in the Illustration Document with the exception of?
CorrectThe standard information to be included in the Illustration Document is set out in a sample format obtainable from the HKFI or supplied by the insurance company. Apart from figures, the Illustration Document includes the following explanatory notes, information, advice and warning:
(i) the illustration given is only a summary illustration of the major benefits of the proposed policy;
(ii) the illustration refers to the Basic Plan only (i.e. exclusive of riders and additional benefits), and assumes that all premiums are paid in full as planned without exercising the premium holiday option;
(iii) the amount of total premium(s) may be slightly different from the total of the premiums payable in the policy due to rounding differences (the inclusion of this point is optional for the insurer);
(iv) when reviewing the values shown in the illustration, the applicant should take note that the cost of living in the future is likely to be higher than it is today due to inflation;
(v) the applicant may browse a given website to understand the insurance company’s crediting interest rate history for reference purposes, bearing in mind that the interest rates shown there are before any relevant policy charges (e.g. cost of insurance and policy administration fees);
IncorrectThe standard information to be included in the Illustration Document is set out in a sample format obtainable from the HKFI or supplied by the insurance company. Apart from figures, the Illustration Document includes the following explanatory notes, information, advice and warning:
(i) the illustration given is only a summary illustration of the major benefits of the proposed policy;
(ii) the illustration refers to the Basic Plan only (i.e. exclusive of riders and additional benefits), and assumes that all premiums are paid in full as planned without exercising the premium holiday option;
(iii) the amount of total premium(s) may be slightly different from the total of the premiums payable in the policy due to rounding differences (the inclusion of this point is optional for the insurer);
(iv) when reviewing the values shown in the illustration, the applicant should take note that the cost of living in the future is likely to be higher than it is today due to inflation;
(v) the applicant may browse a given website to understand the insurance company’s crediting interest rate history for reference purposes, bearing in mind that the interest rates shown there are before any relevant policy charges (e.g. cost of insurance and policy administration fees);
- Question 10 of 30
10. Question
The insurance company should project the values of an Illustration Document using which of the following presumptions in regards to the rate of return?
I. Assumption based on the future assumed crediting interest rate forecast by the insurance company.
II. Assumption based on the maximum guaranteed crediting interest rates prescribed under the policy
III. Assumption based on the current assumed crediting interest rate forecast by the insurance company.
IV. Assumption based on the minimum guaranteed crediting interest rates prescribed under the policy.CorrectRates of return: The insurance company should project the values using two different assumptions. The first one is based on the minimum guaranteed crediting interest rates prescribed under the policy. If the policy does not offer any minimum guaranteed crediting interest rate, a conservative crediting interest rate of 0% per annum should be used. The second one is based on the current assumed crediting interest rate (i.e. the current crediting interest rate assumption based on best estimate) forecast by the insurance company. The crediting interest rates are before policy charges. In setting the best estimate assumptions in the Current Assumed Basis, the insurance company’s Appointed Actuary should have regard to the Actuarial Guidance Notes (AGN) on Best Estimate Assumptions by the Actuarial Society of Hong Kong (ASHK).
IncorrectRates of return: The insurance company should project the values using two different assumptions. The first one is based on the minimum guaranteed crediting interest rates prescribed under the policy. If the policy does not offer any minimum guaranteed crediting interest rate, a conservative crediting interest rate of 0% per annum should be used. The second one is based on the current assumed crediting interest rate (i.e. the current crediting interest rate assumption based on best estimate) forecast by the insurance company. The crediting interest rates are before policy charges. In setting the best estimate assumptions in the Current Assumed Basis, the insurance company’s Appointed Actuary should have regard to the Actuarial Guidance Notes (AGN) on Best Estimate Assumptions by the Actuarial Society of Hong Kong (ASHK).
- Question 11 of 30
11. Question
The following statements regarding the “Standard Illustration for Participating Policies” are accurate with the exception of?
CorrectThe LIC has produced the “Standard Illustration for Participating Policies” with the purpose of ensuring that every prospective policyholder is provided as a minimum with a summary illustration of the benefits of a participating insurance policy (excluding universal life insurance). For the purposes of this Standard Illustration, a participating (or with-profit) policy is one that pays the policyholder non-guaranteed dividends or bonuses (including cash bonus and reversionary bonus). The Standard Illustration should be adopted by LIC members individually no later than 1 April 2016 for new products, and no later than 1 January 2017 for new and existing policies of current products.
IncorrectThe LIC has produced the “Standard Illustration for Participating Policies” with the purpose of ensuring that every prospective policyholder is provided as a minimum with a summary illustration of the benefits of a participating insurance policy (excluding universal life insurance). For the purposes of this Standard Illustration, a participating (or with-profit) policy is one that pays the policyholder non-guaranteed dividends or bonuses (including cash bonus and reversionary bonus). The Standard Illustration should be adopted by LIC members individually no later than 1 April 2016 for new products, and no later than 1 January 2017 for new and existing policies of current products.
- Question 12 of 30
12. Question
Apart from figures, the Illustration Document includes the following?
I. The face value of reversionary bonus is not guaranteed once declared while the cash value of reversionary bonus is guaranteed.
II. The face value of reversionary bonus and terminal bonus will be paid when the company is paying the Death Benefit.
III. The amount of total premium(s) may be slightly different from the total of the premiums payable in the policy due to rounding differences.
IV. The illustrations given are only summary illustrations of the major benefits of the proposed Basic Plan only.CorrectApart from figures, the Illustration Document includes the following explanatory notes, information, advice and warning:
(i) the illustrations given are only summary illustrations of the major benefits of the proposed Basic Plan only (i.e. exclusive of any supplementary benefits), and assume that all premiums are paid in full when due;
(ii) the amount of total premium(s) may be slightly different from the total of the premiums payable in the policy due to rounding differences (the inclusion of this point is optional for the insurer);
(iii) the face value of reversionary bonus and terminal bonus will be paid when the company is paying the Death Benefit, whereas the cash value of these bonuses will be paid when the policy is surrendered in whole or in part or terminated (other than due to the death of the life insured). The cash value of these bonuses may not be equal to the face value of the bonuses (this point is only applicable to reversionary bonus plans);
(iv) the face value of reversionary bonus is guaranteed once declared while the cash value of reversionary bonus is not guaranteed / [The face value and cash value of reversionary bonus are guaranteed once declared.] (this point is only applicable to reversionary bonus plans);
(v) the projected non-guaranteed benefits included in Section 3 of the Standard IllustrationIncorrectApart from figures, the Illustration Document includes the following explanatory notes, information, advice and warning:
(i) the illustrations given are only summary illustrations of the major benefits of the proposed Basic Plan only (i.e. exclusive of any supplementary benefits), and assume that all premiums are paid in full when due;
(ii) the amount of total premium(s) may be slightly different from the total of the premiums payable in the policy due to rounding differences (the inclusion of this point is optional for the insurer);
(iii) the face value of reversionary bonus and terminal bonus will be paid when the company is paying the Death Benefit, whereas the cash value of these bonuses will be paid when the policy is surrendered in whole or in part or terminated (other than due to the death of the life insured). The cash value of these bonuses may not be equal to the face value of the bonuses (this point is only applicable to reversionary bonus plans);
(iv) the face value of reversionary bonus is guaranteed once declared while the cash value of reversionary bonus is not guaranteed / [The face value and cash value of reversionary bonus are guaranteed once declared.] (this point is only applicable to reversionary bonus plans);
(v) the projected non-guaranteed benefits included in Section 3 of the Standard Illustration - Question 13 of 30
13. Question
Policy dividends in Hong Kong are generally distributed in which of the following ways?
I. As a terminal bonus
II. As annual bonus
III. As a cash dividend
IV. As a reversionary bonusCorrectIn Hong Kong, policy dividends are generally distributed in three ways:
(a) As a cash dividend: many policyholders choose to leave cash dividends on deposit with their insurers.
(b) As a reversionary bonus, where policy benefits are permanently increased by the declared amounts.
(c) As a terminal bonus, such that the payout value is usually targeted to be close to the asset share of the fund (the policyholders’ notional share of the participating fund), taking into account the total return of the underlying assets.IncorrectIn Hong Kong, policy dividends are generally distributed in three ways:
(a) As a cash dividend: many policyholders choose to leave cash dividends on deposit with their insurers.
(b) As a reversionary bonus, where policy benefits are permanently increased by the declared amounts.
(c) As a terminal bonus, such that the payout value is usually targeted to be close to the asset share of the fund (the policyholders’ notional share of the participating fund), taking into account the total return of the underlying assets. - Question 14 of 30
14. Question
Which of the following is/are the advantages of participating policies?
I. Returns on participating policies are generally smoothed.
II. Policyholder can participate in any favourable experience of the pooled fund in the form of dividends
III. Risk of return to the policyholder is lower than with investment-linked policies
IV. Availability of cash values and death benefits guaranteesCorrectThe main advantage of participating policies is that apart from availability of cash values and death benefits guarantees, the policyholder can participate in any favourable experience of the pooled fund in the form of dividends. A second advantage is that the risk of return to the policyholder is lower than with investment-linked policies, owing to the said guarantees. With investment-linked policies, the policyholder selects the underlying investments and will have the full upside if they perform well but also the full downside if they perform badly because such policies generally make no guarantees. The fact that returns on participating policies are generally smoothed is another advantage
IncorrectThe main advantage of participating policies is that apart from availability of cash values and death benefits guarantees, the policyholder can participate in any favourable experience of the pooled fund in the form of dividends. A second advantage is that the risk of return to the policyholder is lower than with investment-linked policies, owing to the said guarantees. With investment-linked policies, the policyholder selects the underlying investments and will have the full upside if they perform well but also the full downside if they perform badly because such policies generally make no guarantees. The fact that returns on participating policies are generally smoothed is another advantage
- Question 15 of 30
15. Question
The following is/are common practices adopted by insurers in helping policyholders better understand dividend distributions under participating policies with the exception of?
CorrectThe practices commonly adopted by insurers in helping policyholders better understand dividend distributions under participating policies are:
(a) Benefit Illustrations
(b) Annual Statements
(c) Premium Offset
(d) General Information on DividendsIncorrectThe practices commonly adopted by insurers in helping policyholders better understand dividend distributions under participating policies are:
(a) Benefit Illustrations
(b) Annual Statements
(c) Premium Offset
(d) General Information on Dividends - Question 16 of 30
16. Question
Which of the following areas is/are covered by GL16?
I. Post-sale control
II. Agency Training
III. Product design
IV. Suitability assessmentCorrectGL16 sets out requirements for authorized insurers underwriting long term insurance business. The major areas covered by GL16 are:
– Product design;
– Provision of adequate and clear information;
– Suitability assessment;
– Advice to customers;
– Appropriate remuneration structure;
– Ongoing monitoring; and
– Post-sale control.IncorrectGL16 sets out requirements for authorized insurers underwriting long term insurance business. The major areas covered by GL16 are:
– Product design;
– Provision of adequate and clear information;
– Suitability assessment;
– Advice to customers;
– Appropriate remuneration structure;
– Ongoing monitoring; and
– Post-sale control. - Question 17 of 30
17. Question
Applications for a new life insurance policy must be accompanied by a financial needs analysis (FNA) form with the exception of?
I. Term insurance policies
II. Refundable insurance policies providing hospital cash, medical, critical illness, or personal accident cover
III. Yearly renewable insurance policies
IV. Group policiesCorrectEvery application for a new life insurance policy (including a rider and top-up) must be accompanied by a financial needs analysis (FNA) form, if that is a policy of the nature specified in Class C under the Insurance Ordinance, or in Class A under the Insurance Ordinance except:
(i) term insurance policies;
(ii) refundable insurance policies providing hospital cash, medical, critical illness, or personal accident cover;
(iii) yearly renewable insurance policies (without cash value) for critical illness/medical cover; or
(iv) group policiesIncorrectEvery application for a new life insurance policy (including a rider and top-up) must be accompanied by a financial needs analysis (FNA) form, if that is a policy of the nature specified in Class C under the Insurance Ordinance, or in Class A under the Insurance Ordinance except:
(i) term insurance policies;
(ii) refundable insurance policies providing hospital cash, medical, critical illness, or personal accident cover;
(iii) yearly renewable insurance policies (without cash value) for critical illness/medical cover; or
(iv) group policies - Question 18 of 30
18. Question
The following is/are the requirements of the Initiative on Financial Needs Analysis with the exception of?
I. Every application for a new life insurance policy (including a rider and top-up) must be accompanied by a financial needs analysis (FNA) form.
II. The FNA form must be clearly identified as a “Financial Needs Analysis” and be signed and dated by the customer.
III. The FNA form must include all the questions and multiple choice options in the suggested FNA form as set out by the HKFI.
IV. Either Member Companies nor customers can opt out of the FNA within 30 days of its initial analysis.CorrectThe requirements of the Initiative on Financial Needs Analysis are as follows:
(a) Every application for a new life insurance policy (including a rider and top-up) must be accompanied by a financial needs analysis (FNA) form.(b) The FNA form must include all the questions and multiple choice options in the suggested FNA form as set out by the HKFI.
(c) Neither Member Companies nor customers can opt out of the FNA.
(d) The FNA form must be clearly identified as a “Financial Needs Analysis” and be signed and dated by the customer.
(e) Insurance intermediaries should take into account the customers’ total protection needs, total disposable assets, financial outgoings and liabilities, as well as his/her willingness and ability to pay premium (and the duration of payment) in assessing the affordability of the customers before making recommendation.
IncorrectThe requirements of the Initiative on Financial Needs Analysis are as follows:
(a) Every application for a new life insurance policy (including a rider and top-up) must be accompanied by a financial needs analysis (FNA) form.(b) The FNA form must include all the questions and multiple choice options in the suggested FNA form as set out by the HKFI.
(c) Neither Member Companies nor customers can opt out of the FNA.
(d) The FNA form must be clearly identified as a “Financial Needs Analysis” and be signed and dated by the customer.
(e) Insurance intermediaries should take into account the customers’ total protection needs, total disposable assets, financial outgoings and liabilities, as well as his/her willingness and ability to pay premium (and the duration of payment) in assessing the affordability of the customers before making recommendation.
- Question 19 of 30
19. Question
The FNA form should include which of the following?
I. Family commitments
II. Liabilities
III. Financial outgoings
IV. Personal particularsCorrectThe FNA form should include the following:
– personal particulars (name, date of birth, marital status, occupation, education level, etc.);
– financial outgoings (monthly living expenses, rent/mortgage redemption, etc.);
– disposable assets (savings, stock/securities/bonds, etc.);
– liabilities (mortgage loan, debts, etc.); and
– family commitments (number of dependants, education funds, etc.).IncorrectThe FNA form should include the following:
– personal particulars (name, date of birth, marital status, occupation, education level, etc.);
– financial outgoings (monthly living expenses, rent/mortgage redemption, etc.);
– disposable assets (savings, stock/securities/bonds, etc.);
– liabilities (mortgage loan, debts, etc.); and
– family commitments (number of dependants, education funds, etc.). - Question 20 of 30
20. Question
The major contents of ‘Guidance Note on Conducting “Know Your Client” Procedures for Long Term Insurance Business’ (CIB-GN(4)) include?
I. Record-keeping and Verification
II. Identification
III. Needs Analysis
IV. Service ValidationCorrectHong Kong Confederation of Insurance Brokers (CIB)
The CIB has issued a number of Guidance Notes to clarify its intention in implementing its self-regulatory regime of insurance brokers. With regard to insurance broking businesses that involve long term policies, the CIB has prescribed a ‘Guidance Note on Conducting “Know Your Client” Procedures for Long Term Insurance Business’ (CIB-GN(4)) for compliance by CIB Members and their registrants. The major contents of CIB-GN(4) include the following:
1. Record-keeping and Verification
2. Identification
3. Needs AnalysisIncorrectHong Kong Confederation of Insurance Brokers (CIB)
The CIB has issued a number of Guidance Notes to clarify its intention in implementing its self-regulatory regime of insurance brokers. With regard to insurance broking businesses that involve long term policies, the CIB has prescribed a ‘Guidance Note on Conducting “Know Your Client” Procedures for Long Term Insurance Business’ (CIB-GN(4)) for compliance by CIB Members and their registrants. The major contents of CIB-GN(4) include the following:
1. Record-keeping and Verification
2. Identification
3. Needs Analysis - Question 21 of 30
21. Question
Which of the following is/are examples of the contents of identification in CIB-GN(4)?
I. Keep documentary records as are sufficient to demonstrate satisfactory compliance with the procedures of client identification and needs analysis.
II. The IA’s Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) should be followed in obtaining and verifying the particulars of corporate clients.
III. Examples of personal particulars of clients that should be recorded and verified are given in CIB-GN(4)
IV. Where a client is seeking insurance in the capacity of a trustee, the procedures of client identification and needs analysis should be conducted on the prospective beneficial owner of the policy.CorrectThe major contents of CIB-GN(4) includes Identification:
– Examples of personal particulars of clients that should be recorded and verified are given in CIB-GN(4).
– Where a client is seeking insurance in the capacity of a trustee, the procedures of client identification and needs analysis should be conducted on the prospective beneficial owner of the policy.
– The IA’s Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) should be followed in obtaining and verifying the particulars of corporate clients.IncorrectThe major contents of CIB-GN(4) includes Identification:
– Examples of personal particulars of clients that should be recorded and verified are given in CIB-GN(4).
– Where a client is seeking insurance in the capacity of a trustee, the procedures of client identification and needs analysis should be conducted on the prospective beneficial owner of the policy.
– The IA’s Guideline on Anti-Money Laundering and Counter-Terrorist Financing (GL3) should be followed in obtaining and verifying the particulars of corporate clients. - Question 22 of 30
22. Question
Which of the following statements is/are accurate in regards to the needs analysis of (CIB-GN(4))?
I. Have understanding of assessing clients’ needs including: their existing and potential financial commitments, their income streams, and their various financial needs and priorities
II. Ask for details of the client’s long term insurance policies that are in-force, paid-up, suspended or under premium holiday.
III. Ensure that the financial information of the client to be collected would enable them to assess and to advise the client on his capability to commit to any new or additional long term insurance policy.
IV. Use its own Financial Needs Analysis form instead of that of the insurerCorrectNeeds Analysis
– In assessing clients’ needs, CIB Members should have understanding of such circumstances of the clients as include: their existing and potential financial commitments, their income streams, and their various financial needs and priorities.
– CIB Members should ensure that the financial information of the client to be collected would enable them to assess and to advise the client on his capability to commit to any new or additional long term insurance policy.
– CIB Members should specifically ask for details of the client’s long term insurance policies that are in-force, paid-up, suspended or under premium holiday.
– Where a CIB Member is allowed by an insurer to use its own Financial Needs Analysis form instead of that of the insurer, it should comply with the requirements as set out in the latest version of the Initiative on Financial Needs Analysi of the HKFI.
IncorrectNeeds Analysis
– In assessing clients’ needs, CIB Members should have understanding of such circumstances of the clients as include: their existing and potential financial commitments, their income streams, and their various financial needs and priorities.
– CIB Members should ensure that the financial information of the client to be collected would enable them to assess and to advise the client on his capability to commit to any new or additional long term insurance policy.
– CIB Members should specifically ask for details of the client’s long term insurance policies that are in-force, paid-up, suspended or under premium holiday.
– Where a CIB Member is allowed by an insurer to use its own Financial Needs Analysis form instead of that of the insurer, it should comply with the requirements as set out in the latest version of the Initiative on Financial Needs Analysi of the HKFI.
- Question 23 of 30
23. Question
Life insurance underwriters can identify degrees of risk with applications under which of the following categories?
I. Emotional hazard
II. Psychological hazard
III. Physical hazard
IV. Moral hazardCorrectLife insurance underwriters can identify degrees of risk with applications, usually under two headings:
(i) Physical hazard: this concerns largely objective factors that are likely to increase the risk of the insured event (death) happening.(ii) Moral hazard: this concerns rather more subjective factors surrounding the basic honesty or honourable intentions of the applicant/proposer.
IncorrectLife insurance underwriters can identify degrees of risk with applications, usually under two headings:
(i) Physical hazard: this concerns largely objective factors that are likely to increase the risk of the insured event (death) happening.(ii) Moral hazard: this concerns rather more subjective factors surrounding the basic honesty or honourable intentions of the applicant/proposer.
- Question 24 of 30
24. Question
Which of the following is/are the common physical hazards for insurance underwriters in identifying the degree of risk with applicants?
I. Significantly overweight
II. Adverse inheritable family or personal medical history
III. Substance abuse
IV. Heavy smokerCorrectIdentifying the degree of risk: from experience life insurance underwriters can identify degrees of risk with applications, usually under two headings:
(i) Physical hazard: this concerns largely objective factors that are likely to increase the risk of the insured event (death) happening. These will include obvious features such as known health dangers, including:
(1) significantly overweight;
(2) heavy smoker;
(3) substance abuse (alcohol, drugs etc.);
(4) very dangerous occupation or leisure pursuits;
(5) adverse inheritable family or personal medical history.IncorrectIdentifying the degree of risk: from experience life insurance underwriters can identify degrees of risk with applications, usually under two headings:
(i) Physical hazard: this concerns largely objective factors that are likely to increase the risk of the insured event (death) happening. These will include obvious features such as known health dangers, including:
(1) significantly overweight;
(2) heavy smoker;
(3) substance abuse (alcohol, drugs etc.);
(4) very dangerous occupation or leisure pursuits;
(5) adverse inheritable family or personal medical history. - Question 25 of 30
25. Question
Insurers tend to have which of the following categories in regards to risks?
I. Sub-standard risks
II. Preferred risks
III. Standard risks
IV. Non-preferred risksCorrectClassifying proposed risks into appropriate categories enables the insurer to determine an equitable premium. Insurers tend to have four categories of risks, as follows:
(i) Standard risks: these present no abnormal features, and are perfectly acceptable at the appropriate premium according to the age and sex of the applicant.
(ii) Sub-standard risks: sometimes called special class risks, they are expected to produce a higher mortality rate than a group of normal lives. They are insurable, but only subject to certain considerations.
(iii) Declined risks: as the name indicates, these are risks that a particular insurer has found to be unacceptable. Insurers generally try to give cover if they reasonably can, but obviously there are some applications where health or other factors make it impossible to accept.
(iv) Preferred risks: not all insurers use this category, which implies an above average risk application that merits a discount or other favourable terms. This may include confirmed non-smokers or individuals who otherwise represent better prospects of long years before a claim is likely to arise.IncorrectClassifying proposed risks into appropriate categories enables the insurer to determine an equitable premium. Insurers tend to have four categories of risks, as follows:
(i) Standard risks: these present no abnormal features, and are perfectly acceptable at the appropriate premium according to the age and sex of the applicant.
(ii) Sub-standard risks: sometimes called special class risks, they are expected to produce a higher mortality rate than a group of normal lives. They are insurable, but only subject to certain considerations.
(iii) Declined risks: as the name indicates, these are risks that a particular insurer has found to be unacceptable. Insurers generally try to give cover if they reasonably can, but obviously there are some applications where health or other factors make it impossible to accept.
(iv) Preferred risks: not all insurers use this category, which implies an above average risk application that merits a discount or other favourable terms. This may include confirmed non-smokers or individuals who otherwise represent better prospects of long years before a claim is likely to arise. - Question 26 of 30
26. Question
Financial Underwriting relates to an assessment of the sum to be insured in relation to the following matters with the exception of?
CorrectFinancial Underwriting. This term relates to an assessment of the sum to be insured in relation to various matters, including:
1 the perceived ability of the policyowner to meet premium obligations;
2 the degree of risk presented (and therefore whether reinsurance might be advisable/available);
3 accumulation of policy plans for the same person;
4 whether it is in excess of usual levels for persons corresponding to the age and general circumstances of the applicant/proposer. We cannot say that any life insurance is too much, but if it is very high by customary standards this may put the insurer on enquiry.IncorrectFinancial Underwriting. This term relates to an assessment of the sum to be insured in relation to various matters, including:
1 the perceived ability of the policyowner to meet premium obligations;
2 the degree of risk presented (and therefore whether reinsurance might be advisable/available);
3 accumulation of policy plans for the same person;
4 whether it is in excess of usual levels for persons corresponding to the age and general circumstances of the applicant/proposer. We cannot say that any life insurance is too much, but if it is very high by customary standards this may put the insurer on enquiry. - Question 27 of 30
27. Question
Which of the following is/are usually considered the reasons for requesting medical report from the applicants by life insurers?
I. The amount of insurance requested is high
II. The accumulation of policy plans for the same person
III. The applicant is at a fairly advanced age (say, over 50).
IV. Specific medical disclosures on the application need further enquiryCorrectAttending Physician’s Statement (APS): this is the most frequently required medical report and the usual reasons for requesting it are:
(i) specific medical disclosures on the application need further enquiry;
(ii) the amount of insurance requested is high;
(iii) the applicant is at a fairly advanced age (say, over 50).IncorrectAttending Physician’s Statement (APS): this is the most frequently required medical report and the usual reasons for requesting it are:
(i) specific medical disclosures on the application need further enquiry;
(ii) the amount of insurance requested is high;
(iii) the applicant is at a fairly advanced age (say, over 50). - Question 28 of 30
28. Question
Which of the following is/are possible underwriting reactions to a particular applicant who may prove to be below the required standard for acceptance at normal rates?
I. Insure partial pension scheme
II. Increase plan
III. Load the premium
IV. Refuse to insureCorrectUsually for medical, but sometimes for other reasons, a particular applicant may prove to be below the required standard for acceptance at normal rates. There are a number of possible underwriting reactions to this situation, including:
(a) Refuse to insure: sometimes called declinature. This is a drastic measure that insurers prefer to avoid if at all possible.
(b) Load the premium: increasing the premium is a standard way of dealing with sub-standard risks.
IncorrectUsually for medical, but sometimes for other reasons, a particular applicant may prove to be below the required standard for acceptance at normal rates. There are a number of possible underwriting reactions to this situation, including:
(a) Refuse to insure: sometimes called declinature. This is a drastic measure that insurers prefer to avoid if at all possible.
(b) Load the premium: increasing the premium is a standard way of dealing with sub-standard risks.
- Question 29 of 30
29. Question
Aside from refusing to insure and loading the premium, there is a wide range of possibilities, which might include the following except?
CorrectAside from refusing to insure and loading the premium, there are other options than the previous two. There is a wide range of possibilities, which might include one or more of the following:
to create a “debt” on the policy
specific exclusions, perhaps of death from a particularly dangerous pastime or leisure pursuit
offering a limited plan
decline to accept at present, i.e. to defer a decision
IncorrectAside from refusing to insure and loading the premium, there are other options than the previous two. There is a wide range of possibilities, which might include one or more of the following:
to create a “debt” on the policy
specific exclusions, perhaps of death from a particularly dangerous pastime or leisure pursuit
offering a limited plan
decline to accept at present, i.e. to defer a decision
- Question 30 of 30
30. Question
Which of the following statements is/are true in regards to the issuance of policy?
I. Policy checking and confirmation is not needed before the policy issuance.
II. The policy can be prepared and then delivered to the policyowner only after the underwriting process is complete and cover has been approved.
III. Issuing and delivering the policy in some respects may be looked upon as the “point of no return” for the insurer.
IV. A policy cannot be cancelled or amended after its issue.CorrectOnce the underwriting process is complete and cover has been approved, the policy can be prepared and then delivered to the policyowner. The important fact that a policy cannot be cancelled or amended after its issue without the agreement of the policyowner once more needs to be mentioned. Issuing and delivering the policy in some respects may be looked upon as the “point of no return” for the insurer. Careful policy checking and confirmation is therefore needed before this happens.
IncorrectOnce the underwriting process is complete and cover has been approved, the policy can be prepared and then delivered to the policyowner. The important fact that a policy cannot be cancelled or amended after its issue without the agreement of the policyowner once more needs to be mentioned. Issuing and delivering the policy in some respects may be looked upon as the “point of no return” for the insurer. Careful policy checking and confirmation is therefore needed before this happens.