Paper 3 Long Term Insurance Quiz 56

Question 1 of 30

1. Question

During the onboarding process for a new corporate client, a licensed financial institution in Hong Kong is meticulously gathering information about the company’s beneficial owners, its primary business activities, and the expected volume and nature of transactions. This comprehensive approach is a direct reflection of regulatory requirements aimed at preventing financial crimes. Which fundamental principle of financial regulation is the institution primarily adhering to in this scenario?

Know Your Customer (KYC)
Risk-Based Approach (RBA)
Suspicious Transaction Reporting (STR)
Customer Due Diligence (CDD)

Question 2 of 30

2. Question

When a long-term insurance company in Hong Kong is determining the declaration of policyholder dividends for participating policies, who holds the ultimate responsibility for interpreting policyholder expectations and making the final decision, ensuring fairness and equity between policyholders and shareholders, in accordance with the Insurance Authority’s guidelines?

The Board of Directors
The Appointed Actuary
The Insurance Authority
The Shareholders' Committee

Question 3 of 30

3. Question

During a comprehensive review of a process that needs improvement, a policyholder contacts the insurer to update their personal contact information. This type of request, while requiring careful processing to ensure accuracy and prevent potential fraud, is generally considered a less significant alteration to the fundamental terms of the insurance contract compared to other potential modifications. Which of the following policy changes most closely aligns with this description, as per the principles of after-sales service and policy administration?

Amending the policyholder's residential address
Modifying the type of insurance coverage
Changing the designated beneficiary
Increasing the sum assured under the policy

Question 4 of 30

4. Question

When a policyholder has a with-profits life insurance policy, and the insurer declares a bonus that is added to the policy’s value and will be paid out upon the policy’s maturity or the insured’s death, this declared bonus is best described as a:

Reversionary Bonus
Policy Rider
Settlement Option
Subrogation Right

Question 5 of 30

5. Question

During a comprehensive review of a process that needs improvement, it was discovered that an individual has been actively promoting and facilitating the purchase of various insurance products for a significant period without holding any formal authorization from the relevant Hong Kong regulatory body. This individual operates independently and has been engaging with potential clients to explain policy features and assist with application submissions. Under the prevailing regulatory landscape in Hong Kong, what is the primary legal implication for this individual’s actions?

The individual is operating in contravention of the Insurance Companies Ordinance (Cap. 41) by conducting regulated activities without a license issued by the Insurance Authority.
The individual's activities are permissible as long as they are not directly receiving commissions from insurers, as per the Companies Ordinance (Cap. 32).
The individual must register with the Hong Kong Monetary Authority (HKMA) as their actions fall under financial advisory services.
The individual's actions are considered lawful as long as they are acting as a referral agent and not directly handling policy documentation.

Question 6 of 30

6. Question

When preparing an illustration document for a non-linked insurance policy under Version 1 of the standard template, which set of assumed annual rates of return must an insurer include to demonstrate projected surrender values and death benefits?

0%, 3%, 6%, and 9%
0%, 2%, 5%, and 8%
0%, 3%, and 6%
1%, 4%, 7%, and 10%

Question 7 of 30

7. Question

During a comprehensive review of a process that needs improvement, a policyholder is examining their existing term life insurance. They recall that their current policy allows them to continue coverage for an additional period without undergoing a new medical examination. However, they also remember that the cost for this extended coverage will be higher than their initial premium. Based on the principles of life insurance, what is the most accurate description of this feature and its premium implication?

The policy is a renewable term insurance, and the increased premium reflects the insured's attained age at the time of renewal.
This describes a convertible term policy where the premium increase is a fixed percentage of the original premium.
This is a feature of a whole life policy, where premiums are adjusted annually based on mortality experience.
The policy is a decreasing term insurance, and the premium reduction is due to the declining sum assured.

Question 8 of 30

8. Question

During a comprehensive review of a process that needs improvement, a compliance officer discovers that an individual has been actively advising potential clients on various life insurance policies and facilitating their applications without possessing the requisite authorization from the Hong Kong regulatory body. This individual is not employed by a licensed insurer or an authorized insurance broker. Under the relevant Hong Kong legislation governing insurance intermediaries, what is the primary implication of this individual’s actions?

The individual is operating in contravention of the licensing requirements stipulated by the Insurance Authority, potentially facing penalties.
The individual's activities are permissible as long as they are providing general information and not directly handling premiums.
The individual is exempt from licensing as they are not directly employed by a licensed entity but are acting as an independent advisor.
The individual's actions are considered a minor oversight and will be addressed through a warning letter without further enforcement.

Question 9 of 30

9. Question

During a comprehensive review of a process that needs improvement, a policyholder inquires about modifying the terms of their existing life insurance policy based on a verbal conversation with an insurance agent. The policy’s ‘Entire Contract’ provision is in effect. How should the insurer proceed regarding this modification request?

The insurer must formally endorse any agreed-upon changes in writing onto the policy, as the 'Entire Contract' clause dictates that the written policy document is the sole representation of the agreement.
The insurer can accept the verbal agreement if the agent confirms the conversation, as agents are representatives of the insurer.
The insurer can proceed with the changes if the policyholder submits a written request, even without a formal endorsement.
The insurer should consider the verbal agreement binding if it is documented in the agent's personal notes, as this reflects an intent to change the contract.

Question 10 of 30

10. Question

When a financial advisor is presenting an Investment-Linked Policy (ILP) to a potential client, what is the primary regulatory purpose of the detailed Illustration Document provided, as stipulated by the Securities and Futures Commission (SFC)?

To provide a comprehensive projection of the policy's financial performance under various market conditions, including fees and charges, to aid informed decision-making.
To serve as a legally binding contract that guarantees the future value of the investment component of the policy.
To outline the specific investment strategies that will be employed by the fund manager to achieve the projected returns.
To detail the historical performance of the underlying funds without making any forward-looking statements about potential outcomes.

Question 11 of 30

11. Question

During a comprehensive review of a personal accident insurance policy, a client inquires about the payout structure for injuries sustained from an accidental fall. The policy includes a dismemberment rider. If the insured suffers the complete severance of one hand at the wrist due to this accident, how would the dismemberment benefit typically be structured according to common provisions?

A payment equivalent to a specified fraction of the accidental death benefit, reflecting the severity of the single limb loss.
The full accidental death benefit, as the loss of a hand constitutes a significant dismemberment.
No dismemberment benefit, as the rider only covers the loss of both limbs or total blindness.
A payout equal to the hospital benefit amount, as the injury would necessitate medical treatment.

Question 12 of 30

12. Question

During a comprehensive review of a process that needs improvement, a newly recruited individual in a Hong Kong-based financial services firm begins to engage clients in discussions about various insurance policies and their benefits, aiming to gauge their interest. This individual has not yet obtained the necessary authorization to conduct such activities. Under the relevant Hong Kong legislation governing insurance intermediaries, what is the primary implication of this individual’s actions?

The individual is acting in contravention of the licensing requirements stipulated by the Insurance Authority.
The individual's actions are permissible as long as they are supervised by a licensed senior manager.
The individual's activities are regulated by the Mandatory Provident Fund Schemes Authority.
The individual's conduct falls under the purview of the Securities and Futures Commission's oversight.

Question 13 of 30

13. Question

During a comprehensive review of a process that needs improvement, a life insurance policy is identified that allows the policyholder to continue coverage for an additional term without undergoing a new medical examination. The premium for this extended coverage is adjusted upwards. What is the primary factor driving this premium adjustment in accordance with the Insurance Companies Ordinance (Cap. 41 of the Laws of Hong Kong) and related industry practices?

The increased age of the insured at the time of renewal
The original face amount of the policy
The number of previous renewals exercised
The prevailing market interest rates

Question 14 of 30

14. Question

During a comprehensive review of a process that needs improvement, a Hong Kong insurance intermediary is found to have sold a life insurance policy to a resident of Mainland China. The intermediary provided the policy contract and a product brochure, but failed to provide a separate document specifically detailing important facts for Mainland policyholders. Under the relevant regulatory guidelines for cross-border insurance sales, what is the primary implication of this omission?

The intermediary has failed to meet a mandatory disclosure requirement, potentially leading to regulatory action.
The policyholder is automatically entitled to a full refund of all premiums paid, regardless of policy terms.
The omission is considered a minor administrative oversight and does not affect the validity of the policy.
The intermediary is only required to provide this document if specifically requested by the policyholder.

Question 15 of 30

15. Question

When a one-year term life insurance policy is structured to be renewable, and the policyholder chooses to renew it for an additional year, what is the primary factor that dictates the new premium amount for the extended coverage period, assuming no changes to the sum insured?

The original age of the insured when the policy was first issued.
The attained age of the insured at the time of renewal.
The prevailing market interest rates at the time of renewal.
The number of previous renewals exercised by the policyholder.

Question 16 of 30

16. Question

During a comprehensive review of a process that needs improvement, an insurance intermediary is assisting a client in replacing an existing life insurance policy. The new policy being recommended offers the same sum insured as the existing one but comes with a significantly higher annual premium. Under the guidelines designed to prevent policy replacement detrimental to the policyholder, what is the intermediary’s mandatory action regarding this premium difference?

Provide a written explanation and justification for the increased annual premium.
Inform the client that higher premiums are standard for new policies and no further explanation is needed.
Document that the client was informed of the higher premium without requiring a specific justification.
Advise the client that the premium difference is negligible and does not require documentation.

Question 17 of 30

17. Question

During a comprehensive review of a process that needs improvement, a policyholder inquires about altering a specific benefit within their existing life insurance policy. The insurer’s representative recalls a verbal discussion where a change was discussed. Under the terms of the ‘Entire Contract’ provision, what is the legally binding procedure for implementing this alteration?

The change must be documented in writing and formally endorsed by both the policyholder and the insurer.
The policyholder's verbal agreement to the discussed change is sufficient for its implementation.
A senior executive from the insurance company can authorize the change based on the verbal discussion.
The policyholder can request the change, and the insurer is obligated to implement it as discussed.

Question 18 of 30

18. Question

During a comprehensive review of a policy that has lapsed due to non-payment of premiums, it is determined that the policyowner’s accumulated net cash value is to be utilized to purchase a new term insurance policy. This new policy will maintain the original face amount of the lapsed policy, and its duration will be solely determined by the extent to which the available net cash value can cover the premiums for that term. Which non-forfeiture option is being described in this scenario?

Extended term insurance
Reduced paid-up term insurance
Cash surrender value
Paid-up whole life insurance

Question 19 of 30

19. Question

During a comprehensive review of a process that needs improvement, a CIB Member is assisting a client who has expressed a strong preference for a specialized insurance product not readily available from any insurer authorized in Hong Kong. According to the relevant CIB regulations, under what circumstances is it permissible for the CIB Member to arrange this insurance product from a provider not authorized in Hong Kong?

When no suitable products are offered by authorized insurers in Hong Kong, or if the client explicitly requires it.
Whenever the client expresses a strong preference for an offshore product, regardless of local availability.
If the CIB Member believes the offshore product offers superior benefits, even if similar products exist locally.
As long as the CIB Member has conducted a thorough needs analysis and the client is financially capable.

Question 20 of 30

20. Question

When considering the organizational framework of a mutual life insurance entity operating within Hong Kong’s regulatory environment, which statement most accurately reflects its ownership and operational principle?

The company is legally owned by its participating policyholders.
Ownership is vested in shareholders who bear limited liability.
All policyholders are entitled to an equal distribution of profits and dividends.
The primary ownership structure is determined by the number of shares held by individuals.

Question 21 of 30

21. Question

When presenting an illustration for an investment-linked insurance policy, what is the paramount disclosure requirement according to the SFC’s guidelines to ensure policyholder comprehension of potential outcomes?

Clearly delineate between benefits that are assured and those that are subject to market performance.
Provide a detailed breakdown of all historical fund performance data for the past decade.
Emphasize the potential for capital growth through aggressive investment strategies.
Include a disclaimer stating that all projected figures are highly probable outcomes.

Question 22 of 30

22. Question

During a comprehensive review of a process that needs improvement, an applicant for life insurance has provided all necessary information, and their health profile, age, and lifestyle factors align perfectly with the insurer’s established benchmarks for a healthy individual. The insurer can offer coverage at the standard premium rate without any modifications. How would this applicant’s risk be classified by the underwriter?

Standard risk
Sub-standard risk
Declined risk
Preferred risk

Question 23 of 30

23. Question

During a comprehensive review of a process that needs improvement, a policyholder requests several modifications to their life insurance policy. Which of the following requested changes would typically be considered the most significant in terms of altering the fundamental contract terms and risk profile, requiring careful consideration of underwriting and potential reinsurance implications?

A modification to the type of insurance coverage provided under the policy.
An update to the policyholder's residential address.
A change in the designated beneficiary of the policy.
An adjustment to the sum assured after initial underwriting.

Question 24 of 30

24. Question

When a policyholder decides to surrender a life insurance policy that has accumulated a cash value, the actual amount they receive is referred to as the Net Cash Value. This figure is determined by taking the policy’s cash value and then making specific adjustments. Which of the following best describes the nature of these adjustments?

Deductions for outstanding policy loans, accrued interest on those loans, and any paid-up additions.
Additions for any dividends that have been declared but not yet paid out to the policyholder.
Deductions for the insurer's administrative expenses incurred during the policy's lifetime.
Additions for any future premiums that have been paid in advance by the policyholder.

Question 25 of 30

25. Question

When a CIB Member is advising a client on a single premium life insurance policy, which of the following disclosures are mandatory to be included in the written recommendation, as per regulatory guidelines?

The ratio of the premium to the client's liquid assets, the duration of any lock-in period, and the potential impact of interest rate fluctuations on leveraged investments.
The proportion of regular premiums relative to the client's disposable income and confirmation of the client's ability to meet payments beyond their planned retirement.
The client's intended source of funds for premiums that extend beyond their retirement age and the financial commitment involved in any riders.
A clear explanation for selecting an insurance product from an overseas provider not authorized in Hong Kong and the client's written confirmation of understanding.

Question 26 of 30

26. Question

During a comprehensive review of a process that needs improvement, a financial advisor is found to be soliciting insurance business without holding the appropriate authorization. Under the relevant Hong Kong legislation governing insurance intermediaries, what is the primary consequence for an individual engaging in such activities without the requisite approval from the regulatory body?

The individual is operating in contravention of the law and may face penalties prescribed by the Insurance Authority.
The individual's actions are subject to review by the Hong Kong Federation of Insurers for potential disciplinary action.
The individual may be subject to sanctions by the Mandatory Provident Fund Schemes Authority for unauthorized financial advice.
The individual's conduct falls under the purview of the Securities and Futures Commission, leading to potential market misconduct investigations.

Question 27 of 30

27. Question

During an initial consultation regarding life insurance, what is the most crucial question an insurance intermediary should pose to understand the client’s core needs?

What specific financial responsibilities or goals do you want this insurance to address for your beneficiaries?
What is your current net worth and investment portfolio?
What is the typical commission structure for policies of this nature?
Do you believe you are adequately covered by your existing insurance policies?

Question 28 of 30

28. Question

When a financial product guarantees a series of payments for a predetermined duration, regardless of whether the recipient is alive at the end of that period, which specific type of annuity is being described?

Annuity Certain
Life Annuity
Deferred Annuity
Indemnity Annuity

Question 29 of 30

29. Question

During a comprehensive review of a process that needs improvement, an investigator discovered an individual actively engaging with potential clients to explain and arrange various insurance policies. This individual, however, has not obtained any formal authorization from the Hong Kong regulatory body responsible for overseeing insurance distribution. Under the relevant Hong Kong legislation governing insurance intermediaries, what is the primary consequence for this individual’s actions?

The individual is operating in contravention of the licensing requirements stipulated by the Insurance Authority.
The individual's activities are permissible as long as they are affiliated with a member of the Hong Kong Federation of Insurers.
The individual is subject to the oversight and licensing framework managed by the Hong Kong Monetary Authority.
The individual's actions are acceptable provided they possess a professional certification from a recognized industry association.

Question 30 of 30

30. Question

When an individual purchases an insurance contract with the understanding that income payments will commence only after a predetermined period or upon reaching a specific age, what type of annuity has been acquired?

Deferred Annuity
Immediate Annuity
Accumulation Annuity
Fixed Annuity