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Questions and Answers
What is the typical bid-offer spread in trading?
What is the typical bid-offer spread in trading?
What does single pricing mean in the context of unit acquisition and disposal?
What does single pricing mean in the context of unit acquisition and disposal?
What is one advantage of long-term investment?
What is one advantage of long-term investment?
What is the key principle behind dollar cost averaging?
What is the key principle behind dollar cost averaging?
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In dollar cost averaging, how does continued premium payment affect accumulation?
In dollar cost averaging, how does continued premium payment affect accumulation?
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How does the market typically perform over a long time horizon according to the provided content?
How does the market typically perform over a long time horizon according to the provided content?
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What impact does dollar cost averaging have on cumulative account value over time?
What impact does dollar cost averaging have on cumulative account value over time?
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Which of the following best describes the dollar cost averaging investment strategy?
Which of the following best describes the dollar cost averaging investment strategy?
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What happens if the account value is insufficient to cover insurance fees during the initial years?
What happens if the account value is insufficient to cover insurance fees during the initial years?
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Which condition is NOT required for maintaining the no-lapse guarantee period?
Which condition is NOT required for maintaining the no-lapse guarantee period?
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What does the death benefit consist of?
What does the death benefit consist of?
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What is the minimum amount for the death benefit related to the basic sum assured?
What is the minimum amount for the death benefit related to the basic sum assured?
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Which of the following statements about dual pricing is accurate?
Which of the following statements about dual pricing is accurate?
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Under what condition will the no-lapse guarantee period be voided?
Under what condition will the no-lapse guarantee period be voided?
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What could cause a reduction in your account value during the no-lapse guarantee period?
What could cause a reduction in your account value during the no-lapse guarantee period?
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Which condition must be maintained for benefits related to the death benefit?
Which condition must be maintained for benefits related to the death benefit?
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What is a potential consequence of making a partial withdrawal from the account?
What is a potential consequence of making a partial withdrawal from the account?
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By what mechanism is the accumulated account value added to the death benefit?
By what mechanism is the accumulated account value added to the death benefit?
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What is the primary investment objective for individuals seeking high risk, high return options?
What is the primary investment objective for individuals seeking high risk, high return options?
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What investment strategy is best suited for hedging against inflation?
What investment strategy is best suited for hedging against inflation?
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Which of the following is NOT an investment objective mentioned in the content?
Which of the following is NOT an investment objective mentioned in the content?
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To achieve comfortable living standards, which investment goal should be prioritized?
To achieve comfortable living standards, which investment goal should be prioritized?
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What should a conservative investor primarily focus on?
What should a conservative investor primarily focus on?
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Which of the following represents a long-term investment objective?
Which of the following represents a long-term investment objective?
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What is the risk-return relationship typically associated with government bonds?
What is the risk-return relationship typically associated with government bonds?
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For individuals aiming to provide funds for education, which strategy should they prioritize?
For individuals aiming to provide funds for education, which strategy should they prioritize?
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Which investment vehicle is best suited for short-term financial needs?
Which investment vehicle is best suited for short-term financial needs?
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What approach should investors take regarding risks and returns?
What approach should investors take regarding risks and returns?
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Study Notes
Certificate Examination in Investment-Linked Life Insurance (CEILLI) Tutorial
- Allianz Academy, January 2022
- Internal Use Only
Course Objective
- Equip participants with solid technical knowledge about investment-linked life insurance
- Understand the key contents of CEILLI
- Increase passing rate!
Course Objective - Detailed
- CEILLI: 60 questions
- PCIL:
- Part A (Chapters 1-6): 40 questions
- Part B (Chapters 7-10): [no question count given]
- Part C (Chapters 11-16): 30 questions
- Part D (CEILLI): 30 questions
- Passing rate: 50%
Course Overview
- Introduction to Investment-Linked Life Insurance
- Regular Premium Investment-Linked Life Insurance
- Single Premium Investment-Linked Life Insurance
- Considerations for Purchasing an Investment-Linked Policy
- Investment Considerations
- Types of Investment Vehicles & Potential Risks
- Common Types of Investment-Linked Funds
- Pertinent Guidelines on Investment-Linked Business
- Agents' Professional Approach & Guidelines
1.1 Introduction
- Steady growth in the Malaysian insurance industry over the past 20 years
- Insurance companies continually design and offer plans to meet customer's needs.
- Investment-linked insurance gaining popularity
- Introduction to investment-linked insurance, and its increasing demand
1.1 Introduction - Details
- Investment-linked insurance policy offers insurance coverage
- Directly connected to investment performance
- Portion of premium goes to protection
- Portion of premium goes to investment
- Funds fluctuates with the market
- No guaranteed interest rate or minimum cash value
- Coverage Portion (sum assured)
- Investment portion will be invested in funds, returns will be account value
1.1 Introduction - Choices
- Coverage amount
- Minimum sum assured based on age, premium and formula
- Higher sum assured
- Annual premiums
- Regular premium (min RM1,200 per year)
- Single premium (RM5,000 one-time payment)
- Return of Contribution
- Long-term savings accumulate returns
1.1 Introduction - Other countries
- Malaysia/Singapore: Investment-Linked
- UK: Unit-Linked
- USA: Variable Life
Self-Assessment Questions - 1
- Investment returns under investment-linked life insurance policy are not guaranteed
- Linked to the performance of the investment fund managed by the life office
- Fluctuate according to the rise and fall of market prices
- Correct Answer: C. I, III, and IV
Self-Assessment Questions - 2
- The term "investment-linked" in Malaysia is similar to "Unit-Linked" and "Variable Life" in UK and the USA respectively
- Correct Answer: A
Self-Assessment Questions - 3
- Investment-linked insurance is a contract that provides protection on human life as well as investment returns
- Correct Answer: B
2.1 Introduction
- More flexible, transparent, and more complicated compared to traditional insurance products
- Main Focus: Protection First, Investment Second
2.2 Minimum Regular Premium
- Minimum regular premium depends on insurer
- Generally, the minimum annual premium is RM1,200 – RM 1,800.
- Payment modes: Monthly, Quarterly, Semi-annually or Annually
2.3 Allocated & Unallocated Premium
- Allocation in fund selection by insurer
- Includes insurance charges, policy fees, and fund management fees
- Allocated Premium Account:
- For buying units
- Monthly Cost of Insurance (COI)
- Annual fund management fee
- One-time policy fee
- Other administrative/service fees
- Unallocated Premium Account:
- For agent's commissions and other management expenses
- Allocation Ratios vary by year, progressively reaching 100% in the 11th year.
2.4 Top-Up Premium
- Used to enhance unit accumulation
- Upfront charge of 5% is deducted and placed into the selected funds
- Regular vs. Ad Hoc Top-Up
2.5 Sum Assured Multiple (SAM) Rule
- Imposed by Bank Negara Malaysia (BNM)
- Minimum cover amount based of basic annual premium and age during policy inception
- Exceptions to SAM Rule: Regular Top-Up, Premium-Paying Rider, Unit-Deducting Rider
- Formula: SAM = (Total Annual Premium - Notional Premium of Riders)
2.6 Optional Riders
- Accident Rider
- Medical Rider
- Critical Illness Rider
- Premium-Paying Rider
- Unit-Deducting Rider
- Waivers of Premium
- Payor Benefit
- Disability Income
2.7 Account Value
- Projected value of unit at any time if surrender policy (net of tax and all charges)
- Depends on value of each unit and number of units accumulated to date
- Value may decrease if investments fail
2.8 Partial Withdrawal
- No limit on frequency / amount of partial withdrawal
- Remaining account value must remain above a minimum
- High withdrawals may lead to insufficient account value to cover COI at older age
2.8 Surrender and Charge
- Total surrender is allowed without restrictions
- Insurer may impose early withdrawal / surrender charge
- This depends on age and cut-off point of the policy
2.9 Fund Switching & Switching Fee
- Allow policy owners to switch part or all investments into a different fund/s
- Fund switches are commonly offered as FOC, given a limited number of transfers in a set time
2.10 Premium Holiday
- Prevent policy lapse when premiums are unpaid if account value is sufficient
- Premium is payable by account value if payment is not made on due date
- COI and other management charges are deducted from account value, not agents' commissions
- Policyholders can pre-select to cover either basic sum insured or cover basic and riders
2.11 Free-Look Period
- Similar to traditional life insurance policies, IL policies have a 15-day free-look period from the date of delivery.
- Insurer refunds unallocated premiums, unit value, insurance and policy fees, and related medical examination costs
2.12 No-Lapse Guarantee Period
- IL policies do not lapse during the first few years even if account value is insufficient to cover COI
- Any unpaid premiums are deducted from future premiums until paid in full
2.13 Death Benefit Mechanism
- Death benefit (DB) is the basic sum assured (BSA) plus accumulated account value (AAV)
- Death benefit must never be less than the basic sum assured
2.14 Dual Pricing & Single Pricing
- Dual Pricing (Bid-offer spread, Offer Price Per Unit, Bid Price Per Unit)
- Single Pricing (No bid-offer spread, Acquisition / disposal at same unit price)
2.15 The Long Horizon
- Cumulative account value and annual return will increase over time as both protection and investment factors
- Graph shows market performance over 10 years; even with market downturns a growth can be seen
2.16 Dollar Cost Averaging
- Using the same amount of money to buy units at regular intervals helps to average out the cost of each unit.
- This can cushion the impact of price fluctuations on capital
2.17 Retirement, Medical & Education Plans
- Some insurance companies offer retirement, medical, and education plans under RP-IL plans
- Tax relief for medical and education plans is RM 3,000 per year
3. Self-Assessment Questions - Summary
- Questions regarding particular topics in the CEILLI curriculum
- Solutions (Answers) to the questions provided for reference
3.1 Single Premium Investment-Linked Life Insurance - Main Objective
- The main focus: Investment First, Protection Second
3.2 Single Premium Investment-Linked Life Insurance - Minimum Basic Single Premium
- Range of basic single premium (SP) : RM5,000 – RM20,000.
3.3 Single Premium Investment-Linked Life Insurance - One-time Unallocated Premium Charge
- Since only one premium is paid, unallocated premium charge is a one-time payment
- Normally around 5%, depending on the insurance structure
- The same charge applies to top-up premiums.
- Remaining 95% of the premium is used to purchase investment units
3.4 Single Premium Investment-Linked Life Insurance - Sum Assured Formula
- Standard Cases: 125% of Paid SP
- Sub-Standard Cases/Older Age: 105% of Paid SP (whichever is higher, or RM5000)
3.5 Single Premium Investment-Linked Life Insurance - Death Benefit Formula
- Death Benefit is either Basic Sum Assured (BSA) or Accumulated Account Value (AAV) whichever is higher
- All Top-Ups (TUs) are excluded from BSA formula
- Additional payments of TUs are meant for investment
3.6 Single Premium Investment-Linked Life Insurance - COI Deduction & Risk Mechanism
- Cost of Insurance (COI) deduction will be made if there is Sum at Risk (SAR)
- SAR is the shortfall between BSA and AV
- If BSA is the same or lower than AV, SAR will not be deducted
4. Considerations for Purchasing an Investment-Linked Policy
- Transparency
- Expertise
- Access
- Flexibility
- Administration
- Diversification/Pooling
4.2 Benefits
- Transparency
- Administration
- Diversification/Pooling
- Access
- Flexibility
- Expertise
4.2 Benefits (Details)
- Pooling and Diversification: IL funds offers access to a 'pooled' & diversified portfolio which individual investors cannot achieve with their own funds. A well-diversified fund has better risk characteristics
- Expertise: Funds managed by professional fund managers, with investment expertise, financial knowledge for long-term high returns
- Flexibility: IL policy owner can choose to change the premium or protection amount, as long as it meets guidelines/rules
- Access: policy owners gain access to well-diversified IL funds managed by professionals
- Administration: policy owners are not required to manage daily administrative tasks. Provides statements and relevant information
- Transparency: agents provide official sales materials at point of sale. Including proposal summaries, benefit and risk disclosures, premium holiday declarations and investment return statements
4.3 Risks & Uncertainties
- Investment Fluctuations:
- Guaranteed: Death and TPD benefits based on Sum Assured (SA)
- Non-Guaranteed: Account Value based on unit value, and link to fund performance
- Charges:
- Administration fees, insurance charges, fund management fees, COI deductions
- Other considerations: Policy value may fluctuate depending on market, global economic situation
5. Investment Considerations
- Investment Objectives: Safety, Income, Growth
- Availability of funds
- Risk or security
- Investment horizon
- Accessibility of funds
- Taxation
6. Types of Investment Vehicles & Potential Risks
- Cash and deposits
- Treasury bills
- Fixed income securities
- Bonds
- Shares
- Unit Trusts
- Properties
- Real Estate Investment Trusts (REITs)
- Sukuk
7. Common Types of Investment-Linked Funds
- Investment-Linked Funds (ILF): Cash, Equity, Sukuk, Property, Balanced, and Specialized funds
7.5 - 7.7 Managed, Balanced & Specialized Funds
- Managed Funds: Investments across various asset categories (equities, fixed incomes, properties, cash/money markets) The asset allocation depends on fund manager's views of future prospects
- Balanced Funds: Invest in specified proportions of specific asset categories (e.g., 70% in equities, 30% in fixed income) and, in general, do not change this mix too often
- Specialized Funds: Designed around a specific themes/regions (e.g., Asia Pacific Fund, Emerging Markets Fund, etc.) or a specific theme (e.g., Global Green Energy Fund)
7.9 Risks vs. Returns of Investment-Linked Funds
- Bond funds: Lower return potential, stable/less volatile/lower risk
- Equity funds: Higher return potential, volatile/less stable and higher risk
- Risk reduction strategies: Dollar Cost Averaging, Diversification, Top-up premium
8. Pertinent Guidelines on Investment-Linked Business
- Professional conduct in sales/marketing
- Valuation of units on every business day
- Insurers may split ILF units
- Limit of unit split/combination only once per financial year
- Limit of sales illustrations to a 30-year projection period
9 Agents Professional Approach & Guidelines
- Agents as key distributors
- Agent's role in satisfying customer needs
- Agent's skills to satisfy consumer needs (financial analysis, knowing the customer)
- Agent's role in customer buying process (problem recognition, information search, evaluate alternative policies, purchase, post-purchase evaluation, repeat stage 1)
- Agent's role in selling process (locating prospective customers, sales presentation, sales interview, handling objections, closing the sale, repeat stage 1)
- Agents' role in after-sales services (addressing post-sales concerns, reinforcing customer decisions, re-emphasizing commitment to quality service, explaining policy provisions)
9.6 LIAM Codes of Conduct
- Policy owner's consent before premium holiday
- Top-up premiums are allocated for unit purchases
- Guide lines on selling policies
- Provide relevant statements to customers
9.7 Treating Customers Fairly Policy
- Agents should be well-trained in investment/savings products
- Products are sold based on customers' suitability, needs, and risk appetite
Self-Assessment Questions - Summary
- Questions regarding particular topics in the CEILLI curriculum
- Solutions (Answers) to the questions provided for reference
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Description
This quiz covers key concepts in investment strategies such as dollar cost averaging and long-term investment benefits, as well as fundamental principles of insurance like the no-lapse guarantee and death benefits. Test your understanding of how different pricing models and account management strategies work in trading and investment contexts.
