41 Questions
What are the requirements of insurable risks? Select all that apply.
The loss must be significant in financial terms
Life insurance and gambling are similar concepts.
False
Life insurance serves as a financial protection tool against _______, outliving resources, and ill health.
premature death
What are the requirements of insurable risks? (Select all that apply)
The loss must be definite
What are the aims of the nomination framework in insurance?
The aims of the nomination framework are to provide clarity on who will benefit from the policy proceeds and to facilitate the smooth distribution of benefits.
What is the importance of life insurance? Life insurance can assist in making savings possible, provide a safe investment, encourage thrift, and minimizes worries providing ____________.
peace of mind
Match the following terms with their descriptions:
Physical Hazard = Risk related to the physical condition of the insured Moral Hazard = Risk related to the insured's behavior and intentions Anti-Selection = Process where individuals with higher risk are more likely to seek insurance Utmost Good Faith = Requirement for the insured to disclose all relevant information truthfully
What does ILP stand for?
Investment-linked Life Insurance Policies
Which of the following are key factors to consider before purchasing an ILP? (Select all that apply)
Personal Investment Objective
Investment returns of ILPs are guaranteed.
False
ILPs offer pooling or diversification benefits, flexibility, dollar cost averaging, professional management, ____________, ease of administration, choice of sub-funds, potential returns, and guaranteed insurability.
affordability
Match the following types of Investment-linked Sub-Funds with their descriptions:
Equity Funds = Invest in stocks and shares Cash Funds = Hold cash or cash equivalents Property Funds = Invest in real estate properties Managed Funds = Managed by professionals who make investment decisions
Define premature death in the context of insurance.
The death of a breadwinner due to illness or accident with unfulfilled financial obligations.
What are the three main types of personal risks that can be insured?
Outliving resources
Life insurance policies provide financial protection against the economic loss caused by the premature death of the insured.
True
A __ hazard may increase the likelihood of loss due to physical characteristics.
physical
Match the following insurance terms with their correct definitions:
Applicant = Person or business applying for an insurance policy Policy owner = Person or entity that owns the insurance policy Life insured = Person insured by a life insurance policy
What is the concept of risk in the context of insurance?
Risk, in the insurance context, is the possibility of loss with an element of uncertainty.
Which type of risk involves no possibility of gain, only loss or no loss?
Pure risk
Insurers will insure speculative risks.
False
The loss must be ________ in financial terms to be insurable.
significant
Which of the following is NOT a requirement for a risk to be insurable?
Caused by intentional acts
What is the purpose of insurance according to the text?
The purpose of insurance is to compensate for financial loss, not to provide an opportunity for financial gain.
The loss must be definite for it to be insurable.
True
What does the law of large numbers have to do with insuring risks?
Pricing of insurance is based on the law of large numbers, which requires a large number of insured units for reliable predictions of aggregate losses and expenses.
Match the risk management method with its description:
Avoiding the Risk = Avoiding risk altogether. Controlling the Risk = Taking steps to prevent or reduce losses. Retaining the Risk = Assuming all the financial responsibility for the risk.
Why is a breadwinner less likely to worry about financial security with adequate life insurance?
To compensate for loss of earnings in case of an accident
Insurance contracts are subject to the principle of utmost good faith.
True
What is the role of the law of large numbers in insurance?
Predict the frequency and severity of losses based on a large number of insured persons.
A proposer must disclose all ______ which can influence the risk assessment of the underwriter.
material facts
What are the major types of life insurance policies described in the content?
Term Insurance
An Endowment Insurance policy provides a death benefit only when the insured dies.
False
What does the deductible/excess represent in an insurance policy?
portion of any claim that is not covered by the insurer
An Annuity is a series of periodic income payments to a named individual in exchange for a premium or a series of ________.
premiums
Match the following health insurance products with their descriptions:
Critical Illness Insurance = Protection against covered critical illnesses Medical Expense Insurance = Reimburses insured for event, illness, or accident expenses Hospital Cash (Income) Insurance = Provides daily allowance benefit during hospital stay Disability Income Insurance = Replaces portion of income if totally disabled
Why is insurable interest necessary for life insurance contracts?
To minimize problems of moral hazard in insurance
Insurance is intended to allow the insured to profit from misfortunes.
False
What is the purpose of the principle of indemnity in insurance?
The purpose of the principle of indemnity is to restore the insured's financial position approximately to what it was before the loss occurred.
Why is the principle of indemnity not applied in Life Insurance and Personal Accident Insurance?
Cannot price the value of a human life
In Personal Accident Insurance, how do insurers determine the benefits provided?
By providing an agreed amount
In Life and Personal Accident Insurance, insurers keep the financial benefits approximately in line with the insured's likely earnings if they had not suffered from the loss to ensure __________.
indemnity
Study Notes
Life Insurance and Investment-Linked Policies
Important Notice
- Any reproduction or redistribution of the study text is strictly prohibited without granted permission.
- Copyright infringement will result in legal action.
- Website references are correct as of the time of publication.
Table of Contents
- Chapter 1: Risk and Life Insurance
- Chapter 2: Setting Life Insurance Premium
- Chapter 3: Classification of Life Insurance Products
- Chapter 4: Traditional Life Insurance Products
- Chapter 5: Riders (Or Supplementary Benefits)
- Chapter 6: Participating Life Insurance Policies
- Chapter 7: Investment-Linked Life Insurance Policies (ILPs)
- Chapter 8: Investment-Linked Sub-Funds
- Chapter 9: Investment-Linked Life Insurance Policies: Computational Aspects
- Chapter 10: Annuities and Other Life Insurance Products
- Chapter 11: Application and Underwriting
- Chapter 12: Policy Services
Chapter 1: Risk and Life Insurance
- Risk is a situation involving exposure to danger, loss, or uncertainty.
- Speculative risks involve the possibility of gain or loss.
- Pure risks involve the possibility of loss or no loss.
- Requirements of insurable risks:
- The loss must be significant in financial terms.
- The loss must occur by chance.
- The loss must be definite.
- The loss rate must be measurable.
- The loss must not be catastrophic to the insurer.
- The loss must be based on a large number of insureds.
- Dealing with risk:
- Avoiding the risk.
- Controlling the risk.
- Retaining the risk.
- Transferring the risk.
- Types of personal risks that can be insured:
- Risk of premature death.
- Risk of outliving resources or longevity risk.
- Risk of poor health and disablement.
- Basic life insurance terms:
- Insurer.
- Insured.
- Policy.
- Premium.
- Sum assured.
- Insurance vs. gambling:
- Insurance is a risk-transfer mechanism.
- Gambling is a risk-taking mechanism.
- Hazards:
- Physical hazard.
- Moral hazard.
- Concept of anti-selection:
- The tendency of higher-risk individuals to seek insurance.
Chapter 2: Setting Life Insurance Premium
- Pricing considerations:
- Mortality and morbidity rates.
- Investment income.
- Expenses.
- Gender.
- Smoking status.
- Amount of sum assured.
- Frequency of premium payments.
- Suitability of frequency and mode of premium payments. ...
Please let me know if you would like me to continue with the rest of the chapters.Here are the study notes for the text:
Risk and Life Insurance
- Risk can be classified into two types: speculative risks and pure risks
- Speculative risks involve the possibility of gain or loss
- Pure risks involve only the possibility of loss
Requirements of Insurable Risks
- A risk must meet certain conditions to be insurable
- The loss must be significant in financial terms
- The loss must occur by chance
- The loss must be definite
- The loss must be measurable
- The loss must not be catastrophic to the insurer
- The loss must be based on a large number of insureds
Dealing with Risk
- There are four ways to deal with risk:
- Avoiding the risk
- Controlling the risk
- Retaining the risk
- Transferring the risk
Types of Personal Risks that can be Insured
- There are three main types of personal risks that can be insured:
- Risk of premature death
- Risk of outliving resources (longevity risk)
- Risk of poor health and disablement
Basic Life Insurance Terms
- Defined terms related to life insurance
- Policyholder
- Insured
- Beneficiary
- Premium
- Sum assured
- Maturity date
Insurance and Gambling Compared
- Insurance and gambling are not the same
- Insurance involves sharing of risk among a large number of people
- Gambling involves betting on an uncertain event
Hazards
- Hazards can be classified into two types:
- Physical hazards (e.g. natural disasters)
- Moral hazards (e.g. reckless behavior)
Concept of Anti-Selection
- Anti-selection refers to the phenomenon where individuals with higher risks are more likely to purchase insurance
- This can lead to adverse selection, where the insurer ends up with a pool of high-risk policyholders
Life and Health Insurance Products
- Life insurance products include:
- Term life insurance
- Whole life insurance
- Endowment insurance
- Health insurance products include:
- Hospitalization insurance
- Surgical insurance
- Critical illness insurance
Life Insurance as a Financial Protection Tool
- Life insurance provides financial protection against:
- Premature death
- Outliving resources
- Ill health and disablement
- Life insurance can also be used for business protection and estate planning
Importance of Life Insurance
- Life insurance assists in making savings possible
- Provides a safe investment
- Encourages thrift
- Minimizes worries and provides peace of mind
Pooling of Risks and the Law of Large Numbers
- Pooling of risks involves sharing of risk among a large number of people
- The law of large numbers states that the larger the pool of policyholders, the more predictable the overall claims experience will be
Principle of Utmost Good Faith
- Insured's duty of utmost good faith:
- Material facts must be disclosed
- Facts that need not be disclosed
- Duration of duty of disclosure
- Insurer's duty of disclosure
Insurable Interest Requirement
- Insurable interest is necessary to prevent wagering or speculation
- Insurable interest must exist at the time of policy issuance and at the time of claim
- Examples of insurable interest include:
- Own life
- Spouse
- Child or ward
- Another person whom one is dependent on
Principle of Indemnity and Life Insurance
- Principle of indemnity states that the insurer should restore the policyholder to the same financial position as before the loss
- In life insurance, the principle of indemnity is modified to provide a death benefit that is not necessarily equivalent to the actual loss
Structure of the Singapore Insurance Market
- Buyers
- Sellers (direct insurers, reinsurers)
- Intermediaries (agents, brokers)
- Introducer of life insurance advisory services
- Web aggregators
Other Relevant Organisations
-
Rating agencies
-
Market associations
-
Professional bodies
-
Financial Industry Disputes Resolution Centre (FIDReC)
-
Singapore Deposit Insurance Corporation (SDIC)
-
MoneySENSE programme### Risk and Insurance
-
Individuals and businesses face various risks, including pure risks and speculative risks.
-
Pure risks involve no possibility of gain, only a loss or no loss; an example is the possibility of becoming disabled.
-
Insurers only insure pure risks, not speculative risks.
Requirements of Insurable Risks
- To be insurable, a risk must meet certain requirements:
- Be significant in financial terms.
- Occur by chance.
- Be definite.
- Be measurable.
- Not be catastrophic to the insurer.
- Be based on a large number of insureds.
Dealing with Risk
- There are four methods to deal with risk:
- Avoiding the risk.
- Controlling the risk.
- Retaining the risk.
- Transferring the risk.
Personal Risks
- Three main types of personal risks that can be insured:
- Premature death.
- Outliving resources (longevity risk).
- Poor health and disablement.
Basic Life Insurance Terms
- Life insurance policy: a contract promising to pay a benefit upon the death of the person insured.
- Death Benefit: the benefit paid to the policy owner upon the death of the life insured.
- Policy owner: the person or business owning the insurance policy.
- Life insured: the person insured by a life insurance policy.
- Sum assured: the amount guaranteed to be paid by the insurer in the event of a claim.
Insurance and Gambling
- Insurance and gambling differ in two key ways:
- Insurance handles an existing pure risk, while gambling creates a new speculative risk.
- Insurance is socially productive, while gambling is not.
Hazards
- Two types of hazards:
- Physical hazards: physical characteristics that increase the likelihood of loss.
- Moral hazards: the likelihood of a person acting dishonestly in the insurance transaction.
Anti-Selection
- Anti-selection occurs when individuals with a higher likelihood of loss seek insurance protection.
- Insurers use underwriting to assess and classify risks to minimize anti-selection problems.
- Underwriting involves identifying and classifying the degree of risk presented by an intending insured.
This quiz covers the 7th edition of Life Insurance and Investment-Linked Policies, a comprehensive study on insurance and investment policies. It's an essential resource for those preparing for examinations in this field.
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