Life Insurance and Investment-Linked Policies 7th Edition
41 Questions
3 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What are the requirements of insurable risks? Select all that apply.

  • The loss rate must be immeasurable
  • The loss must be significant in financial terms (correct)
  • The loss must be definite (correct)
  • The loss must occur by certainty
  • The loss must not be catastrophic to the insurer (correct)

Life insurance and gambling are similar concepts.

False (B)

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)

<p>The loss must be definite (A), The loss must be significant in financial terms (C), The loss must not be catastrophic to the insurer (D), The loss must be based on a large number of insureds (E)</p> Signup and view all the answers

What are the aims of the nomination framework in insurance?

<p>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.</p> Signup and view all the answers

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 ____________.

<p>peace of mind</p> Signup and view all the answers

Match the following terms with their descriptions:

<p>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</p> Signup and view all the answers

What does ILP stand for?

<p>Investment-linked Life Insurance Policies</p> Signup and view all the answers

Which of the following are key factors to consider before purchasing an ILP? (Select all that apply)

<p>Personal Investment Objective (A), Insurance Protection Needs (C), Risk Profile (D)</p> Signup and view all the answers

Investment returns of ILPs are guaranteed.

<p>False (B)</p> Signup and view all the answers

ILPs offer pooling or diversification benefits, flexibility, dollar cost averaging, professional management, ____________, ease of administration, choice of sub-funds, potential returns, and guaranteed insurability.

<p>affordability</p> Signup and view all the answers

Match the following types of Investment-linked Sub-Funds with their descriptions:

<p>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</p> Signup and view all the answers

Define premature death in the context of insurance.

<p>The death of a breadwinner due to illness or accident with unfulfilled financial obligations.</p> Signup and view all the answers

What are the three main types of personal risks that can be insured?

<p>Outliving resources (B), Premature death (D)</p> Signup and view all the answers

Life insurance policies provide financial protection against the economic loss caused by the premature death of the insured.

<p>True (A)</p> Signup and view all the answers

A __ hazard may increase the likelihood of loss due to physical characteristics.

<p>physical</p> Signup and view all the answers

Match the following insurance terms with their correct definitions:

<p>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</p> Signup and view all the answers

What is the concept of risk in the context of insurance?

<p>Risk, in the insurance context, is the possibility of loss with an element of uncertainty.</p> Signup and view all the answers

Which type of risk involves no possibility of gain, only loss or no loss?

<p>Pure risk (C)</p> Signup and view all the answers

Insurers will insure speculative risks.

<p>False (B)</p> Signup and view all the answers

The loss must be ________ in financial terms to be insurable.

<p>significant</p> Signup and view all the answers

Which of the following is NOT a requirement for a risk to be insurable?

<p>Caused by intentional acts (B)</p> Signup and view all the answers

What is the purpose of insurance according to the text?

<p>The purpose of insurance is to compensate for financial loss, not to provide an opportunity for financial gain.</p> Signup and view all the answers

The loss must be definite for it to be insurable.

<p>True (A)</p> Signup and view all the answers

What does the law of large numbers have to do with insuring risks?

<p>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.</p> Signup and view all the answers

Match the risk management method with its description:

<p>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.</p> Signup and view all the answers

Why is a breadwinner less likely to worry about financial security with adequate life insurance?

<p>To compensate for loss of earnings in case of an accident (C)</p> Signup and view all the answers

Insurance contracts are subject to the principle of utmost good faith.

<p>True (A)</p> Signup and view all the answers

What is the role of the law of large numbers in insurance?

<p>Predict the frequency and severity of losses based on a large number of insured persons.</p> Signup and view all the answers

A proposer must disclose all ______ which can influence the risk assessment of the underwriter.

<p>material facts</p> Signup and view all the answers

What are the major types of life insurance policies described in the content?

<p>Term Insurance (B), Whole Life Insurance (C), Endowment Insurance (D)</p> Signup and view all the answers

An Endowment Insurance policy provides a death benefit only when the insured dies.

<p>False (B)</p> Signup and view all the answers

What does the deductible/excess represent in an insurance policy?

<p>portion of any claim that is not covered by the insurer</p> Signup and view all the answers

An Annuity is a series of periodic income payments to a named individual in exchange for a premium or a series of ________.

<p>premiums</p> Signup and view all the answers

Match the following health insurance products with their descriptions:

<p>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</p> Signup and view all the answers

Why is insurable interest necessary for life insurance contracts?

<p>To minimize problems of moral hazard in insurance (A)</p> Signup and view all the answers

Insurance is intended to allow the insured to profit from misfortunes.

<p>False (B)</p> Signup and view all the answers

What is the purpose of the principle of indemnity in insurance?

<p>The purpose of the principle of indemnity is to restore the insured's financial position approximately to what it was before the loss occurred.</p> Signup and view all the answers

Why is the principle of indemnity not applied in Life Insurance and Personal Accident Insurance?

<p>Cannot price the value of a human life</p> Signup and view all the answers

In Personal Accident Insurance, how do insurers determine the benefits provided?

<p>By providing an agreed amount (A)</p> Signup and view all the answers

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 __________.

<p>indemnity</p> Signup and view all the answers

Flashcards

What is Risk?

A situation where there is exposure to danger, loss, or uncertainty.

What is Speculative Risk?

Risk involving the possibility of both gain and loss.

What is Pure Risk?

Risk involving the possibility of loss or no loss, but no possibility of gain.

Insurable Risks: Requirements?

Significant, chance-based, definite, measurable, not catastrophic, and based on a large number of insureds.

Signup and view all the flashcards

Dealing with Risk: Methods?

Avoiding, controlling, retaining, and transferring.

Signup and view all the flashcards

Insurable Personal Risks?

Premature death, outliving resources, and poor health/disablement.

Signup and view all the flashcards

Who is the Insurer?

The company providing insurance coverage.

Signup and view all the flashcards

Who is the Insured?

The person or entity covered by the insurance policy.

Signup and view all the flashcards

What is a Policy?

The contract between the insurer and the insured.

Signup and view all the flashcards

What is a Premium?

The payment made by the insured to the insurer for coverage.

Signup and view all the flashcards

What is Sum Assured?

The amount guaranteed to be paid upon the occurrence of the insured event.

Signup and view all the flashcards

Insurance vs. Gambling?

Insurance transfers risk, gambling creates risk.

Signup and view all the flashcards

What is a Hazard?

A condition or situation that increases the likelihood of a loss.

Signup and view all the flashcards

What is a Physical Hazard?

Physical characteristics increasing the chance of loss.

Signup and view all the flashcards

What is a Moral Hazard?

Dishonest behavior that increases the chance of loss.

Signup and view all the flashcards

Anti-Selection?

Tendency of high-risk individuals to seek insurance.

Signup and view all the flashcards

What is Underwriting?

Assessing and classifying risks to minimize anti-selection.

Signup and view all the flashcards

What is Adverse Selection?

Occurs when individuals with higher risks are more likely to purchase insurance, leading to a pool of high-risk policyholders.

Signup and view all the flashcards

Who is the Policy Owner?

The person or entity who owns the insurance policy.

Signup and view all the flashcards

Who is the Life Insured?

The person whose life is insured by the insurance policy.

Signup and view all the flashcards

Who is the Beneficiary?

The person who receives the death benefit from a life insurance policy.

Signup and view all the flashcards

Life Insurance Policy?

A contract promising to pay a benefit upon the death of the person insured.

Signup and view all the flashcards

Death Benefit?

The benefit paid to the policy owner upon the death of the life insured.

Signup and view all the flashcards

Pure Risks?

Pure risks involve no possibility of gain, only a loss or no loss

Signup and view all the flashcards

Life Insurance Products?

Insurers often offer multiple types of policies that include term, whole, and endowment.

Signup and view all the flashcards

Riders?

Insurers can offer supplementary benefits that can be added to an insurance policy.

Signup and view all the flashcards

Why Life Insurance is Important?

Life insurance provides savings for the policy owner.

Signup and view all the flashcards

Benefits of Life Insurance?

Life insurance minimizes worries for the possible future events.

Signup and view all the flashcards

Pooling of Risks?

Transfer of Risk to a larger pool to better manage claims.

Signup and view all the flashcards

Principle of Utmost Good Faith?

Duty of disclosure from insured to insurance provider.

Signup and view all the flashcards

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.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Life Insurance and Investment-Linked Policies PDF

Description

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.

More Like This

Use Quizgecko on...
Browser
Open
Browser
Browser