PRE-CONTRACT

1
STUDY GUIDE
EXAMINATION
The following chart is a consolidated figure on the percentage (%) of
multiple choice questions derived from respective chapters :
Hot exam topics
0 1 2 3 4 5 6 7 8 9
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 21
Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
Chapter 27
Chapter 28
Chapter 29
Chapter 30
%
2
Part A
Pre-Contract Examination
Chapter 1: Introduction to Insurance

Introduction
to insurance
(pg 1-2)
How insurance
works (pg 3-4)
What is
insurance?
(pg 4-5)
Functions of insurance (pg 5-6)
Definition of insurance:
Economic institution principal
of mutuality, form a common
fund, needs arises from chance
occurrences, probability can be
fairly estimated
By Law of large number:
Spreading the risk of loss
to all parties, pool their
resources to pay for
individual losses
Essential
features of
insurance
(pg 4-5)
Economic
Institution
Accumulate
fund to pay
for claims
Principle of
mutuality/
cooperation
Risk with
occurence can
be estimated
Bring financial relief aggrieved
dependents or property loss
Inculcate the discipline of saving
Provide insurance related service to
public
Roles of insurance agent (pg 8)
Equitable distribution of financial
losses
Cost stabilization
Stimulation of business enterprise
Security for expansion of business
Reduction of losses
A means of saving
Sources of capital for investment
Employment for many
Primary Secondary
Nature of Risk
and Risk
management
Concept of
Risk (pg 12-14)
Methods of
handling Risk
(pg 15)
Peril A cause of loss
Loss A reduction /
disappearance of
economic value

2 types of hazards:
Physical: physical characteristics
Moral: Character defect in
individual
Measurement of Risk:
Priori: Total numbers of
possible events are known
Empirical: Historical data
Judgmental: Judgment of
the person predicting the
outcomes
Definition of Risk:
Uncertainty/Possibility
of loss
The exposure of danger
The subject matter of
insurance
Chapter 2: Nature of Risk and Risk Management
Avoid person
property/activity
which produces
risk
Loss prevention: Reducing
frequency of loss
Loss minimization: Reducing
severity/amount of loss
Retaining of risk Transferring of risk
1) Insurance contract: transfer of
loss of house perished by fire
into fire insurance contract
2) Non Insurance contract:
potential liability from sale of
defective product between
manufacturer and
supermarket
Risk Avoidance
Risk Retention
Loss Control
Risk Transfer
Fundamental: Entire economy of
large number of persons/group
Particular: Affects individual
Pure: Loss or no loss
Speculative: Profit, loss or no loss
Basic category of insurance (pg 14-15)
Risk Management
Process (pg 16-17)
Identify loss exposures 1
Evaluating potential loss 2
Selecting risk handling
techniques
3
Implementing risk
management programme
4
Controlling risk
management programme
5
Monetary compensation can be given
Predict losses more accurately

Loss or no loss
Large number of risks incur losses at the same
time/one risk results in huge loss
Accidental / unintentional loss
Must have insurable interest in the property,
rights, interest, life, limb or potential liability to
be insured
Not against public policy
Must be reasonable to the potential loss
Financial value
Large number of
similar risk
Pure risk
No catastrophic loss

Fortuitous losses
Insurable interest


Legal
Reasonable premium
Insurable risk must fulfill certain
characteristics (pg 17-18)
Chapter 3: The Basic Principles of Insurance and
an Introduction to Takaful
Principle of
Insurance (pg 22-32)
Insurable interest (pg 23-24)
Who has insurable interest?
When must insurable
interest exists?
Concept of insurable
interest
Subject matter of
insurance:
Property, potential legal
liability, life, limb of
insured under a policy
Subject matter of
insurance contract:
Financial interest of an
insured in the subject
matter of insurance
General insurance: At
inception and at time
of loss
Marine insurance: At
time of loss
Life insurance: At the
inception
Property insurance: owner,
trustee, agent, mortgagee or hirer
Liability insurance: anyone who
has potential legal liabilities, legal
cost and expenses
Life and personal insurance:
unlimited in his own life and limbs
A person: spouse, child , ward
under majority age, employee,
wholly/partly dependent
Transfer of rights and
liabilities from one to
another (assignor to
assignee)
Prior consent of insurer is
needed for an assignment
to be valid
Novation: Insurer gives
consent to the
substitution of the insured
by new insured, a new
contract created between
the insurer and the
assignee of the original
policy
Exception to the rule:
1) Marine policies
(cargo policies) :
Freely assignable
2) Life policies: Assignable
by statutory provision
3) Fire policies: Automatic
assignment if transfer of
interest in the subject
matter of insurance is
made by will or
operation of law
Assignment
(pg 24-25)
The legal principle governing contract: Caveat emptor (let buyer
beware)
Insured has to disclose all important facts regarding the risk to be
insured
Duty of disclosure does not require the disclosure of a matter that:
1) Diminishes the risk of insurer
2) Is of common knowledge
3) Insurer knows or in the ordinary course of his business ought to know
4) Insurer has waived any requirement for disclosure
Are to be disclosed by insured
A fact in deciding the acceptance of risk or premium to be charged
Non-disclosure: Fail to disclose the material fact
Misrepresentation: Misrepresent the material fact
Insurance Contract
Material facts
Subsection 150(2)
Voidable contract Utmost good faith is breached
Utmost Good Faith (Uberrima Fides) (pg 25-27)
Chapter 3: The Basic Principles of Insurance and
an Introduction to Takaful
Principle of
Insurance
(pg 22-32)
The principle of Indemnity (pg 27-28)
Restore the insured to
the same financial
position as he had
enjoyed immediately
before the loss
Cash
Repair
Replacement or
reinstatement
Indemnity Method of indemnity
The principle of subrogation (pg 28-29)
Insurer who has indemnified an
insured for a loss may exercise
the insureds rights to claim from
third party in respect of the loss
Out of tort (act of negligence)
Out of contract (Not covered under a
policy)
Out of statute (right to recover a loss
from third party)
Out of subject matter( Salvage)
Subrogation Subrogation may arise:
The principle of Contribution (pg 29-30)
Insurer who has
indemnified an insured
may call upon other
insurers liable for the
same loss to contribute
proportionately to the
cost of the indemnity
payment
Two or more policies of
indemnity must be in force
Policies must cover a common
interest
Cover a common peril which give
rise to the loss
Common subject matter covered
by policies
Contribution Condition for contribution to apply:
The principle of Proximate Cause (pg 30-32)
Dominant cause of loss
Onus of proof of loss
rests on the insured
Insured perils: perils expressly
covered by a policy
Uninsured perils: Perils not
mentioned in policy, not covered
by policy, unless occur as a result
of an insured peril
Excluded peril: Perils which have
been excluded from the policy
Proximate Cause Liability
Chapter 3: The Basic Principles of Insurance and
an Introduction to Takaful
Takaful
(pg 32-36)
Overview of Takaful (pg 32-34)
Arabic verb Kafala
Mutual help among
group to support the
needy within the
group through a fund
contributed by group
members.
Piety or individual purification
Brotherhood via taawun or mutual
assistance
Charity through tabarru or donation
Mutual guarantee
Self sustaining operations as opposed
to profit maximization
Essential Elements in Takaful Concepts
Sincere intention to help
Compliance to Shariah principles
Basis of mutual help in Takaful is
grounded on Islamic Value:
Takaful and insurance (pg 34)
(Does not conform to Shariah
Requirement)
Al Gharar: Uncertainty in
the contract of insurance 1
Al Maisir: Gambling as the
consequence of the presence
of uncertainty
2
Al Riba: The existence of
interest or usury in its
investment activities
3
Concept of Takaful (pg 34-35)
Tabarru
Mudharabah
Donation, gift or contribution
Contractual agreement
between provider of capital
and entrepreneur for business
venture
Family Takaful Business (pg 36)
Tabarru basis
Saving and investment
Participants Special
Account (PSA)
Participants Account (PA)
Objective:
1) To save regularly over a fixed
period
2) To earn investment return
3) To obtain coverage in the event
of death
Combination of long term + mutual
financial assistance scheme
Contribution is divided into 2 separate accounts
Individual family Takaful plans
Takaful mortgage plans
Takaful plans for education
Group Takaful plan
Health/Medical Takaful
Covers available:
Chapter 4: The Insurance Market
Main
Component
(pg 39-43)
Intermediaries Seller Buyer
Individual
person
Life insurer (life
business)
General Insurer
(General
business)
Life & General
(Composite
insurer)
Insurance
agents and
brokers
Insurance
agents
Insurance
Broker
Authorized to solicit
insurance business, collect
premiums, issue cover notes
on behalf of insurer
Agent act on behalf of
agent and normally not tied
to any insurer
Underwriter
Insurer/Individual skilled in the process of selecting
risks for an insurance company
Loss
Adjuster
Investigating the cause and circumstances of loss and
ascertaining the quantum of loss either for insurer / policy
holder
Loss
Assessor
Assess the extent of damage or loss settlement, assist in
the preparation and negotiation of claim Text
Marine
and Cargo Surveyor
Survey damaged ships and cargo and report
on the cause and extent of loss
Actuary
Deals with financial impact of risk and uncertainty,
skilled in analysis, evaluation and management of
statistical information
Risk Surveyor
Eyes and ears in evaluating the risk where risk
insured is substantial in amount
Insurance Professionals (pg 42-43)
Other Market Component (pg 43-44)
Service Specialist Reinsurer
Insurance which insurers
purchase to cover risks
underwritten by them
Provide support
service to insured
and insurers
Chapter 4: The Insurance Market
Organization Structure (pg 44-45)
Office services, building services and
personnel administration (hiring, training
and dismissal of employee, determine
salary scales
Development of sales programs, sales
literature and kits, training of sales force
Establishing procedures and programs to
enable utilization of computers
Sets underwriting guidelines and selection
criteria, selects risks and determine
premiums, terms and conditions of new
business and renewal
Administration Department
Electronic Data Processing (EDP)
Marketing Department
Underwriting Department
General accounting record, preparation of
financial statement, control of receipt and
disbursement, maintenance of budgetary
control
Process claims
Invest all available funds, ensure
investment yield sufficient return, satisfy
companys requirement for liquidity and
security
Provide assistance to policy owners and
beneficiaries
Accounting Department
Investment Department
Claims Department
Customer Service Department
Identification of field forces, recruitment
of agents, motivation and supervision of
sales force
Design and pricing of new products,
calculation of surrender values, paid up
policy values and bonus rate
Agency and Sales Department Actuarial Department
Advantages:
- Uniformity,
economics in
administration
Disadvantages:
- Slow service
Advantages:
- Prompt service
Disadvantages:
- Duplication of
resources
Centralization Decentralization
Centralization vs
Decentralization
(pg 47-48)
Chapter 4: The Insurance Market
Insurance Supervisory Authority and Mandatory Associations
(pg 48-55)
Promoting monetary and financial system stability to
achieve sustained economic growth, resolution of
complaints against insurers
Provide compensation to victims of motor accidents where
uninsured drivers are able to meet their liability from own
personal resources
Provide motor insurance to vehicle owners who cannot
readily find an insurer to provide insurance protection for
their vehicles
Representative body of actuarial profession in Malaysia
Bank Negara Malaysia (BNM)
Malaysian Motor Insurance Pool (MMIP)
Motor Insurance Bureau (MIB)
Actuarial Society of Malaysia (ASM)
Association of general insurers Open to life and general insurance companies to develop
best practice relating to insurance claims processes
Self regulation, continuing education and professional skills
development of the agency force and promote greater
discipline
Association for life insurance agents safeguarding the
interests in life insurance selling and sales management
Persatuan Insurans Am Malaysia (PIAM)
Life Insurance Association of Malaysia (LIAM)
National Insurance Claims Society (NICS)
National Association of Malaysian Life Insurance and Financial
Advisors (NAMLIFA)
Provide training, technical advice, guidance on regulation
and business support
Promote development of financial planning
Carrying business of loss adjusting
Promoting education and training services to insurance
markets of all sectors and agency forces
Malaysian Insurance and Takaful Brokers Association (MITBA)
Association of Malaysian Loss Adjusters (AMLA))
Malaysian Financial Planning Council (MFPC)
Malaysia Insurance Institute (MII)
Chapter 5: Consumer Protection and Statutory
Regulations
Insurance Industry
& The consumer
(pg 67-77)
1) The right to satisfaction
2) The right to information
3) The right to choose
4) The right to basic goods and services
5) The right to be heard
6) The right to redress
7) The right to consumer education
8) The right to a safe and clean environment

Consumers have 8 basic rights: (pg 67-68)
Instilling discipline and promoting
healthy competition in the industry
Providing some elements of protection
to insurance consumers
General insurances main association:
1) PIAM
2) MITBA
3) AMLA
Life insurances main association:
1) LIAM
Objectives of self regulation
Transaction of insurance business through
insurance associations:
Instill self discipline
among insurance
company
Avoids the need to
introduce legislation to
regulate the industry
When laws are passed,
bureaucratic back up will
be required to enforce
them
Self regulatory measures
can respond to changing
needs faster than
legislations
Voluntary codes of
practice do not have the
power of law
Statements of practice
and intercompany
agreements drawn up by
insurance companies
view consumers needs
from their own
perspective
Law are interpreted by
the court, statements of
practice are interpreted
by the drafters
Advantages Disadvantages
Self Regulation (pg 69-70)
Main purpose of regulation
1) The protection of public interest
2) The promotion of fairness and equity
3) The fostering of competence
4) The playing of a developmental role
Chapter 6: The Insurance Contract
What is a
contract?
(pg 81-84)
1) Intention to create legal relationship
2) Offer and acceptance
3) Consent consensus ad idem
4) Consideration
5) Legal capacity to contract
6) Legality of the contract

Essential legal requirement of insurance contracts:
Legally binding agreement
made between two or
more parties that is one
which the law will enforce
and recognize in some way
Void Contract Voidable Contract Unenforceable Contract
Remain valid till the
aggrieved party exercises
the option to treat it void
Defective Contracts (pg 83)
Law holds to be no contract
at all, a nullity from the
beginning
Non-compliance with legal
formalities
Chapter 7: Law of Agency
Overview
1) To render accounts to the principal
2) Not to let his interest conflict with his obligations to the
principal
3) Not to disclose confidentiality information
4) Not to take any secret profit or bribe from any party
5) Not to delegate his duties to sub-agent
6) To comply with his principals instruction
Duties of an agent (pg 91)
Legal provisions governing
the law of agency
(pg 88-91)
A person acts on behalf
of another person, the
person he represents is
principal
Relationship arises when
one person (agent) is
engaged by another
person (principal)
Insurance agents,
insurance brokers
Between principal and
agent
Between principal and
third party
Between agent and third
party

Agent, principal
Intermediaries
Agency
Relationship
Some key words
Given to agent orally or in
writing
Not expressed to agent either
orally or in writing (carry with
usual authority)
Any representation made by
principal that induces a third
party to reasonably believe that
a particular person is an agent
of the principal makes the
principal liable for the agents
actions (authority by estoppel)
A principal may ratify an act
which was carried out by a
person who was in fact his
agent but who was exceeding
his authority.
Express Authority
Apparent or Ostensible Authority
Implied Authority
Ratification
Classes of agent
1) Special agent: to carry out specific act
or transaction
2) General agent: May do anything for his
principal within the limits of a general
authority conferred upon him
3) Universal agent: Unlimited authority
Authority of
an agent
(pg 89-91)
Chapter 8: Insurance Marketing and After-Sales
Service
Sales
(pg 100-105)
Sales vs Marketing
(pg 100-103)
Functions of marketing department (pg 100-101)
1)Planning and controlling
2)Market identification
3)Product development
4)Pricing
5)Selection of distribution channel
6)Promotion
Marketing The management
process responsible for
identifying, anticipating &
satisfying customer requirements
profitably.
1) Problem recognition
2) Information search
3) Evaluation of alternative policies
4) Purchase
5) Post purchase evaluation
Consumer Buying Decision Process (5 stages)
(pg 103-104)
1) Locating the prospective customer
2) Creating a sales presentation
3) Conducting sales interview
4) Handling objections
5) Closing the sales
The Selling Process (5 basic steps) (pg 104-105)
Chapter 9: Introduction to Medical and Health
Insurance
Introduction to
Medical and
Health Insurance
(pg 111-117)
1) Offer and acceptance
2) Underwriting
3) Policy processing
4) Claim administration
5) Reinsurance
Practices of insurance involves the
processes: (pg 112)
Definition of medical and health policy :
A policy of insurance on disease, sickness or
medical expense that provides specified
benefits against risks of persons becoming
totally or partially incapacitated as a result
of sickness or infirmity
Categories of medical and health insurance (pg 116)
Hospitalization and
surgical
- Places the insured in the
same financial position as
before the occurrence of
the insured risk, subject
to the maximum limits of
the insured amount.
- Reimbursed for the cost
of medical treatment
Hospitalization cash
benefit plan, critical
illness, disability income
- Pays a pre-determined
sum of money if an
insured event occurs.
Indemnity policies Benefit policies
MHI policy provides payment of
claims up to the following limits, and
does not result to termination of
policy: (pg 116)
1) Per disability limit
2) Overall annual limit
3) Lifetime limit
1) Inner limits
2) Schedule of surgical procedures
3) Maximum period of compensation
4) Timeframe during which expenses are payable
5) Co-payment for upgraded rooms
6) Deductibles
7) Panel of hospitals
Cost Containment Measures: (pg 116-117)
Cashless hospital admission: (pg 117)
By issuance of a letter of guarantee, upon discharge,
claimant only pays for non-reimbursable charges.
Chapter 10: Types of Medical and Health Insurance
Types of Medical and
Health Insurance
(pg 121-122)
1) Medical Expenses Insurance:
- Hospitalization and surgical
insurance
- Major Medical Expenses
Insurance
2) Hospitalization cash benefit
insurance
3) Critical illness insurance
4) Disability income insurance
5) Clinical Insurance
6) Dental Insurance
7) Maternity Insurance
Medical and health insurance
generally comprises the
following: (pg 121-122)
Sharing of
expenses
between
policyholder
and insurer
Pay pre-agreed
amount before
balance eligible
expenses are
reimbursed. (in
the form of a fixed
amount, a
percentage and a
combination)
Co-payment
Deductibles
Common Expense participation (pg 123)
Supplemental Comprehensive Excess
Similar to basic
hospitalization
and surgical
insurance policy.
Incurred expenses
exceeding the
agreed deductible
is payable in the
event of claim
Major Medical Expense Insurance (pg 122-124)
Extension to basic
hospitalization
and surgical
insurance policy.
Payment of 80% of
incurred expenses
and 20% borne by
policyholder
Top up of major
medical insurance
policy
Single policy is used
to cover many
different members
belonging to a
common entity
employer
Benefits, rights and
obligations of insured
group members are
stated in master
policy
Contributory basis
requires participation
of at least 75% of
eligible members
Non-contributory
basis covers all
eligible members
As stand alone or as
riders to life or
medical and health
insurance policies
Pays a pre-agreed
amount for each
day the insured is
hospitalized
Pays a lump sum upon insured being diagnosed
having the specified critical illness
As stand alone or as rider
Known as
permanent health
insurance
Provides periodic
payments when
insured is unable to
work resulted from
illness, disease or
injury
Group medical and
health insurance
Critical illnesses Insurance
Hospitalization cash
benefit insurance
Disability Income
Insurance
Chapter 11: Underwriting Medical and Health
Insurance
Overview
(pg 130)
Definition of Underwriting:
A process of assessment and
selection of risks, determination of
premium, terms and conditions
The purpose of underwriting: (pg 130-131)
Guard against anti-selection
Charge a premium that is commensurate
with the risk assumed
Anti Selection (pg 131)
Situation where more sub-standard risk are
accepted resulting in a less favorable
underwriting result.
Insurer consider the following in risk selection (pg 131-134)
Possibility of recurrence
Effect of medical history on
applicants general health
Complication that may
develop at a later date
Normal progression on any
impairments
Possible interaction of
normal progression with a
future disability from
unrelated cause
Applicants statement on
application form and medical
examination results are first
indicator of present physical
condition
Class 1: Least hazardous
Class 2: More physical
activity than class 1
Class 3: Light manual duties
or skilled work
Class 4: Heavy manual
duties, there are accidental
hazard
Overall financial situation to
determine the amount and
level of appropriate
insurance coverage required.
Medical Factor
Occupational Factor
Current physical condition
Financial Factor
Mortality and morbidity
increases with age
Age and Sex
Chapter 12: Policy Administration
Overview (pg
142-143)
Structure of Medical and Health Insurance policy form
(pg 143-146)
Provides full name and
registered address of
the insurance company
The benefits provided
by a policy
Introduces third party
in the contract
Signed by an
authorized official of
the insurer
Heading
The preamble or recital
clause
The schedule of benefit
Attestation or signature
clause
Specifies the perils
under the policy
May be expressed or
implied
Contains perils and
losses cannot be
covered under the
policy
Insurer shall maintain
up-to-date register for
all policies issued
The operative or
insurance clause
Exclusions
Conditions
Policy register
Endorsement may be issued to record
alterations to the contract (pg 146)
Variation in amount of benefits
Change in any maximum benefit period
Extension of insurance to cover
additional members of the family
Change in occupation risk
Cancellation of insurance
Change in name and address

Renewable Notices (pg 146-147)
1) Standalone medical and health
insurance products are typically sold on
an renewable basis
2) Life insurance are long term contract
where premium are based on pre-
agreed payment frequency of monthly,
quarterly, semi-annually or annually
Document for tax relief for MHI premium payments (pg 147)
Tax deduction for taxable income of up to a maximum of tax deduction for taxable income of up to a maximum of:
RM3000 premiums paid for education or medical insurance
RM6000 Premiums paid life insurance and contributions to approved retirement schemes
Chapter 13: Medical and Health Insurance Claims
MHI Claims
(pg 151-155)
Notification of loss (pg 151)
Checking coverage (pg 152)
Disputes (pg 154-155)
Claim investigation (pg 152-153)
Policyholder to inform insurer in
writing of any claim within 14-30 days
Furnish with all supporting document,
fully completed claim form with
medical report
Preliminary check on a claim
Is the policy in
force?
Has premium been
paid?
Is the loss caused
by an insured
peril?
Is the subject
matter affected
the same as that
insured under the
policy?
Has notice of loss
been given without
undue delay?
Clear instructions
on the correct
procedures to be
taken in making
claim and list of
document to be
submitted with
claim form
Insurer shall
maintain an up-to-
date register of all
insurance claims
Conditions of a valid
claim
Claim form
Claim register
The existence of loss
If loss is caused by peril
insured under the
policy
If loss does not fall
within the scope of an
exclusion of the policy
If the person making
the claim is the rightful
claimant
Document drafted to
gather information
relevant to assessing
claims.
Information on the
identity of insured, the
insureds interest in the
loss, the circumstances
of and the extent of
loss
Validity of a claim Claim documentation
Claim investigation involved ascertaining the following
Disputes may be resolved through the following channels
Settle through discussion and
amicable compromise
Court action may be taken if there is
unhappy outcome of
negotiation/compromise
The hearing of dispute by person
agreed/chosen by them
The financial mediation bureau (FMB)
resolution of consumer complaints
against all financial institution
regulated by BNM
Negotiation and compromise settlement Arbitration
Litigation
Mediation
Part C
Pre-Contract Examination

Chapter 21: Life Insurance Preliminaries
Overview
Introduction:
The first known case of a life insurance
policy dated back to 1583 in England on the
life of William Gybbon.
One party provide something
of vaue to another party in
exchange for a promise that the
other party will perform a
stated act if a specified,
uncertain event occurs
Purchaser of life insurance
policy must stand to suffer
financial loss on the death of
the person on whose life the
life insurance policy has been
bought
Mortality
Expenses
Rate of investment return
Tax
Characteristics of life
insurance products
(pg 290-292)
Many factors which enter into
premium rate calculations: (pg 290)
Insurable Interest
(pg 291)
Aleatory Contract (pg 290-291)
Chapter 22: Life Insurance Products and Family
Takaful Business
Introduction
(pg 296-297)
Mainly for protection
purposes
Mainly used for saving
Guaranteed benefits
are sum assured and
cash value, projected
bonuses and projected
final bonuses
Non-participating Contract Participating contract
Products offered by insurers can be broadly categorized
into the following
Ordinary
Home service
Group Insurance
Mainly three kinds of life
insurance contracts
Level monthly, quarterly, semi-
annually or annual premium
Occasionally single premium,
especially short term business and
decreasing term insurance
Guaranteed payment of sum
assured on death within the term
of contract
Payment of sum assured on death
No surrender or maturity value
Provides cheap guaranteed
protection
Premiums
Benefits
Guarantees
Options
Term insurance can be renewable
for a limited number of periods at
the option of the assured and can
also be converted into a
permanent life insurance policy
Other features
Non-smoker discounts are normally given
Policies are subjected to strict underwriting
Term insurance (pg 298-300)
Chapter 22: Life Insurance Products and Family
Takaful Business
Whole life
Assurance
(pg 300-302)
Level monthly, quarterly, semi-annually or
annual premium
Premiums might cease at a certain age or after
a certain term. This helps reduce premium
collection costs. This is particularly relevant for
small policies.
Guaranteed payment of total sum assured on
death
Payment of sum assured on death
Usually a minimum guaranteed surrender value
available, typically after three years.
Minimum guaranteed paid-up values available
Premiums
Benefits
Guarantees
Options
Normally there are none
Uses
This is the cheapest form of permanent
protection
Policy will be eligible for the benefits of non-
forfeiture regulations, cash surrender value,
loan, paid-up value after a minimum number of
years
Level monthly, quarterly, semi-annually or
annual premium
Guaranteed payment of total sum assured on
death or at maturity
For non-participating policies, payment of sum
assured on death or at maturity
For participating policies, payment of the sum
assured plus bonuses on death within the term
of policy
Usually a minimum guaranteed surrender value
available, typically after three years
Minimum guaranteed paid-up value available
Premiums
Benefits
Guarantees
Endowment
Insurance
(pg 302-304)
Options
Normally there are none
Chapter 22: Life Insurance Products and Family
Takaful Business
Annuities (pg 304-
306)
Periodic payment
made during a fixed
period of time or for
the duration of the
survival of a
designated life
Periodic payment for the remainder of the
lifetime of a named life
Recipient is called annuitant
Annuity payment starts immediately
The annuitant pays a lump sum at entry or a
periodic premiums for a defined period.
On attainment of a specified age, or survival by
annuitant of a defined period, office will pay an
annuity of a specified amount till death
Guaranteed payment over a fixed period and
thereafter until death.
If annuitant dies during the fixed period, the
annuity payments will continue to be paid till
the end of the guaranteed period
Single Life Immediate Annuity
Guaranteed Immediate Annuity
Deferred Annuity
Reversionary Annuity
Provides a specified amount of income for two
or more persons named in the contract, annuity
ceasing on the first death among the covered
lives
Joint Life Annuity
Annuity commences at the death of the assured
person, provided that the annuitant is then alive
Installment will continue throughout the lifetime
of annuitant
Last Survivor Annuity
Provides for payment until the last death among
the covered lives
Joint last survivor annuity continues the same
amount of annuity until the death of the last
survivor
Income to be reduced following the death of the
first annuitant to two third or one-half of the
original income
In return for the payment of a certain sum,
office makes a series of yearly, half-yearly or
quarterly payments for a specified number of
years
Annuity Certain
Chapter 23: Policy Conditions
Definition:
Any instrument by which the payment of
money is assured on death or the
happening of any contingency dependent
on human life, or any instrument
evidencing a contract which is subject to
payment of premiums for a term
dependent on human life.
Life policy
(pg 322-329)
An intangible thing, a
legally binding
agreement between the
concerned parties
The written document
which embodies that
agreement is in
concrete form
Contract Policy
Policy vs Contract
Thirty days are allowed as
days of grace for payment
of yearly, half yearly,
quarterly and monthly
A policy which cash value
available is used as a
single premium to
provide for an insurance
on the original terms, for
a reduced sum assured.
The value which attach to
a policy of life insurance
after premiums have
been paid for a certain
minimum number of
years
Days of grace
Surrender Value
Paid up policy
Policy loans
Granted up to 92% of the
acquired cash value of a
policy
The loan with accrued
and outstanding interest
will form the first charge
in favor of the life
company and will be
deductible before any
payment is made under
the policy
Privileges (pg 323-324)
Each premium is paid
automatically as it falls due after
the grace period with interest.
Provides for continuation of
insurance cover in cases where
the assured, through either
carelessness or inability, fails to
pay a premium, and it allows
the assured to restore the
original status by repaying the
amount owed
No evidence of insurability is
necessary to bring the policy to
its original status

Permits the assured to elect to
exchange the net amount of the
cash value for a paid up
insurance of the same type as
the original policy for a reduced
face amount
Permits the assured to exchange
the acquired cash value for a
paid up term insurance for the
full sum assured but with a
shorter duration of coverage.
The length of term insurance
depends on the available
amount of cash value applied as
net single premium at the time
of conversion.
Automatic premium loan
Extended Term Assurance
Paid up policy
Reinstatement Condition
Permits a person to apply for
the reinstatement of the
contract
Medical and other evidence may
be required
Non-forfeiture Conditions ( pg 323-325)
Chapter 24: Practice of Life Insurance New
Business Selection of Lives and Other Issues
Identifying the risk factors
The selection of lives to be insured
Quantifying risk
Costing risk
Monitoring the insurance fund

Risk Management
Mortality increases with
age
Extra loading will be
incurred due to
additional risk posed by
different occupations
Female mortality is lower
than male
Female morbidity is
higher than male
morbidity
Lower life insurance
premium for females
Closely tied to the
occupational factor
Mortality
Age
Occupation
Social status
Ethnicity
Attributed to cultural
heritage, eating habits,
and attitude towards
other aspects of life
Geographical Location
Urban area have easy
access to better medical
facilities
Marital status
Single male experience
higher mortality than
married male
Personal Habits and family
history
Personal habits and some
form of ailments have
influence on mortality
and morbidity
Avocation
Some form of avocation
are dangerous and
expected to experience
higher than average
mortality rate
Foreign Residence
Residences in unhealthy
areas have effect of
increasing mortality and
morbidity
Risk Factors (pg 333-335)
Overview
(pg 332-343)
1) Within normal limits:
payment of standard
premium rates
2) Below average: subject to
some restriction, referred
as sub-standard
3) Below average to the
extent that is not
acceptable at the time of
consideration
4) Below average to the
extent that the applicant
cannot be accepted under
any conditions


To decide if the risk the life
office is asked to cover is:
Objective of selection (pg 337)
Chapter 24: Practice of Life Insurance New
Business Selection of Lives and Other Issues
Mode of accepting sub-
standard lives (pg 337-339)
Increasing Extra
Mortality
Level Extra Mortality
Decreasing Extra
Mortality
Extra risk that
remain constant
from year to year
Extra risk can be classified into three main
groups:
An impairment
which causes
increasing extra
mortality is one
which with
increasing
duration, becomes
an increasingly
potent factor in
the failure to
survive
Types of risk
which are
present at the
younger ages but
which will lessen
in later life
Standard rate of
premium may be
increased by a
stated amount
based on the
expected
increased rate of
mortality
The adjusting of
bonuses in a
participating policy.
The additional
risk may be
covered by a
provision to the
effect that the
sum insured shall
be reduced by a
stated
percentage
should death
occur during a
named period
Suggesting another
policy arrangement may
provide an acceptable
solution.
Increasing premium
Decreasing Death
Benefit
Bonus adjustment
Alternative policy plan
Exclusion of a particular
hazard
Policy may carry a
clause limiting the
liability of the life office
if death occurs directly
or indirectly as the
result of a particular
impairment or
participation in a
specific form of activity
Extra risks may be allowed for in several ways
according to the group into which the extra
mortality falls
Chapter 25: Practice of Life Insurance New
Business Premium Rating
Overview
(pg 346-358)
When a large number of
similar risks are combined
into a group, there will be
less uncertainty about the
amount of loss likely to be
incurred within a certain
periods.
Pooling of Similar Risks
A considerably large number of lives
are insured, the fluctuation in the
rate of death will not be very
significant.
The past forms a guide to the future
It is assumed that the deaths among
a group follow a pattern similar to
that of an identical known group in
the past.
Law of Large Numbers
Quantifying
The Risk
(pg 346-349)
Standard mortality tables are derived from the
combined mortality experience of life insurers
operating in a territory
Initial Expenses: Expenses incurred in the first year of policy in order
to be placed on the book
Renewal expenses: Expenses incurred (not necessarily) every year
throughout the duration of the policy
Termination expenses: Expenses incurred when the policy leaves the
office
Insurer has to make prudent estimates of likely
rates of returns from investments over the
medium to long term
Insurance company incurs tax liabilities
Mortality
Investment return
Expenses
Tax
Other factors
Financing cost
Reinsurance cost
Bonus loading
Cost for options and guarantee
Cost of maintaining statutory reserves and solvency margins
Costing the risk (pg 350-351)
Chapter 26: Practice of Life Insurance Monitoring
The Insurance Fund
Introduction
(pg 361-363)
Purpose of valuation
exercise (pg 362)
Test if the company is solvent 1
Determine if the amount of
surplus dividend/surplus
2
Test the adequacy of premium
scales
3
Any changes in company
operations
4
Comply with statutory
requirement
5
Risk Capital Framework:
Requires insurer to maintain a
capital adequacy level
commensurate with its risk profile
Cash in hand/banks
Investment in
government or semi-
government securities
Shares in corporate
bodies
Loans and debentures
in corporate bodies
Properties, land and
building
Loans to policy holders
Furniture, fittings,
motor cars and other
office equipment
Cost price: Price at
which assets was
acquired
Book value: Value
placed on the assets in
companys account
books
Market value: Value for
which assets can be
sold in the open market
Valuation of assets
Methods of valuing assets:
The assets of life insurance
company from premiums received
minus claims and expenses
Sources of surplus
1)Interest
2)Mortality
3)Expense
4)Miscellaneous: Surrenders,
lapses, new business and
alterations
Difference between value
placed on assets and liabilities
(pg 363-364)
Bonus is declared as a
proportion of the sum assured
and is payable in the same
circumstances as the original
sum assured
Bonus allotted is in proportion
to the sum assured and the
bonuses accumulated under
the policy
Simple reversionary bonus Compound reversionary bonus
Methods of distributing surplus (pg 364-366)
Bonus is into claims either by
maturity or death
Maturity/Terminal bonus
Cash bonus
Bonus takes the form of cash
distribution
Interim bonus
Guaranteed bonus
Bonus declared at the
valuation date for the policy
year
Bonus are guaranteed each
year, usually non-participating
policies
Chapter 27: Practice of Life Insurance Policy
Documents
The proposal
Form
(pg 370-371)
Previous
records
(pg 372)
Attending
physicians
statement
(pg 371)
Agents report
(pg 371)
Medical
report/special
investigations
(pg 371-372)
Sources of
information for
risk assessment
(pg 369)
Personal particulars
Details of insurance
Occupation, residence,
travel and hazardous
pursuits
Personal and family
history
Declaration and
authorization

Information in a proposal
form
Treatment given to the applicant in
the past, the duration, diagnosis and
his observation
Agents impression about the
applicants habits, appearance,
character and financial status
Reference to previous records
on the same life
Height and weight
Pulse and blood pressure
readings
Chest and abdomen
measurement
Condition of the heart, lung,
nervous system, urine analysis
The examination includes:
Chapter 27: Practice of Life Insurance - Policy
Documents
Name and registered
address of company
Name and address of
assured, date of
commencement, sum
assured, type of
insurance, the
premium, date of
birth/age, date of
maturity, special
condition
Introduces the parties
to the contract
Signed by certain
officers
Heading
The preamble
The schedule
Attestation
Specifies the events
upon which the policy
becomes operative
Limiting the scope
Enlarging the scope
Explaining the scope

Declaration that
answers given in the
proposal and medical
report forms shall form
the basis of the
contract
The operative clause
The proviso
Conditions and privileges
Policy form and its structure (pg 372-373)

Mode of premium payment


Alteration to the form of contract


Imposition or removal of extra
premiums


Surrender of bonus




The time of issue of policy
After issue of policy
Endorsement can be done at (pg 373-374)

Affecting the premium or
frequency of payment

Affecting sum assured or
mode of payment


Incorporating special benefits


Incorporating special
restrictions
Chapter 28: Practice of Life Insurance Claims
Introduction
(pg 378)
Termination of life insurance contract is marked by settlement of claim
Death of insured
Maturity of the insurance policy
Sickness or disability benefits claims
Claims arising under supplementary contracts

Claim can arise under the following situations:
Beneficiary or claimant should
provide:
1) Policyholders name and
identify card number
2) Policy number and
policyholders address
3) Date and cause of death
Insurer request for proof
of age of deceased
Death certificate
Coroners report
An order pronouncing a
statutory presumption of death
Certificate evidencing the
death of service personnel
Certificate showing that death
has occurred at sea
Medical certificate by last
medical attendant
A deed of assignment
A probate of the will obtained from a
court of law
A letter of administration issued by a
court of law
Money would be paid to trustee for
policy affected under Sec 23 of Civil Law
Act

Notification of death
Proof of death
Proof of age
Proof of title and ownership
Death Claims (pg 379-380)
Concessions under Sec 169
insurance act 1996
Payment of claim
proceeds without letters
of probate or
administration under the
following conditions:
1) Full amount if the policy
proceeds do not exceed
RM100,000
2) RM100,000 if the policy
proceeds exceed
RM100,000
Interest on claim amount
Under Sec 161 Insurance Act 1996:
A claim upon the death of the policy
owner is not paid within 60 days of
receipt of intimation of claim, the insurer
shall pay a minimum compound of
4%/per annum or such other rate as may
be prescribed on the amount of policy
monies upon expiry of 60 days till the
date of payment
Chapter 28: Practice of Life Insurance Claims
Cash maturity proceeds
Conversion of the maturity
proceeds into an annuity
Leaving the maturity proceeds
as a deposit with the insurer on
agreed term
Drawing the cash by
installments over a number of
years, interest will be credited
for outstanding balances

Settlement options
The following are required for maturity claim settlement
Proof of age
Proof of survival
Discharge voucher
The policy document

A deed of assignment
A simple statement that
the insured is alive if he is
unable or not available to
sign the survival
certificate
When the policyholder is the
life assured
When the policyholder is not
the life assured
Medical certification by attending
doctors
Certified true copy of life assured s
identification
Completed claim form
Medical certification by attending
doctors
Certified true copy of life assureds
identification
Completed claim form
Certified true copy of police report
Due to natural causes or illness Due to accident
Documents required for TPD claims
Total Permanent Disability Claims
(pg 381)
Maturity Claims
(pg 380)
Chapter 29: Life Insurance Some Mathematics
Overview
(pg 385-391)
Interest Charge (pg 391)
Age last birthday
Age next birthday
Age nearest birthday

Calculation of age (pg 385)
Subject to extra
premiums with
detailed
underwriting
Age and sex of the
proposer
Current state of
health of proposer
Type of policy
required
Sum assured
Term of policy
Premium payment
mode
Impaired/sub-
standard lives
Standard lives
Using rate book for premium calculation (pg 387-391)
Premium charged varies in relation to
the following factors
Policy loan repayments
Outstanding premium charges
Policy revival
Arises with the
following
circumstances
Evidence of continued good health
Payment of outstanding premiums with
accumulated interest charges
A lapsed policy may be reinstated with (pg 391):
Chapter 30: Practice of Life Insurance Ethics and
Code of Conduct
Overview
Life insurance business is based on
philosophy of risk sharing
Business based on trust and honesty
Confidence of policy owner and
members of public in the integrity
and honesty of life insurers shall be
safeguarded and enhanced
Life insurers shall at all time see that
their business is soundly managed
and ensure safety of policyholders
savings
Life insurer shall maintain a policy of
efficient and prompt service to policy
owner
Code of ethics (Statement of philosophy)
(pg 397)
To avoid conflict of interest
To avoid misuse of position
To prevent misuse of information
To ensure completeness and accuracy
of relevant records
To ensure confidentiality of
communication and transactions
between life insurance company and
its policyholder and clients
To ensure fair and equitable
treatment of all policy owners
To conduct business with the utmost
good faith and integrity
The seven principles underlying the
guidelines (pg 398)
Detriment arise from twisting: (pg 400)
1) Must commence again the qualifying period
2)Premium rate based upon the insureds then attained age
3)Initial costs of life insurance policies are charged against the cash
value in the earlier policy years where policy holder will sustain the
burden of these cost twice
4)The suicide clause and the incontestable clause begin anew in a
new policy

Definition of Twisting (pg 400):
To discontinue a policy or to have a
policy made paid-up and then to
effect a new one in another company
or the same company