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CEILLI Training Slide 20150810 PDF
CEILLI Training Slide 20150810 PDF
CEILLI Training Slide 20150810 PDF
Examination In
Investment-Linked
Life Insurance
(CEILLI)
Tutorial
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Certificate Examination In
Investment-Linked Life Insurance
(CEILLI) TUTORIAL
2
TMTDA Ground Rules
Be Punctual Switch Off/Silent No Smoking
Handphone
Maintain
No Side Talking Proper Attire Cleanliness
3
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Course Objectives
4
TMTDA/ADA/CEILLI/PPT/Eng/August2015
CEILLI Chapters Overview
1. Introduction to Investment-Linked Life Insurance
2. Mechanisms and Features of Regular Premium Investment-Linked
Life Insurance
3. Mechanisms and Features of Single Premium Investment-Linked
Life Insurance
4. Considerations for purchasing an Investment-Linked Policy
5. Investment Considerations
6. Types of Investment Vehicles and Potential Risks
7. Common Types of Investment-Linked Funds
8. Pertinent Guidelines on Investment-Linked Business
9. Agents Professional Approach and Guidelines
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Chapter 1
INTRODUCTION TO
INVESTMENT-LINKED
LIFE INSURANCE
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Introduction to Investment-Linked
Life Insurance
The Life Insurance Association of Malaysia’s (LIAM) report
55.2%
48.4% (2013)
248,305,252,495 Sum assured (2012)
(2012)
• Based on age
• Opt for higher coverage amount
3. Accrue returns
• Long-term savings
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Introduction to Investment-Linked
Life Insurance
Investment
10
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Introduction to Investment-Linked
Life Insurance
RM3/unit
5,000 units x
RM3/unit =
RM 15,000
After 2 years
RM 5,000 for
5,000 units
(RM1/unit)
Lose all
RM0/unit premiums paid
and coverage
provided
/
Investment-
Unit-Linked Variable Life
Linked
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
1. What are the factors that have contributed to the steady growth
of the life insurance industry in Malaysia since 2000?
A. I and II
B. II and III
C. III and IV
D. II
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
3. An investment-linked life insurance policy is also
known as the following in some parts of the world:
A. I
B. I and II
C. III
D. IV 17
TMTDA/ADA/CEILLI/PPT/Eng/August2015
6. Which of the following statements are correct?
A. I, III and IV
B. II and III
C. I and II
D. I, II, III and IV 18
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Chapter 2
Mechanisms and
Features of Regular
Premium Investment-
Linked Life Insurance
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
Introduction
1)To understand the mechanisms and features of regular
premium (investment-linked) in order to explain the
product effectively to clients.
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
Allocated Premium
• It is an account for buying units in vehicles earmarked by the
various funds offered by the insurer.
• Monthly COI, annual fund management fee, one-time policy
fee, other charges (nominal administrative, service charge)
will be deducted from this account.
• While the value of invested units called account value
continues to accrue in the policy.
• Ratio will increase
• First year 40 – 50%
• Rate increase until 7th year
• After 7th year, ratio will be 100% 23
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
4. Sum Assured Multiple Rule (SAM)
• Imposed by Bank Negara Malaysia (BNM).
• Min. amount of coverage based on basic annual
regular premium amount and age of new policy
owner.
• SAM factor for age range:
(1-16) is 60
(56 and above) is 15.
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
4. Sum Assured Multiple Rule (SAM)
Example:
56 year old man wants to insure himself
= Rm 5000 a year.
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
SAM formula for UDR:
Total Sum Assured
(Total Annual Premium – Notional Premium of Riders)
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
5. Optional Riders
• Riders available either:
Premium-Paying Rider (PPR)
OR
Unit-Deducting Rider (UDR)
PPR requires extra regular premium to be paid for the
rider with the basic premium.
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
9. Premium Holiday
Options:
• Using the account value to cover premiums when due
premium is not paid.
• Deduct COI and other management charges
• Allowed to cover basic sum assured only - riders will
lapse UNLESS account value is sufficient to cover both
BSA and riders
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
10.Free-Look Period
• 15 days free look period from date of policy delivery.
• To cancel plan within this period, the insurer will
refund :-
Unallocated premiums
value of units - allocated at the unit price at the
next valuation date
Insurance charges and policy fee that have been
deducted
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
Condition?
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
13. Dual Pricing and Single Pricing
• Dual pricing = bid-offer spread (5% difference).
Offer price per unit (unit purchase price)
Bid price per unit (unit sale price)
• Single pricing = either acquisition or disposal of units in
a fund is at the same price per unit.
• Charges for acquisition (upfront charge) or disposal
(back end charge).
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
14. The Long Horizon
• Leverage cumulative effect from protection and
investment perspectives.
• Protection amount (Death benefit) increases over the
years
(SA coupled with the cumulative account value)
• Investment in long run, the Dollar Cost Averaging
creates positive impact on the cumulative effect of the
account value.
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
15. Dollar Cost Averaging
Concept:
• Prices , acquire more units at lower prices
• Prices , units acquired at lower prices will appreciate
in value.
• Means leveraging
price fluctuations.
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
16. Spread-Out Risk among Varied Assets
• Overall impact is the averaging effect on the price of the
fund with the spreading out of risk.
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Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
1) Wife
& 1 Son
4)Taxable
2) Active
income
2013 = Mr. A unit trust
agent
Rm50k
3)No EPF,
no life
insurance
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
17.Retirement plan, Medical plan, and Education plan
Taxable
Rm 50k income, according to tax
income
2013 = = rate (as of 2013)
tax payable would be Rm 2,850
Rm50k
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of
Regular Premium Investment-Linked
Life Insurance
17.Retirement plan, Medical plan, and Education plan
BUT ……
Buy investment-linked life plan for retirement income
A. I and II
B. I, II and III
C. II and III
D. I, III and IV 47
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
2. Which of the following statements are correct?
I. Top-up premiums can either be paid on a regular basis or at
any time.
II. Most insurers impose a minimum amount for both regular top-
ups and ad hoc top-ups.
III. Most insurers allow ad hoc top-ups once a year and impose a
maximum amount.
IV. An upfront charge, normally around 5 per cent, is deducted
from each top-up.
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Sample Questions
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Sample Questions
4. Which of the statements below are correct?
I. All life insurers impose an early partial withdrawal charge and an
early surrender charge.
II. High partial withdrawals may cause the future account value to be
insufficient to cover the higher cost of insurance at older ages.
Therefore, it is prudent for a policy owner to make ad hoc top-ups to
replenish the units and the account value.
III. Depending on the practices instituted by individual life insurers, all
fund switches may be processed free of charge, or be free for the
first switch or first few switches within a policy year and a fee is
charged for subsequent switches.
IV. The investment risk profile of a young investor or policy owner may
likely change from the aggressive category to the conservative
category as he advances in age; hence, he may want to progressively
shift more of his equity assets to fixed income or bond fund until he
gets close to retirement age.
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
6. Select the correct statements from the following.
I. The Dollar Cost Averaging phenomenon leverages the long term or
the acquisition of more fund units when prices are down and the
appreciation of units already acquired when prices go up.
II. Some assets in a fund may perform well in a given short period while
some may not, but the overall impact is the averaging effect due to
the spreading out of risk. With prudent management by fund
managers, the unit price is likely to be higher in the longer run.
III. The maximum tax relief for a qualified regular premium investment-
linked medical plan and an education plan is RM3,000 a year. If a
policy owner has both, the combined limit is also RM3,000.
IV. Whether a policy owner has a qualified regular premium investment-
linked medical plan or an education plan, or both, he qualifies for a
tax relief of up to RM6,000 a year.
A. I, II and IV
B. I, II and III
C. I and III
D. II and IV 52
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Chapter 3
Mechanisms and
Features of Single
Premium Investment-
Linked Life Insurance
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Mechanisms and Features of Single Premium
Investment-Linked Life Insurance
Introduction
Priority for policy owners of single premium investment-linked
would be investment, protection second.
1. Minimum Basic Single Premium
• RM5,000 to RM20,000
2. One-Time Unallocated Premium Charge
• Unallocated portion spans over the first 6 years in reducing
ratios.
• Normal charge is around 5%.
• Top-ups = same charge.
• If 5% is the upfront charge, the balance of 95%will acquire
units in fund/s.
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Mechanisms and Features of Single Premium
Investment-Linked Life Insurance
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Mechanisms and Features of Single Premium
Investment-Linked Life Insurance
• COI deduction cover the shortfall between account value and SA.
• Shortfall difference = Sum at Risk (SAR)
• Account value increases, COI reduces. If account value exceed
basic SA, COI cease. If account value drops again below BSA,
COI deduction resume.
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Mechanisms and Features of Single Premium
Investment-Linked Life Insurance
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Sample Questions
1. Single premium investment-linked insurance is said to be more
inclined towards investment than protection because
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
A. RM250,000.
B. RM125,000.
C. RM205,000.
D. RM210,000
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Sample Questions
3. Which of the statements below are correct regarding single
premium investment-linked insurance?
I. Most insurers set their minimum basic single premium as
ranging from RM5,000 to RM20,000, depending on product
design.
II. All insurers set the minimum basic single premium at
RM5,000.
III. Top-up premiums, if any, also bear the same normal upfront
or unallocated premium charge ratio of around 5% as the
basic single premium.
IV. Cost of insurance will be deducted regardless of whether the
account value is above or below the basic sum assured at any
point in time.
A. I, III and IV
B. I and III
C. II and IV
D. II, III and IV 60
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Sample Questions
4. Which statement/s relate(s) to the application of cost of insurance
(COI) in single premium investment-linked insurance?
I. The sum assured formula for single premium plans is different than
that for regular premium plans.
II. The death benefit formula for single premium plans is not guided by
the same minimum Sum Assured Multiple rule applicable to regular
premium plans.
III. The allocated premium ratio for single premium plans is different
from that for regular premium plans.
IV. While the policy is kept in force, the cost of insurance deductions
for single premium plans may not be continuous because the
formula is based on sum at risk, unlike regular premium plans which
are based on sum assured.
A. I and IV
B. I, II, III and IV
C. II, III and IV
D. I, III and IV 63
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Chapter 4
CONSIDERATIONS FOR
PURCHASING AN
INVESTMENT-LINKED
POLICY
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Considerations for Purchasing an
Investment-Linked Policy
Benefits
Expertise
Flexibility
Transparency Benefits
Access
Pooling/
Diversification Administration
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Considerations for Purchasing an
Investment-Linked Policy
Benefits
1) Pooling or Diversification
Offer an access to a “pooled” or “diversified portfolio”
of investments.
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Considerations for Purchasing an
Investment-Linked Policy
Benefits
2) Flexibility
Premium holiday
Change level of
Single premium
premium payment
top-ups
Flexibility
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Considerations for Purchasing an
Investment-Linked Policy
Benefits
3) Expertise
• Professional fund managers
4) Access
• Gain access to well diversified investment-linked
funds
5) Administration
• Day-to-day administration of investment.
• Keep track of investment through the unit statement
provided regularly and the unit price published in
financial pages of major newspaper.
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Considerations for Purchasing an
Investment-Linked Policy
Benefits
6) Transparency
• Transparency relating to official sales materials
presented at the point of sale.
• Transparency details example:
Proposal Name of basic plan, names of riders, coverage amounts, overall
summary premium.
Descriptions of
benefits and For plans and riders
excluded risk
Statement of Cost Of Insurance (COI) will be levied monthly and deducted
Cost Of from fund/s up to maximum tenure.
Insurance (COI)
Statement of PH will be applied when due premium is not received
Premium
Holiday (PH)
Statement of Based on assumed rates of return
Investment
returns 69
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Considerations for Purchasing an
Investment-Linked Policy
Special Policy owner can maximize the investment element by opting
Advisory to pay the minimum basic annual premium and the balance as
Highlights regular top-up.
Can increase sum assured without a corresponding increase in
annual premium.
Policy may lapse if insufficient account value for deduction of
charges due to higher COI.
Can add top-ups or reduce basic sum assured (within min. Sum
Assured Multiple rule) in the later years to maintain policy.
Commission amount 71
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Considerations for Purchasing an
Investment-Linked Policy
Assumed With high and low scenarios for first and after 20
rates of years according to Bank Negara Guidelines
return of
funds
Actual Funds in the past 5 years
historical
returns
2) Charges
The administration fee, insurance charge, fund management
fee are usually not guaranteed.
Subject to regular review and can be changed by giving a
written notice over a specific period e.g. 3 months
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Considerations for Purchasing an
Investment-Linked Policy
Regular Premium
No Whole Life Participating Plan
Investment-Linked Plan
1 Whole life coverage up to age Whole life coverage up to age 100
100
2 Account value is not guaranteed Cash value is guaranteed
3 Surrender value based on an Surrender value based on cash
accrual in account value payable value plus vested bonus or
dividend
4 Death benefit payable from sum Death or maturity benefit
assured plus account value. payable from sum assured plus
Maturity benefit is payable from vested bonus or dividend
account value.
5 Policyholder can choose from Investment instruments by
funds insurer
TMTDA/ADA/CEILLI/PPT/Eng/August2015 74
Considerations for Purchasing an
Investment-Linked Policy
Regular Premium
No Whole Life Participating Plan
Investment-Linked Plan
6 Policyholder can choose a Premium amount is based on
higher sum assured with same sum assured
premium
7 Can add riders via COI Has to pay extra premium for
deduction from account value. riders
8 Top-up premium allowed Top-up premium not allowed
9 Partial withdrawal from No partial withdrawal allowed
account value from cash value except
surrender value of bonus or
dividend
10 No policy loan feature Policy loan available with
interest
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
Considerations for Purchasing an
Investment-Linked Policy
Regular Premium
No Whole Life Participating Plan
Investment-Linked Plan
11 Can choose to request PH Automatic premium loan
feature with interest
chargeable
12 Tax relief Tax relief
13 Min. age 18 apply own life Min. age of 10-15 require
parental consent.
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Sample Questions
1. The benefits of an Investment-Linked policy are:
A. I and II.
B. II and IV.
C. I and III.
D. I, II, III and IV.
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Sample Questions
2. When an investment-linked policy reaches maturity,
the maturity value will be
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Sample Questions
3. What are two similarities between a regular premium investment-
linked plan and a whole life participating plan?
A. I and II.
B. II and III.
C. I and III.
D. I, II, III and IV.
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Sample Questions
4. Which of the following statements are correct?
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Sample Questions
5. As the sales illustration document printed by any life
insurer is meant for reference and view by a prospect, a sales
intermediary is expected to observe certain rules.
These are: The sales intermediary must
I. get the new policy owner to sign the illustration as
acknowledgement of having understood the contents.
II. get the new policy owner to sign the policy disclosure sheet
and also to sign it himself to declare that proper
presentation has been carried out and the non-guaranteed
elements have been explained.
III. highlight that all investment risks are borne by the policy
owner, that all fees and charges may be changed by the
insurer giving 3 months’ notice, and that the cost of
insurance increases with attained age.
IV. explain that the projected returns may be deemed likely
returns of the selected funds based on the past 5 years’
historical performance.
A. I, II, III and IV.
B. I, II, and III.
C. I, III and IV.
D. I and III.
TMTDA/ADA/CEILLI/PPT/Eng/August2015
81
Sample Questions
6. Which of the following statements regarding a life insurer’s sales
illustration/quotation document are correct?
A. I and III.
B. II, III, and IV.
C. I, III and IV.
D. II and III. 82
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Chapter 5
INVESTMENT
CONSIDERATIONS
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Investment Considerations
Introduction
1. There is an increasing need for sound and proper
advice on how, what, when, where and why
investments must be done.
2. Client should know the basic considerations in
order to make a sound judgment on investments.
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Investment Considerations
1. Investment Objectives
2. Availability of Funds
3. Risk or Security
4. Investment Horizon
5. Accessibility of Funds
6. Taxation Treatment
7. Investment Performance
8. Diversification
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Investment Considerations
1. Investment Objectives
Fundamental Investment Objectives
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Investment Considerations
1. Investment Objectives
Other Investment Objectives
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Investment Considerations
2. Availability of Funds
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Investment Considerations
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Investment Considerations
2. Availability of Funds
a. Simple Monthly
Cash Flow
Analysis b. Simple Net Worth
Analysis
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Investment Considerations
2. Availability of Funds
a) Simple Monthly Cash Flow Analysis
No Income RM Expenditure RM
1. Salary 3,000.00 Housing Loan Payments 1,000.00
2. Rental 500.00 Groceries and Utilities 750.00
3. Commissions 1,000.00 Childcare/Parents’ allowance 500.00
4. Others 1,000.00 Education Expenses 250.00
5. Loans 2,000.00
(Car, Credit Cards, etc.)
6. Insurance Premiums 500.00
7. Savings 500.00
8. Misc. 1,000.00
TOTAL 7,500.00 6,500.00
Income – Expenditure = RM 3,500- RM2,500
= RM 1,000
*Client can utilize the RM1,000 to fund an investment plan. 91
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Investment Considerations
2. Availability of Funds
b) Simple Net-Worth Analysis
No Assets RM Liabilities RM
1. House 220,000.00 Housing Loan Balance 200,000.00
2. Car 30,000.00 Car Loan Balance 35,000.00
3. EPF 20,000.00 Credit Card Balance 5,500.00
Savings
4. 1,500.00 Personal Loan Balance 10,000.00
Account
Insurance
5. 20,000.00 Others 15,000.00
Cash Value
TOTAL 291,500.00 265,500.00
Risk
Return
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Investment Considerations
3. Risk or Security
The difference between high risk and low risk:
Risk Description
High risk/ A mutual fund or stock can potentially
aggressive achieve higher returns because of
greater volatility.
Low risk/ A mutual fund or stock will trade close
conservative to its historical average prices and will
tend to be quite stable.
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Investment Considerations
3. Risk or Security
Know your Investment risk profile (e.g. age, family
situation, experience ) to determine how best to allocate
your savings amongst various risk asset.
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Investment Considerations
3. Risk or Security
What is the concept of “risk” in investment?
1.Is the Volatility or how widely the price of a stock or
mutual fund fluctuates.
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Investment Considerations
4. Investment Horizon
1. The length of time a sum of money is expected to
be invested (when and how much money will be
needed), or
– can be defined as the total length of time that an
investor
– expects to hold a security or a portfolio.
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Investment Considerations
5. Accessibility of Fund
• A client will need the money to settle a specific event.
With this in mind, we can divide the accessibility of funds
into 3 components :
1. The time when the client needs the fund.
2. Cost/ penalty that the client has to pay if client exits
early.
2. Initial/set up cost in setting up or buying into the
investment.
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Investment Considerations
6. Taxation Treatment
• Knowing the implication of tax treatment for the
particular investment portfolio is important before
the investment decisions are made.
• It would have the impact on the actual return.
• No special tax laws on investment-linked
insurance. The tax status is the same as traditional
with profit life insurance products.
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Investment Considerations
7. Performance of the Investment
The performance depends on the following factors: :
Country’s and global economic factors.
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Investment Considerations
8. Diversification
Diversification is the process of investing across different
asset classes and across different market segments.
A. 5-Year Bond.
B. Currencies and Forex.
C. Treasury Bills.
D. Savings account.
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Sample Questions
2. People generally want to invest
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Sample Questions
3. Which statement below explains what a simple
(current) net worth analysis involves?
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Sample Questions
6. Which of the following statements is correct?
TYPES OF
INVESTMENT
VEHICLES AND
POTENTIAL RISKS
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Types of Investment Vehicles and
Potential Risks
Common instruments available include:
1 Cash and Deposits
2 Fixed Income Securities
3 Shares
4 Unit Trusts
5 Properties
6 Real Estate Investment Trusts
7 Sukuk
8 Bonds
9 Capital Guaranteed Funds
10 Commodities
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Types of Investment Vehicles and
Potential Risks
1) Cash and Deposit
1. Refers to all liquid instruments that carry little
or no risk.
2. Cash has no value in itself. It is of value only as a
medium of exchange.
3. The definition of cash in this course will include
short-term debt instruments :
Treasury Bills
Bank accounts
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Types of Investment Vehicles and
Potential Risks
1) Cash and Deposit
a) Treasury Bills
Tax alone is insufficient to finance amenities such as roads and
schools, government come up with borrowing on a short-term
basis.
Treasury Bills are short-term government funding vehicles
issued on a regular basis with repayment within a year.
They are :
» Issued by Bank Negara Malaysia
» Safest type of investments
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Potential Risks
1) Cash and Deposit
a) Treasury Bills
Issued at discount rate
Central Bank Institution
Discharged at face value
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Types of Investment Vehicles and
Potential Risks
1) Cash and Deposit
b) Bank Accounts
These are fixed deposits placed with banks for
fixed periods with fixed interest rates for that
period.
For example: Current Accounts, Fixed Deposits,
Time Deposits and Offshore Accounts.
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Potential Risks
1) Cash and Deposit
b) Bank Accounts
The factors that may influence the choice of
deposits:
1. Funds available for investment.
2. The duration the funds can remain in the account.
3. Will there be emergency withdrawals.
4. Prevailing market conditions.
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Potential Risks
1) Cash and Deposit
b) Bank Accounts
Deposit insurance:
Established by the Government to protects
depositors against the loss of their insured
deposits
Launched in September 2005
Managed by PIDM
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Types of Investment Vehicles and
Potential Risks
1) Cash and Deposit
b) Bank Accounts
(I) PERBADANAN INSURANS DEPOSIT MALAYSIA (PIDM):
• A government agency established under the Akta
Perbadanan Insurans Deposit Malaysia 2005.
• OBJECTIVES:
1. Administer a deposit insurance system.
2. Provide insurance against the loss of part or all
of deposits of a financial institution.
3. Provide incentives for sound risk management in
the financial system.
4. Promote and contribute to the stability of the
Malaysian financial system. 116
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Types of Investment Vehicles and
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1) Cash and Deposit
b) Bank Accounts
PERBADANAN INSURANS DEPOSIT MALAYSIA (PIDM):
The benefits of deposit insurance are:
1.The protection is automatic.
2.PIDM protects depositors holding deposits with
banks.
3.There is no charge to depositors for this insurance
4.Should a bank fail, PIDM will promptly reimburse
depositors their deposits.
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
• It is a security or certificate showing that the investor
has lent money to the issuer, in return for fixed
interest income and repayment of principal at
maturity.
Investor lend money to issuer (government or
company)
Return in fixed interest
Capital repayment at maturity
Regarded as IOUs
Traded in secondary market
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
1. Active secondary market
• Can be bought and sold at anytime
• Opportunity to realize capital gains
2. Inactive secondary market
• The investors’ money is locked up for the full life
span of the security.
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
There are three types of Fixed Income Securities:
a) Government Bonds
b) Corporate Bonds
c) Preference Shares
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
a) Government Bonds
It is a financial instruments used by the
government to borrow money from the public. The
investor gets the interest + capital on maturity.
Advantages vs. Disadvantages
No. Advantages Disadvantages
1 Very safe. In times of high
inflation, capital can be
eroded.
2 Guaranteed
marketability and
income for the future. 121
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Potential Risks
2) Fixed Income Securities
b) Corporate Bonds
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
b) Corporate Bonds
Debenture Stocks – Secured Loan
• Trustees are appointed to supervise the way the
company performs
• In the event of a default, the trustees act for
the investors.
• Interest rates for corporate bonds tend to be
higher than government bonds and the security
is lower than government bond.
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
b) Corporate Bonds
Loan Stocks – Unsecured Loan
• The investor may or may not get back his capital
depending on the company’s performance.
• Compared to debentures, loan stocks are much less
secure and therefore carry a higher interest rate.
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Types of Investment Vehicles and
Potential Risks
2) Fixed Income Securities
b) Corporate Bonds
Convertible Stock
•Convertible to ordinary shares of a company on a fixed
date
•Become part of an owner & entitled to profits through
dividends declaration
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Types of Investment Vehicles and
Potential Risksc
2) Fixed Income Securities
b) Corporate Bonds
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Potential Risks
3) Shares
1. A shareholder owns part of the company and
possesses voting right.
2. Shareholders are not liable for the debts of the
company.
3. The cost of buying and selling shares includes:
• Stockbroker’s commission
• The difference between buying price and
selling price.
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Types of Investment Vehicles and
Potential Risks
3) Shares
There are two kinds of shares :
a)Ordinary
b)Preference
a)Ordinary shares
The holder is a part owner of the company and is entitled
to share in its profits in the form of :
a) Dividends (paid net of basic tax rate)
b) Capital gain from the shares by an increase in the
share price (not liable to tax)
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Potential Risks
3) Shares
b) Preference shares
1. Holder has a right to a fixed dividend provided
that there are enough profit made.
2. This right takes precedence over the right of
ordinary shareholders to dividends.
3. They are slightly more secure than ordinary
shares but less profitable.
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Types of Investment Vehicles and
Potential Risks
3) Shares
Share price influenced by:
•Currency performance
•Country’s economy
•Inflation rate
•Company’s earning
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Potential Risks
3) Shares
Advantages and Disadvantages of Shares
Advantages Disadvantages
1 Investors participate High risk
directly in the future of
the company
2 Good dividends and
capital appreciation
3 Very liquid (can be
traded in the open
market)
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Types of Investment Vehicles and
Potential Risks
4) Unit Trusts
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Types of Investment Vehicles and
Potential Risks
4) Unit Trusts
Investors Trustee
Open-ended fund (usually bank)
kept the fund;
govern by trust deed.
Fund Manager
to manage.
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Types of Investment Vehicles and
Potential Risks
4) Unit Trusts
3. Unit trusts have no fixed redemption date.
4. The investment in unit trusts could generate
income in the form of
a) Dividends
b) Interest
c) Capital gains.
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Potential Risks
4) Unit Trusts
Advantages and Disadvantages of Unit Trusts :
Advantages Disadvantages
1 Lower risks, compared to Bewildering array of
shares funds
2 Professional investment Extra costs or charges
services are provided
3 Investor can utilize a
portion of his EPF from
account A to purchase EPF
approved unit trusts
136
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Potential Risks
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138
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Types of Investment Vehicles and
Potential Risks
5) Properties
• 3 types of real estate investment:
a. Agricultural property
b. Residential property
c. Commercial/ industrial property
Advantages Disadvantages
140
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Potential Risks
6) Real Estate Investment Trust (REITs)
1. A new asset class investment which has similar concept
like unit trust, e.g. STAREIT
2. REITs based companies will invest, manage and
distribute rental as dividend back to the investors.
3. REIT returns averagely in develop market is around
3-5%.
4. Similar concept like unit trust
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Potential Risks
6) Real Estate Investment Trust (REITs)
5. Invest, manage and distribute rental as dividend back
to investor
6. Trade in Bursa Kuala Lumpur with ease of buying and
selling back like a normal equity
7. Invest into high profile and high value properties for
better return
8. Long term retirement plan.
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Potential Risks
6) Real Estate Investment Trust (REITs)
Advantages Disadvantages
•Good capital •Economic recession,
appreciation and steady property could be
flow of income difficult to be disposed
•Low risk off
•Mortgaging the property,
capital can be freed
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Types of Investment Vehicles and
Potential Risks
7) Sukuk Bond
1. Sukuk is the Arabic name for financial certificates.
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Types of Investment Vehicles and
Potential Risks
7) Sukuk Bond
6. The Sukuk are equity securities which have the
following characteristics:
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Potential Risks
9) Commodities
1) Represent an avenue for investors to venture out of
stocks or bonds.
2) Gaining from price movements.
3) One of the way is by futures contract
• Agreement of buy/sell – specific quantity, specific price
• Categorized as a derivative product
• Entails speculating future price movements
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Sample Questions
1. Malaysian Treasury bills are debt instruments that are
considered safe because
153
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Sample Questions
5. Which of the statements below is incorrect?
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Sample Questions
6. The protection offered by PIDM on the deposits placed in banking
institutions and policies bought from insurance companies
operating in Malaysia is granted
I. to all banks, insurance companies, takaful operators,
reinsurance companies and retakaful operators which have
business operations in Malaysia.
II. only to banks, insurance companies and takaful operators
which are member institutions of PIDM.
III. with a levy charged to all member institutions and non-
member institutions at differing rates.
IV. with a levy charged to member institutions.
A. I and III
B. I and IV
C. II and IV
D. III
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Chapter 7
COMMON TYPES OF
INVESTMENT-LINKED
FUNDS
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Common Types of Investment-Linked Funds
Types of IL Funds
• There are seven types of IL funds:
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Common Types of Investment-Linked Funds
Risk-return
Risk
Equity
Funds
Derivatives
Managed
Funds
Property
Funds
Bonds
Funds
Balanced
Funds
Cash Funds
Return
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Common Types of Investment-Linked Funds
Bond Equities
Debt funds Features Stocks and shares
Higher
Stable Return (Depending on stock market)
5.84% 5.69%
3.87%
3.51%
2.35%
To Conclude:
a) Bond fund: Low Risk/Volatility = Low Return
BUT !
**Note that higher risk (Equity fund) will face a steeper drop in return
than bond funds when market faces downturn
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Common Types of Investment-Linked Funds
Risk-return of Investment-Linked Funds
Services from
Advantage
professional fund
of IL funds
managers
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Sample Questions
1. Sukuk is gaining ground in terms of transaction volumes in
Malaysia, including for investment-linked funds because
I. this investment vehicle is becoming more popular
among investors.
II. of the strong support from the Government and mega
corporations, especially Malaysian ones.
III. of its higher return experience compared to
conventional bonds because of special incentives
provided by the Government.
IV. it is traded only in Malaysian Ringgit.
A. I, II and III
B. I and II
C. II and III
D. I, II, III and IV
166
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Sample Questions
2. The average yield of Malaysian Treasury bills with
tenures of 6 to 12 months is
I. around or slightly better than 3%.
II. normally around 4 to 5 per cent.
III. normally of very low volatility ratio but in periods
when the Government embarks on mass mega
projects and needs funding, it may issue bills with
yields as high as corporate bonds.
IV. with wide variance, depending on the type of bill.
A. I
B. II and IV
C. I, II, III and IV
D. IV 167
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Sample Questions
3. If is safer to rely on professional fund managers
appointed for investment-linked funds than to invest
directly in the stock market because
I. an ordinary individual is generally not equipped to identify the
right stock that will reap gain.
II. the professional fund managers’ role is to ensure the assets and
vehicles achieve a certain minimum growth rate according to
the various stages of time span; otherwise, the fund managers
and life insurer will be obligated to make up the shortfall.
III. it is not easy for an ordinary individual to pick the right time to
buy and the right time to sell for optimising capital gains.
IV. ordinary individuals, especially those occupied with work, do
not have the time and knowledge to properly monitor market
trends.
A. I, II, III and IV
B. I, III and IV
C. I, II and III
D. II, III and IV 168
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Sample Questions
4. Malaysian bonds are deemed to be
I. more volatile than global bonds.
II. less volatile than global bonds.
III. rated at very high preference because the
country’s economy is growing vibrantly.
IV. experiencing better yields than global bonds for
many years.
A. I and III
B. II
C. III and IV
D. IV
169
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Sample Questions
5. Compared to government bond funds, corporate bond
funds have
I. lower yields and lower risks.
II. higher yields and higher risks.
III. more or less similar yield and risk ratios.
IV. a longer tenure.
A. I, II, III and IV
B. II
C. III and IV
D. IV
170
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Sample Questions
6. If an insurer has an investment-linked fund tracking the
FBM-KLCI index, it means
I. the fund manager refers to the index as the benchmark for
guiding the fund’s investment strategy and also the return
targets in the ensuing years.
II. the insurer is obligated to grant the returns according to the
ratios experienced by the index. If the actual return of the
fund in any period is lower than that shown by the index, the
insurer will top up the difference. .
III. the fund invests in the same stocks of the companies
identified by the index.
IV. the fund invests in stocks of companies in the same
industries as the companies identified by the index.
A. I and IV
B. II
C. I and II
D. III 171
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Chapter 8
PERTINENT
GUIDELINES ON
INVESTMENT-LINKED
BUSINESS
TMTDA/ADA/CEILLI/PPT/Eng/August2015
Guidelines on Investment-Linked Business
IL Guidelines issued by Bank Negara
(Ref. BNM/RH/GL 010-15)
Professional and proper conduct
Valuation of units
Premium holidays
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Guidelines on Investment-Linked Business
IL Guidelines issued by Bank Negara
(Ref. BNM/RH/GL 010-15)
Insurers shall:
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Guidelines on Investment-Linked Business
IL Guidelines issued by Bank Negara
(Ref. BNM/RH/GL 010-15)
Maximum gross rates for sales
illustrations
Illustrated Return for Generic Funds X% Y%
Equity 2% 9%
Managed 3% 8%
Bond 4% 7%
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Sample Questions
2. The guidelines stipulated by the regulatory authority in allowing a
life insurer to undertake unit splits for an investment-linked fund
once a year is on the condition that “there is sustainable
appreciation on net asset value (account value) over a six-month
period preceding the split.” Which statements below is correct
regarding the above statement?
I. The low and high projection for an equity fund should not be above
2% and 9% respectively for the first 20 years.
II. The low and high projection for a managed fund should not be
above 3% and 8% respectively for the first 20 years.
III. The low and high projections for a fixed income/bond fund should
not be above 4% and 7% respectively for the first 20 years.
IV. For projected illustrations beyond 20 years, insurers must abide by
the low scenario rates of 2%, 3% and 4% for equity funds, managed
funds and bond funds respectively. The high scenario rates for the
same three funds are 6%, 5.5% and 5% respectively.
A. I, II, III and IV
B. I, II and III
C. I and II
D. II, III and IV
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Sample Questions
6. What are the prerequisites for the launch of a new
investment-linked fund?
AGENTS
PROFESSIONAL
APPROACH AND
GUIDELINES
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Agents Professional Approach & Guidelines
Marketing
Objective:
185
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Agents Professional Approach & Guidelines
Product Knowledge
Market Knowledge
Selling Techniques
186
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Agents Professional Approach & Guidelines
187
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Agents Professional Approach & Guidelines
Customer Buying Decision Process vs. Selling Process
Post-
Purchase
Purchase Evaluation
Evaluation
of
Information Alternative
Search Policies
Problem
Recognition
188
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Agents Professional Approach & Guidelines
Customer Buying Decision Process
1) Problem Recognition
• Customer Fact-Find (CFF) form
• Minimum details required to be recorded in CFF are :-
1. Personal details
2. Personal and family circumstances
3. Objectives regarding needs, i.e. protection, retirement
4. Risk appetite or tolerance
5. Elements identified in a financial needs analysis
6. Advice by agent/intermediary
7. Recommendation of appropriate product by the
agent/intermediary
8. If policy owner prefers specific product information only,
he/she should declare in form
9. Signature by new policy owner
10.Signature by agent/intermediary 189
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Agents Professional Approach & Guidelines
Customer Buying Decision Process
2) Information Search
• Need has been perceived, consumer search for information.
• This effort depends on :-
a) The consumer’s experience in purchasing product
b) Importance of the purchase (benefits)
c) Value involved
3) Evaluation of Alternative Policies
• Important factors for the selection of an insurer are :-
a) Reputation of the insurer (60%);
b) Quality of coverage and services provided (26%);
c) Policy benefits (14%);
Other factors which have influence on the consumer decision are :
a) Agent’s personality and friendliness;
b) Agent’s professional capability;
c) Premium and other terms. 190
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Agents Professional Approach & Guidelines
Customer Buying Decision Process
4) Purchase
• Make the decision to purchase one of the alternative
products
5) Post-purchase evaluation
• Keeps in contact with customers
• Provides important information of risk evaluation
• Better chance of securing the loyalty of the customer
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Agents Professional Approach & Guidelines
The Selling Process
Closing the
sale
Handling
Objections
Conducting
Sales
Sales Interview
Presentation
Locating
Prospective
Customer
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Agents Professional Approach & Guidelines
The Selling Process
4) Handling Objections
Locating
5) Closing the Sale Prospects
• Follow-up interview
Closing Presentation
Handling
Interview
Objections
194
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Agents Professional Approach & Guidelines
After-Sales Services
195
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Agents Professional Approach & Guidelines
After-Sales Services
**15 days cooling-off period commences from the date of policy delivery
acknowledged by policy owner.
196
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Agents Professional Approach & Guidelines
LIAM Guidelines on the Code of Conduct
PART I – Guidelines Part II – Life Part III- Statement
on the Code of Insurance Selling of Life Insurance
Conduct Practice
1. Statement of 1. Introduction 1. Introduction
Philosophy 2. General Sales 2. Claims
2. Coverage Principles 3. Proposal Forms
3. Monitoring 3. Explanation 4. Policies and
Devices 4. Disclosure of Accompanying
4. Seven Principles Underwriting Documents
of the Information 5. Sales
Guidelines 5. Accounts and Materials/Adver
5. Code of Financial tisements
Conduct Aspects
197
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Agents Professional Approach & Guidelines
Part I: Guidelines on the Code of Conduct
A. Statement of Philosophy
1. Behaving with Complete Integrity and ethics in an
Insurance Agent's Professional Life.
• Business based on trust, honesty, responsibility,
professionalism
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Agents Professional Approach & Guidelines
Part I: Guidelines on the Code of Conduct
B. Monitoring Devices
The management of a life insurance company shall establish the
following minimal procedures :
1.All employees and intermediaries to sign a declaration.
199
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Agents Professional Approach & Guidelines
Part I: Guidelines on the Code of Conduct
C. The Seven Principle
1. To avoid conflict of interest.
200
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Agents Professional Approach & Guidelines
Part I: Guidelines on the Code of Conduct
201
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Agents Professional Approach & Guidelines
LIAM’s Guidelines on Code of Conduct
PART 1 – Part II – Life Part III- Statement
Guidelines on the Insurance Selling of Life Insurance
Code of Conduct Practice
1. Statement of 1. Introduction 1. Introduction
Philosophy 2. General Sales 2. Claims
2. Coverage Principles 3. Proposal Forms
3. Monitoring 3. Explanation 4. Policies and
Devices 4. Disclosure of Accompanying
4. Seven Principles Underwriting Documents
of the Information 5. Sales
Guidelines 5. Accounts and Materials/Adver
5. Code of Financial tisements
Conduct Aspects
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
Introduction
• The term 'life insurance' used in the Code of Ethics and
Conduct covers all types of:
1. Ordinary life insurance
2. Annuities
3. Pension Contracts
4. Investment-linked insurance
5. Permanent Health Insurance
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
A. General Sales Principles
• Intermediaries SHOULD:
Produce Registered Intermediary Authorization Card
Ensure the policy proposed is suitable to the needs
Give advice only
Treat all information as completely confidential
Make clear comparisons on characteristics with other
types of policies
Render continuous service to policyholders
204
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
205
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
206
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
A. General Sales Principles
• Detriments arising from twisting are:
1. Qualifying period will have to recommence.
2. Higher premium rates based on attained age.
3. Paying Initial costs twice.
4. Suicide clause, incontestable clause & other
clauses have to start all over again.
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
B. Explanation of the Contract
1. Intermediary shall:
• Explain provisions of contract
• Draw attention to restrictions applying to
policy
• Draw attention to long tern nature of policy
• Draw attention to whether the policy
qualifies for tax relief
2. Participation in profits depending on variable
factors
3. Projected benefits illustrated
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Agents Professional Approach & Guidelines
Part II: Life Insurance Selling
Introduction
Aim is to reduce formalities involved in the issue of new
policies and payment of a claim.
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Agents Professional Approach & Guidelines
Part III : Statement of Life Insurance Practice
A. Claims
Guidelines:
a) Insurer may not reject claim unreasonably
b) Claims have to be settled without delay
c) Insurer shall not collect claim processing fees from
policy owner
B. Proposal Forms
Proposal forms based on Code of Good Practice for Life
Insurance business (Part III)
a) Proposal form – Disclosure of material facts should be
stated in the declaration
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Agents Professional Approach & Guidelines
Part III : Statement of Life Insurance Practice
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Agents Professional Approach and Guidelines
Guidelines on Minimum Standards for
Treating Customers Fairly
1. Issued by Life Insurance Association of Malaysia
2. Agents to take note:
a) Customers are fully informed about the key benefits,
key risks and exclusions.
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Sample Questions
1. Which of the following statements are correct?
I. Agents must utilise the sales materials and sales illustrations
provided by their respective principal in their sales process.
II. Agents must utilise the sales materials and sales illustrations
provided by their respective principal in their sales process.
However, they may have the discretion to supplement these
provided the facts do not deviate from those in the materials
and illustrations provided by the principal.
III. Only the signature of the intended new policy owner must be
obtained on an insurer’s Customer Fact-Find (CFF) form.
IV. The sales intermediary must also sign the CFF form as
witness after the intended new policy owner has signed.
A. I, II and IV
B. I and III
C. II and IV
D. II and III 215
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Sample Questions
2. As soon as a policy contract has been issued by a life insurer,
I. the insurer is to mail (by registered mail) the policy contract to the
correspondence address of the new policy owner. The registered
mail slip should suffice as evidence that the contract has reached
the policy owner.
II. the agent should deliver the policy contract without delay.
III. the delivery process should entail the explanation of the
contractual provisions and re-explaining the benefits. The agent
then has to request the new policy owner to sign the delivery
acknowledgement slip. Finally, the agent must return the signed
acknowledgement slip to the insurer for recording and filing.
IV. if the new policy owner is unavailable at the first time of personal
delivery by the agent, acknowledgement of receipt of the policy
contract signed by a representative of the policy owner’s household
or office shall be deemed valid. The agent does not need to follow
up on this.
A. I and II
B. II and III
C. I, II, III and IV
D. I, III and IV 216
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Sample Questions
3. Agents who have sold investment-linked plans should conduct
reviews with their clients ideally once a year. The purposes are
I. all agents.
II. all employees of life insurers.
III. insurance brokers.
IV. agents and insurance brokers.
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Sample Questions
5. Which of the following statements are correct?
I. Agents may design their own financial planning form
to gather financial data and financial information of their
prospective clients for analysis. However, the format must
be approved by their principal.
II. The Customer Fact-Find form of a life insurer officially
documents important facts concerning the financial data
concerning a prospective policy owner and his family.
III. Cancellation of a policy is allowed if the request by a new
policy owner falls within the 15 days free- look period. The
period commences from the date the policy contract is
passed to the agent for delivery.
IV. The free-look period commences from the date the client
signs the acknowledgement slip upon receiving the policy.
A. I, II, and III
B. I, II, and IV
C. II and IV
D. I and IV
TMTDA/ADA/CEILLI/PPT/Eng/August2015
219
Sample Questions
6. The pertinent points highlighted by the Guidelines on
Minimum Standards for Treating Customers Fairly (TCF) for
agents’ attention are:
I. Agents should inform customers fully about the key benefits,
key risks and exclusions.
II. Agents must first be well-trained, especially involving the
sale of investment and savings products.
III. Agents must guide the customers as to what details are
necessary to declare and what are not necessary so that the
concise personal information captured in the application
documents will cater for a smooth underwriting process.
IV. The product being proposed to a customer should be based
on suitability, needs and risk appetite.
A. I, II, and IV
B. I, II, and III
C. II and III
D. I, II, III, and IV 220
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TMTDA/ADA/CEILLI/PPT/Eng/August2015
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