INTRODUCTION TO LIFE AND HEALTH

INSURANCE POLICIES

Life Insurance Product and Innovations

• The confluence of various economic, socio-
cultural, demographics, technological, and
other factors over the past decades has
created unprecedented pressures on life
insurance markets to undertake various
product innovations in an effort to gain more
market power and thereby to protect or
enhance profitability.
 INSURANCE COMPANY REACTIONS
CONSUMERS
• demanding higher return investment products.
• Transparent products
• Greater disclosure
• More up to date policy information.

FINANCIAL ADVISORS
• demanding lower cost, higher-quality products and
services for their customers.
PERSONAL FINANCING PLANNING
• Personal financial planning should be tailored
to the individual, with no two plans should be
alike.
• Risk management process involves the
identification, measurement and treatment to
potential loss.
 PERSONAL FINANCING PLANNING

There are 6 basic stages of a good financial planning

process, which distinguishes the true financial and
insurance adviser from the mere salesman.

i. The gathering of information about a client, or

prospective client.

ii. Establishing the financial objectives of a client, by

asking about his personal ambitions for the future.
 PERSONAL FINANCING PLANNING

iii. Analysing the information about the client in

stages (i) and (ii) to establish the precise needs of
the client’s objectives, but also ensuring that
possible weaknesses in his financial situation,
either current or future, are closed.

iv. Recommending a comprehensive scheme to

answer these needs, including specific
recommendations about life insurance contracts
and saving options.
 PERSONAL FINANCING PLANNING

v. Implementation of the scheme, filling in the

proposal forms, and ensuring the policies are
correctly put into force with the minimum of fuss and
in the most tax efficient way.

vi. Monitoring the scheme, to ensure the client’s

changing needs are reflected in the balance of
his financial plan.
 BASIC TYPES OF LIFE INSURANCE POLICY

• Term assurance.
• Whole of life policies.
• Endowment policies.
• Health insurance.
• Annuities.
 LIFE INSURANCE CONTRACTS
1. Ordinary
2. Home service
3. Group Assurance
• Products offered by insurers can be
categorized as follows:

1. Participating contracts [PAR/WITH PROFIT]

2. Non-participating contracts[NON-PAR/NON-
PROFIT]
 PARTICIPATING CONTRACTS
• The policyholder would have a share in the
earnings of the company. The policyholders
share the divisible surplus is usually limited to
about eighty to ninety percent. The share of
the divisible surplus added on to a
participating policy is called a bonus.
 TYPES OF BONUS
I. Simple reversionary bonus
II. Compound reversionary bonus
III. Cash bonus
IV. Maturity bonus
V. Interim bonus
VI. Guaranteed bonus
 REVERSIONARY BONUSES

The bonus is added to the guaranteed sum insured

on an annual basis and, once declared and decided,
it can never be taken away unless the policyholder
discontinues his policy before death or maturity.

Question:
A life insurance policy with a guaranteed sum
insured RM10,000 with a compound reversionary
bonus rate at 5%.
 REVERSIONARY BONUSES

End year one: Rm10,000 + 5% of RM10,000 = RM10,500

End year two: RM10,500 + 5% of RM10,500 = RM11,025
End year three: RM11,025 + 5% of RM11,025 = RM11,576
End year four: RM11,576 + 5% of RM11,576 = RM12,155
End year five: RM12,155 + 5% of RM12,155 = RM12,763
 TERMINAL BONUSES

Whereas reversionary bonuses are credited to a

policy on a regular (usually annual) basis, a terminal
(or final) bonus is added only when a policy matures,
or on the death of the life insured, although some
insurance companies will also credit terminal
bonuses, to a policy which is made paid-up, or
surrendered, before it matures.
 TERMINAL BONUSES
Example:
An endowment policy which is maturing, with a
guaranteed sum insured of RM10,000, with
reversionary bonuses which have accumulated to a
value of RM15,000. The total value of the policy,
before the terminal bonus declaration, is therefore is
RM25,000.
If the insurance company declares a terminal bonus
of 100%, this will, if the figure relates to both the
guaranteed sum insured and the attaching bonuses,
mean a terminal bonus of RM25,000 (i.e. 100% of
the accumulated value of the policy).
NON-PARTICIPATING CONTRACTS
• The policyholder does not share in
the divisible surplus of the life
company.
BASIC TYPES OF LONG TERM POLICY
 TERM ASSURANCE
BASIC PURPOSE : life cover over a specified period.
INSURED EVENT : death.
EVENT MUST OCCUR : within the term of the policy.
SURRENDER VALUE : none.
COMMON VARIATIONS : level;
renewable;
convertible;
increasable;
decreasing;
family income benefit.
 WHOLE OF LIFE
BASIC PURPOSE : Life cover throughout the life insured’s
lifetime/upon reaching certain age.
INSURED EVENT : Death
EVENT MUST OCCUR : No limit
SURRENDER VALUE : Yes
COMMON VARIATIONS : non-profit whole of life
with profit whole of life
limited payment whole of life
USES : cheapest form of permanent
protection.
policy will be eligible for the benefits
of loan, paid-up value after a minimum
number of years.
 ENDOWMENT INSURANCE
BASIC PURPOSE : A mixture of investment and life
cover over a specified period.
INSURED EVENT : Death/maturity.
EVENT MUST OCCUR : Within term of the policy/at
policy end.
SURRENDER VALUE : Yes.
COMMON VARIATIONS : Par;
non-par;
low-cost;
low-start;
unit-linked flexidowment.
 HEALTH INSURANCE

BASIC PURPOSE : Lump sum/Provide replacement income

for someone unable to work due to
prolonged illness/lump sum.
INSURED EVENT : upon diagnosis/illness for a prolonged
period, preventing the life insured from
working.
EVENT MUST OCCUR : Within the policy term.
SURRENDER VALUE : No
 HEALTHCARE EXPENSES DUE TO ACCIDENT

• Consultations fees
• Hospitalisation room & board
• Diagnostic procedures
• Medicines and other medical supplies
• Operation theatre
• Surgeon’s fee
• Anaesthetist’s fee
• Follow-up treatment expenses
• Ambulance fees
• Repatriation expenses
 HEALTHCARE EXPENSES DUE TO SICKNESS
• Consultations fees
• Hospitalisation room & board
• Diagnostic procedures
• Medicines and other medical supplies
• Operation theatre
• Surgeon’s fee
• Anaesthetist’s fee
• Physician’s visits
• Follow-up treatment expenses
• Ambulance fees
• Repatriation expenses
 TYPES OF HEALTH INSURANCE

1. MEDICAL EXPENSE INSURANCE

 Hospitalisation & Surgical Insurance
 Clinical Insurance

2. LIFESTYLE INSURANCE
 Disability Insurance
 Long-term disability Insurance

3. DREAD DISEASE INSURANCE/CRITICAL ILLNESS INSURANCE

 COINSURANCE
• Contain coinsurance provision that requires the
insured to pay a certain percentage of eligible
medical expenses in excess of the deductibles.
EXAMPLES: RM
• Covered expenses : 10,500
• Less the deductibles : (500)
----------------

• Remaining expenses : 10,000

• 80% paid by the insurer: 8,000
• 20% paid by the insured: 2,000
 ANNUITY
1) Annuity is a series of periodic payments.
2) Annuity contract is an insurance policy that
promises to make a series of payments for a fixed
period or over a person’s lifetime.
3) An annuitant is the person who receives the
periodic payment under an annuity.
4) An annuity certain is an annuity whose payment is
not contingent on the annuitant being alive.
5) A temporary life annuity is a life annuity payable for
a fixed period or until death of the annuitant.
6) A whole life annuity is a life annuity payable for the
whole of the annuitant’s life.
 TYPES OF ANNUITY CONTRACTS

 Flexible-premium deferred annuity

 Single-premium deferred annuity
 Single-premium immediate annuity
 Variable annuity
 Equity-indexed equity
FLEXIBLE-PREMIUM DEFERRED ANNUITY
it permits the contract owner to pay premiums at
whatever time and in whatever amount he or she
wishes, subject to insurer minimums.