How to Pass Insurance Exam in The Philippines - Review Notes

 

Definition of Terms:

Insurer- the insurance company

Premium- monetary compensation

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Insured- person whose life is given protection

Policy owner- person who pays for the policy and has a right to it.

Beneficiaries- the recipient of the death benefits

 

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Sum Insured/Sum Assured- amount payable to the beneficiary

Premium- amount of money in exchange for protection

Policy- written contract of insurance between the insured and company.

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3 risk covered by Life Insurance: 

1. Death

2. Disability

3. Old Age

 

VUL- insurance policy that has both protection (life insurance) and savings (investment)

• -Fund value reliant on market performance therefore no guarantees.

• -Premium is used to purchase units in the Variable Life Fund managed by the company.

• -Also known as Investment-Linked, Unit-Liked and Equity-Linked.

• -Well-developed investment markets in UK and US

 

PREMIUM:

SUM Insured- Protection

Fund Value-Investment - purchase units from equity, bond and balance fund.

 

 

 

Single Premium minus Total Charges = Net Available for Investments divide Unit Price = Purchase Units.

 

Unit-Linked/Equity Linked or Investment Linked Product

=Benefits depends on investment performance

Charges/deductions/earnings are transparent.

 

 

Traditional-  Guaranteed and precomputed

VUL- Depends on market performance

 

Investment- the current commitment of money or other resources in the hope of reaping future benefits.

 

Investing is important because…

-flow of funds is needed to finance the activities of government, business firms and even individuals.

 

 

Rewards of Investing:

1. Earns Interest thru dividends- current income

2. Capital Gains- Increase in value of the capital between the time it was bought and the time it will be sold.

 

Risk-Return Trade Off:

"The greater the risk the greater the potential return".

 

Low Return to High Return: 

Cash Fund- Bond Fund- Balance Fund- Managed Fund- Equities

 

Types of Investments:

1. Deposits or Cash

2. Securities - written evidences of ownership, interest

3. Real Estate Properties- refers to land and improvements.

 

Different Variable Funds:

1. Cash Funds- Invested mainly in cash and other forms of bank deposits

2. Equity Funds- Invested in shares of stock

3. Bond Funds- Invested in government and corporate bonds

4. Property Funds- Invested in real estate properties.

5. Specialized funds- segmented based on geographical regions

6. Managed Funds- Invested in a wide variety of assets depending on the view of the fund manager

7. Balanced funds- invested in a fixed proportion of specified assets.

 

Benefits of Investing in Variable Funds:

1. Pooling or Diversification-consist of wide range of equity stocks and fixed income securities

2. Flexibility-choose the amount of death benefit or premium

3. Expertise- managed by professional fund managers who have the investment expertise to invest the fund

4. Access- well diversified variable life funds

5. Administration- keep track on investment through the unit statements provided regularly.

6. Cost Reduction - substantial savings are made in fees

7. Tax advantages- estate, income tax and capital gains tax

8. Insurance and investment component- the only investment that combines with two benefits in one product

9. Professional Distribution- licensure requirements before being allowed to sell or offer.

 

 

Classifications of Unit Linked Insurance:

1. Single Premium- Lump sum payment upfront and focus is investment

2. Regular Premium- Premium could be paid either monthly, quarterly, semi-annually and annually.

                                           -Focus is protection and long term needs.

 

Difference of Single Premium and Regular Premium:

• Mode of payment

• Level of Coverage

• Increase level of coverage

• Death benefit

 

General Provisions of Variable Contracts:

1. Cooling Off Period- Means contract may be returned within 15 days of receipt of the policy by the policy owner and receive a refund equal to the market value of the units including the charges thereof.

2. Incontestability- A provision that the policy shall be incontestable after it shall have been in force during the lifetime of the insured for a period of 2 years from its date of issue.

3. Reinstatement- A provision that in the event the policy owner wishes to continue to pay a premium at any time within 3 years from the date of premium default, he may do so upon the written application and submission of evidence of insurability.

4. Switching- Transferring of units from one fund to another fund.

 

 

How are units created?

1. Deduct charges then buy units.

2. Buy units then deduct charges by cancelling units.

 

**Single premium minus Initial charge minus mortality charge = Net investment divide Unit Price = Units purchase belong to the policy owner.

 

**Single premium divided by unit price = unit price bought minus initial charge and mortality charge = total charges divided by unit price. = units to be cancelled as charges minus units bought = units available to the policy owner.

 

Two Methods in computing for number of units:

1. Single Pricing Method - charges may be deducted before or after

2. Dual Pricing Method - uses the offer price, bid price, and the bid offer spread.

 

Offer Price- is the price used when buying units

Bid Price- is the price used when selling units

Bid Offer Spread- Is the difference between the offer and bid price.

 

Unethical Practices:

M- Misrepresentation - act of making any false and misleading statements in the selling of life insurance

R- Rebating - act of accepting a premium smaller than the one stipulated in the policy.

T- Twisting - act of persuading a person to lapse or surrender a policy in order to purchase a new one.

K- Knocking - act of criticizing other agents and other life insurance companies

O- Overloading - act of persuading a person to buy an amount of life insurance which is beyond the buyer's means and which then forces the buyer to lapse his policy in the future.