PPRREE

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1. INTRODUCTION TO

INSURANCE1.1 Introduction

MisfortuneSome Form Of Loss

Emotional

(Human Grief) Financial

Cannot be made good by any

conceivable compensatory system

Can be arranged through the institution of

insurance

Emotional Trauma

Financial Loss

1

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XX

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PPRREE

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Why Insurance ?1.2 Importance Of Insurance

Shared by

Individual

Financial

Losses

Members

of a group

facing

similar risk

= Insurance

(Loss Sharing Arrangement)

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2

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The Concept of Insurance

Explained1.3 How Insurance Work

Houseowners

or term life

# 1

#2

#3

.

.

.

# 999

# 1000

Premiums

RM200

RM200

RM200

RM200

RM200

Combined

Contributions

(Premiums)

1000

X

RM200

=RM200,000

Claims

Expenses

&

Other

Outgoes

Profits

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Essential Features Of

Insurance

1.4 What Is Insurance

* It is an economic institution .

* It is based on the principle of mutuality or co-operation.

* Its objective is to accumulate funds to pay for claims as a

result of the operation of specific risks.

* Only certain risks can be insured against, whose

occurrence can be confidently estimated with certain

degree of accuracy

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The equitable spread of the financial losses of a few who are

insured among the many insured .

•Cost Stabilisation – to avoid the necessity of having to freeze capital to

provide financial protection against losses.

•Stimulates Business Enterprise – risk transfer mechanism for large scale

commercial & industrial enterprises

* Removes Fear and Worries of losses – to establish confidence

* Reduction of Losses

* Means of Saving – Endowment Plan –both protection & savings

* Sources of Capital For Investment

* Provides Employment For Many – employment opportunities

1. Primary Function

2. Secondary Function

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1.5 Functions Of Insurance

5

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1.6 Classes Of Insurance

Classes Of Insurance

Life Insurance General Insurance

Risk Covered by General InsuranceRisk Covered by Life Insurance

A) Life insurance defined as a

contract which pays an agreed

sum of money on the happening

of a contingency (event),or of

a variety of contingencies,

dependent on human life .

A) Any other form of insurance business

other than life insurance business .

* Premature death

* Income for retirement

* Sickness or Disability

* Motor Vehicles

* Marine and Aviation

* Products or goods sold

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1.7 Historical Aspect Of Insurance

* The earliest beginning of insurance was in the field of

Marine Insurance

* The insurance industry in Malaysia is patterned according

to the British System

* Insurance Business in Malaysia is controlled by the

Government through the enactment of Insurance Act

1963/1996

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2. Nature Of Risk And Its Management

Risk

Definition Of

RISK

* An uncertain loss

* The possibility of loss

* The exposure to danger

* The subject matter of insurance

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Perils And Their Losses

2.1 Concept Of Risk

Negligence

Illness

PERIL

Fire Property

Profit/Revenue

Lives

LOSSES

Future Earnings

Medical Expenses

Court Awards

Legal Expenses

Leads to

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3 Measurements of

Risk

Priori Probability Judgmental ProbabilityEmpirical Probability

Determined by the total

number of known

possible events

Example : Dice

Determined by the basis of

historical data

(Law of Large Number)

Determined by the

judgement of a person

predicting the outcome

(When there’s a lack of

historical data or credible

statistics

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2.2 Related Concepts

2 Major Types Of Hazards

Physical Hazard Moral Hazard

Is a physical chance that

increases the condition of

loss

*Poor mechanical

condition of a motor car

Is a character defect in an

individual that increases the

chance of loss

*Dishonesty, carelessness

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2.3 Basic Categories Of Risk

Distinguishing Risk From The Following Concepts

Loss Is a reduction or

disappearance of

economic value

Peril Is a cause of loss Hazard Is a condition

that increase the chance

of loss

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BASIC CATEGORIES OF RISK

Fundamental Risks

Speculative Risks

Pure Risks

Particular Risks

- It affects the entire economy and a large number

of people. Exp :Typhoon, wars, earthquakes

-It affects only individuals and not the entire

community - Exp :In road accident

Loss or

- No Loss. Exp :Risk of premature death

- Loss or

- No Loss or

- Gain. Exp :Investment in stock market

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RISK MANAGEMENT

Avoiding Risk

Transferring Risk

Accepting Risk

Controlling Risk

-we can avoid risk of financial loss in the stock

market – by not investing it at all

-Taking steps to prevent or reduces losses eg,

banning smoking / installing smoke detectors

- accepting or retaining risk. Eg. Assuming all

financial responsibility for that risk – insurance

- can afford to reduce their standard of living

-Transferring risk to another party / shifting.

eg. Insurance coverage – be used to cover

property damage risk , liability risk and

personal risk.

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PPRREE

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3.The Basic Principle Of Insurance And An

Introduction To Takaful

3.1 Principles Of Insurance

Is the legal right to insure which arise from the

legitimate financial interest an insured has in a

subject matter of insurance.

A) Insurable Interest

General Insurance Contracts

Insurable interest must exist at

the beginning & at the time of

loss .

Life Insurance Contracts

Insurable interest must exist at the

beginning only

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ASSIGNMENT

* Transfer of rights and liabilities by one person to another .

* Prior written consent from the insurer is needed for an assignment to be

valid .

* Substitution of the insured by a new insured ,a new contact is created

between the insured and the assignee of the original policy .

The alteration is termed Novation

Exception Of Prior Consent

PPRREE

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Transfer by

will or

operation of law

Life PoliciesMarine

Policies

16

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B) The principle Of Utmost

Good Faith

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I .Commercial Contracts

(The principle of Utmost Good Faith does not apply)

* No need for parties to disclose information not requested .

* Make best bargains as long as it does not mislead the other.

* The legal principle governing such contracts is caveat emptor

(let the buyer be aware) .

17

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Breach Of Utmost Good Faith

PPRREE

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Non Disclosure Misrepresentation

Breach Of Utmost Good Faith

Voidable Contract

18

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C) Indemnity

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* The principle of indemnity requires the insurer to restore the

insured to the same financial position as he had enjoyed

immediately before the loss

General Insurance contracts

are contracts of indemnity

where insurable interest is

measurable .

Personal Accident Life

Insurance contracts are not

strictly contracts of

indemnity where insurable

interest is unlimited .

19

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D) Subrogation

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* An insurer who has indemnified an insured for loss may

exercise the insured’s rights to claim from the third party in

respect of the loss .

* To prevent the insured from getting more than indemnity when

he has to or more avenues to recover his loss .

* Is considered as corollary of indemnity, a natural consequence

of indemnity. Since subrogation arises when indemnity arises,

it is not applicable to non-indemnity contract.

20

PPRREE

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PPRREE

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Essentials of

Contribution

* 2 or more policies of indemnity

must be inforced .

* The loss involves a common

subject matter covered by the

policies .

* The policies must cover a

common peril which give uses

to the loss.

* The policies must cover a

common interest .

E) The Principle Of Contribution

21

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PPRREE

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F) The Principle Of Proximate Cause

•Onus of proof of loss rests on the insured – thus when a

loss is the result of many causes the proximate cause – that

is the dominant or effective cause, it must be identified

and attributed as the cause of the loss.

* Insured has to prove the loss .

* The insurer is not liable for an uninsured or excluded

peril - not mentioned in the policy therefore not covered.

Also policy contracts which have been expressly excluded

from the policy.

22

PPRREE

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PPRREE

--CCOONNTT

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3.3 The Formation of Takaful Companies

Takaful Companies

* Provide insurance based on a system that is in accordance

with Islamic religion Law or Syariah

Takaful Act 1984

4 PartsPart I:Business

Classification

Part II:Mode & Conduct

Part III: Power Vest In

Bank Negara

Part IV :Administration

and enforcement

of matters

2323

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Syariah Supervisory Council

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* The function is to advise operations to ensure that it does not

involve in any element which is not approved by the Syariah.

* Member of council are Muslim jurisprudents .

* Decisions of the council must always follow the ruling of

Syura or mutual consultation and agreement .

24

PPRREE

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3.4 Principles Of Takaful Operation

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1. The Concept Of Takaful

A method of joint guarantee among groups to share the burden of

unexpected financial losses that may fall upon any of them .

2. The Concept Of Tabaruk

“Tabaruk” means to donate. The participants of takaful plan make an

aqad (agreement) to deposit as donation a certain proportion of takaful

contribution or installment into a risk fund .

3. The Principle of Mudharabah

“Mudharabah” (Trustee Profit-Sharing) is defined as a contractual

agreement between provider of capital and entrepreneur for the purpose

of business venture whereby both parties agree on a profit sharing

arrangement.

25

PPRREE

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4.5.1General Insurance Related Institutes

PPRREE

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* MIB - Motor Insurers’ Bureau

Provides compensation to victims of motor accident.

* IMB - Insurance Mediation Bureau

Provides an alternative procedure to resolve disputes arising from

personal insurance policies .

* UMP - Unplaced Motor Pool

Provides a reasonable cost of insurance coverage to certain classes of

vehicles in view of its adverse claim experience.

* PIAM - Persatuan Insurans Am Malaysia

The membership of PIAM is compulsory for all general insurance in Malaysia.

* IBAM - Insurance Brokers’ Association Of Malaysia

To protect the interest of insurance brokers.

* AMLA - Association Of Malaysian Loss Adjusters

An association for loss adjusters approved by the minister .

26

PPRREE

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PPRREE

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* LIAM - Life Insurance Association Of Malaysia

The representative body of life insurance companies.

It consists of 18 companies .Responsible for the

registration of life insurance agents .

* NAMLIFA - National Association Of Malaysia Life Insurance

Financial Advisors

An association for life insurance agents and tier

supervisors .

* ASM - The Actuarial Society of Malaysia

To promote studies and researches Actuarial subjects

and allied aspects of life insurance .

* MII - The Malaysian Insurance Institute

Conducts courses and examinations in insurance

related discipline for those who are in the insurance

industry .

4.5.2 Life Insurance Related Organisation

2727

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6.The Insurance Contract

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6.1 Law Of Contract

* An insurance contract is a legally binding agreement

between an insured and an insurer .

Essential Legal Requirements Of Insurance Contracts

1. Intention to create legal relationship

2. Offer and acceptance

3. Consent-consensus ad idem

4. Consideration

5. Legal Capacity to contact

6. Legality of the contact

2828

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1. Intention To Create A Legal Relationship

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* Parties to an agreement intend to be legally bound

2. Offer And Acceptance

* The offer and acceptance must be voluntary

* Offer :Proposer

Accept :Insurer

* The insurer may not accept a proposal on its original

terms but may offer to provide insurance on different

terms Counter Offer .

2929

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3. Consent - Consensus ad idem

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* Parties to the agreement must agree upon every material

term of the agreement totally .

* Consensus ad idem, that is of one mind .

4. Consideration

Insured

(Policyholder)

Insurer

(Company)

Consideration : Premium

Consideration : Agreed

Sum Insured

3030

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5. Legal Capacity To Contract

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* Who has legal capacity to enter into a contact ?- Everyone .

* Section 41, Insurance Act 1963 (section 153, Insurance Act

1996) minor aged 16 can enter into a legally binding insurance

contact .

* Section 41, further provides that a minor aged 10 to 16 may

enter into insurance contract with written consent of his

parents or guardian .

6. Legality Of A Contract

* An agreement should be created for a legal purpose .

3131

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DEFECTIVE CONTRACTS

PPRREE

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Void Contract Unenforceable ContractsVoidable Contract

•Totally invalid

- no contract at all

* Not enforceable in

a court of law which

has no consideration.

* Remain valid until the

aggrieved party exercises

the option to treat it void .

* An insurance contract is

voidable if the insured fails

to observe the duty of

disclosure during

negotiation or breach a

warranty .The contract is

valid until the insurer

exercises the option to treat

it void.

* It arises out of failure

to comply with legal

formalities .

•Eg. The need for

certain contracts to be

in writing – fails to

comply with the

statutory provision

Requiring.

3232

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Insurance Act 1996 Section 151

PPRREE

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* The knowledge of an agent who relates to any matter

concerning the acceptance of risks by the insurer shall be

deemed the knowledge of the insurer.

* This section shall not apply -

- Agent has been terminated and the insurer has taken

all reasonable steps to inform policy owners and the

public in general of such cessation .

3333

PPRREE

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Insurance Act 1996 Section 150 (4)

PPRREE

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Any person who induces or attempts to induce

another person to enter into any contract of

insurance with an insurer shall be found guilty and

liable to

Penalty : 1 Million Ringgit Malaysia .

3434

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8. MARKETING & AFTER SALES SERVICES

PPRREE

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8.1 Sales

Sales Versus Marketing

Definition of Marketing :-

The management process responsible for identifying,

anticipating and satisfying customer requirement

profitably .

- Sales-oriented products often don’t meet consumer needs

- Market-oriented products are developed & marketed with

the consumers’ need in mind .

35

PPRREE

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PPRREE

--CCOONNTT

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Functions Of The Marketing Department

* Planning & Controlling

* Market Identification

* Product Development

* Pricing

* Selection Of Distribution Channel

* Promotion

36

PPRREE

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PPRREE

--CCOONNTT

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The Selling Process

* Locating The

Prospective

Customer

* Conducting The Sales

Interview

* Creating A Sales

Presentation

* Closing The Sales

* Handling Objections

37

PPRREE

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PPRREE

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Selling Techniques

Order Processing Missionary SellingCreative Selling

Is Useful in

situations where

customer is able

to recognise his

need immediately

-agent identified

a need, draws his

attention & make

the sale.

Is need when

customer is

unaware of his

needs.Agent to

help to uncover his

needs and

recommend

policies to meet

those needs.

Is used where

selling is done

indirectly by

establishing good

will between the

agent and his

Customers, eg

thru technical

assistance &

good after-sales

service 38

PPRREE

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8.2 After Sales Services

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Benefits :

* The chance of lapse or business flowing elsewhere could be

minimised .

* The client’s new needs for insurance coverage could be

recognised and a sale quickly made, thus enhancing the

agent’s business .

* The reputation of the insurer as a service-oriented

organisation is enhanced

39

PPRREE

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PPRREE

--CCOONNTT

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Premium Notice- A reminder to policyholder to pay

premium

Policy Register- A legal requirement for insurer to

maintain up to date register of all

policies issued .

Premium Receipt- Insurer issue an official receipt upon

receiving the premiums .

Grace Period- Due premium shall be paid within a

specified period -30 days from

the due date .

40

PPRREE

--CCOONNTT

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Introduction to Medical & Health Insurance

OverviewOverview of of

Medical & Health InsuranceHealth Insurance

CharacteristicsCharacteristics of of

Medical & Health InsuranceHealth Insurance

PPRREE

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1. INTRODUCTION & CONCEPT OF

MEDICAL & HEALTH INSURANCE

1.1 Introduction

Adverse changes

In health

Medical Expenses / Treatment

AccidentOccurrences

Critical IllnessOccurrences

Medical reimbursable after the effective

date of the policy

Medical reimbursable after policy inforced

more than than 30 days after effective date

Accidental Occurring

Illness Occurring

42

PPRREE

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PPRREE

--CCOONNTT

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Why Medical & Health Insurance ?

1.2 Importance Of Medical & Health Insurance

Shared byMedical

Expenses

Pooling of

resources

from all

policy-

holders

= Health &

Medical

Insurance

(Claims Sharing Arrangement)

PPRREE

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43

PPRREE

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OON N

Why NOT Medical & Health Insurance ?

PPRREE

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44

� Truth of the matter is, people are

living longer. However, living

longer does not mean living better

� What if suffering longer period of

chronic illness or disability?

� Who will take care of you while

long-term nursing care is needed?

� Moreover, how about healthcare

cost? $$$?

PPRREE

--CCOONNTT

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OON N

What is Medical & Health Insurance?

•Health or Medical Insurance

–Sometimes known as “Accident and Health”, “A&H” or

“Accident & Sickness”

–Designed to ease the financial burden caused by adverse

changes in health.

–Is a device whereby money is collected from a pool of

contributors or policyholders and whenever a valid health

insurance claim is made by the policyholders, money is

paid out from this pool.

PPRREE

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PPRREE

--CCOONNTT

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OON N

Principles & Practices

of Medical & Health Insurance

•These apply in the same manner in which they are

applicable to non-medical & health insurance: -

–Insurable Interest - Offer & acceptance

–Utmost Good Faith - Underwriting

–Indemnity - Policy processing

–Subrogation - Claim administration

–Contribution - Reinsurance

–Proximate Cause

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 46

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Guidelines Applicable

to Medical & Health Insurance

•Section 12 (2) of the Insurance Act 1996 JPI/GPI 16 issued by BNM on

24 December 1998 – for the conduct & compliance for policy sold in

Malaysia.

•On 5 May 2003 – JPI 12/2003 ‘Minimum Standard on Product Disclosures

& Transparency in the Sales of Medical & Health Insurance Policies was

issued.

- Checklist indicating confirmation that the intermediary has clearly

highlighted aspects of the products to the proposer

- The right of the proposer to surrender his policy for cancellation during

the ‘cooling off’ period.

- The duty of the insurer to highlight certain important features of the

products; and

- Insurers launching new medical & health insurance policies or making

amendments to existing products effective 1 Oct 2003 are required to

lodge with BNM an actuarial certificate for such products at least 30 days

before offering the product to the public.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 47

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Categories

of Medical & Health Insurance

• Medical & Health insurance policies may be divided into

the following 2 categories:-

1) Indemnity polices

An indemnity policy places the insured in the same

financial position as before the occurrence of the insured

risk, subject to maximum limits of the insured amount.

An example is hospitalisation & surgical insurance.

2) Benefits policies

A benefit policy pays a pre-determined sum of money if

an insured event occurs during the policy period.

Examples are Hospitalisation cash benefit plans, critical

illness insurance & disability income insurance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 48

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Some Features

of Medical & Health Insurance

• Claim Payment does not terminate coverage. The payment of a

claim does not result in the termination of a policy, except in the

event of death claim. It provides for the claims up to the stipulated in

policy Example; Per disability limit / Overall limit / Lifetime limit.

• The Insurance Risk increase with Time as it involves morbidity.

Generally, the risks increases with age. (probability of the disability

resulting from an accident / illness). Other external factors such as

occupation & environment also affecting the risk.

• ‘Cashless’ Hospital Admission arrangement – admission to a

panel hospital is by the issuance of a letter of guarantee & hospital

deposit may be eliminated. Upon discharge from hospital – insured

only pays for non-reimbursable charges, others will be taken care by

insurer. Usually, it is merely value added services provided by

insurers to certain eligible policyholders.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 49

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Type of Medical & Health Insurance

Medical & Health Medical & Health

Group PoliciesGroup PoliciesIndividual HealthIndividual Health

PoliciesPolicies

Premium are usually age bandedPremium are usually age banded

& increase with age& increase with age

Policies issued to groups ofPolicies issued to groups of

three or more personsthree or more persons

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Individual Health Insurance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

• Provides cover against medical expenses of only one person or family.

• May be bought directly from an insurance company, or via an insurance company agent.

• The risk potential determines eligibility and cost of the insurance.

• Riskier than group insurance

51

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 52

Types of Medical and Health

Insurance Coverage

• Medical Expense Insurance

• Hospitalization & Surgical Insurance

• Major Medical Expenses Insurance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 53

Medical Expense Insurance

• Provides reimbursement of the insured’s

eligible medical costs.

• Insurers market three basic medical expense

policies :

1.Hospital-Surgical policy

2.Major-medical policy

3.Comprehensive medical policy

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 54

Hospital & Surgical

Insurance

• Provides cover against loss from medical expense

incurred

• 16 specific benefit provisions

1. Hospital Room & Board

2. Intensive Care Unit

3. Hospital Miscellaneous Services

4. Surgeon’s Fees

5. Operating Theatre Fees

6. Anesthetic Fees

7. Ambulance Fees

8. In-hospital Physician’s Visits

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 55

Hospital & Surgical

Insurance

9. Pre-Hospitalization Specialist Consultation

10. Post- Hospitalization Treatment

11. Pre-Hospitalization Diagnostic Tests

12. Emergency Accident – Outpatient Treatment

Some policies may be extended to cover the followings:

13. Daily Cash Allowance at Government Hospitals

14. Out-patient Cancer Treatment

15. Out-patient Kidney Dialysis

16. Organ Transplant

17. Insured Child’s Daily Guardian Allowance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 56

Major Medical Expense Insurance

• Design to cover a broad coverage & substantial protection from large

unpredictable healthcare expenses with benefits applying to virtually all

kinds of health care prescribed by the physician.

• It Includes benefits for the same medical expenses that are covered by

H&S policies.

• Provides coverage for expenses like: -

– Receiving out patient treatment

– Employing private-duty nurses

– Renting or purchasing expensive treatment equipment and medical

supplies

– Purchasing prescribed medicine

• It covers virtually all types of medical expensed whether incurred in or out of a hospital ‘As Charged’ policies in Malaysia.

• It includes imposing benefit as Per Disability Limits & Overall Annual Limits

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 57

Expense Participation

• Is sharing in the cost of medical expenses with the insured.

• Enables insurer to keep premium rates to a lower level.

• Two common expense participation methods are :

– Deductibles

Requires the policyholder to pay a pre-agreed amount first before the balance of eligible expenses are reimbursed or paid by the insurer. Fixed amount typically in the range of RM1,000 to RM5,000

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 58

Expense Participation

(con’t)

– Corridor Deductible

Is a flat amount which the insured must pay above the amount paid by the hospital-surgical policy before any benefits are payable under the major medical policy. Amount normally between RM 300.00 or RM 500.00

– Coinsurance/ Percentage Participation

Under this method, the insured pay a specified percentage of all the eligible medical expenses, in excess of the deductible, which he or she incurs as a result of a sickness or injury.

Most of the major medical policy has this kind of arrangement.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 59

Group Medical & Health Insurance

� The contract - One master policy (single policy) issued

for many insured lives. Coverage issued to employer-

employee groups as an employee benefits scheme

� Premium Calculated - Yearly premium with high

protection at low cost – less expensive when underwriting

a group of people

� Limited use of evidence of insurability - Simplified

Underwriting – as long as they eligible for coverage

� Group Size - Guideline issued by BNM JPI/GPI 16 –

24/12/1998 -a group policy is one that covers a group of

3 or more lives

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 60

Group Medical & Health Insurance

The contract

– A single policy called a master contract is

issued to the group policyholder to cover a

group of individuals who have a defined

relationship to the policy holder, such as:

• Employer-employee

• Association/cooperative/union member

• Debtor-creditor

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N 61

Group Medical & Health Insurance

Contributory Scheme� where the employee pays certain % or all the premiums

� It requires the participation of at least 75% of the eligible members of the group

Non-Contributory Scheme� where the employer pays all the premiums

� It covers all eligible members of the group

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Medical & Health Insurance

Underwriting

Anti Anti -- SelectionSelection

Medical Medical

FactorsFactors

Occupational Occupational

FactorsFactors

Final Underwriting ActionFinal Underwriting Action

Modified CoverageModified Coverage

Renewal UnderwritingRenewal Underwriting

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Medical & Health Insurance

Underwriting

What is Underwriting?

Defined as a process of assessment & selection of risks

determine the premium & term & conditions to be apply”

What is the Purpose of Underwriting?

- To ensure that sufficient funds are/will be available to pay

claims occurrence, insurer has to :-

- Guard against anti-selection

- Charge a premium that is commensurate with the

risk transferred

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

– Occurs when a high risk applicant submits a

proposal for insurance

– The actual loss will be greater than the expected

loss.

– Premium is charged based on expected loss

– The amount collected will not be adequate to

pay claims if anti-selection exists.

Underwriting - What is Anti-Selection?

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Underwriting - Risk Selection Process� Medical Factors - Considerations of both history and current

physical conditions for the probability of future problems that causes disability income & result in medical expenses for hospitalization & treatment.

� Financial Factors - The financial status of the applicant is a prime consideration in underwriting.

Disability income coverage will be issued to a specified percentage of the applicant’s earned income.

� Occupational Factors - Morbidity rates vary considerably according to a person’s occupation.

- Class 1 - Least hazardous occupations. Mostly professionals.

- Class 2 - Requires more physical activity than Class 1. Examples would be second hand car dealers.

- Class 3 - Light manual duties or skilled work is involved like plumbers and mechanics.

- Class 4 - Heavy manual duty or near accidental hazards like construction workers and agricultural laborers

� Age & Sex (gender) - Morbidity rates generally increase with the age (grow older)

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Sources of Underwriting Information

1. Application form

2. Agent’s statement

3. Medical or paramedical examinations

4. Attending Physician Statements (APS)

5. Hospital medical records

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Final Underwriting Action

� Standard Issue:

– Decision to approve as applied for

– Policy will not contain any special exclusions or reductions in benefits.

� Declination Of Issue:

– Decision to decline

� Substandard/ Modified Issue:

– Modifying in terms of additional riders, premiums or benefits

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Issuing Modified Coverage

� Exclusion Endorsements – Riders (Waivers)

– The rider excludes a particular disability or medical

expense

� Extra Premiums (premium loadings)

– Additional premiums usually ranges from 25 to 100

percent of the standard premium.

� Change of Benefits (modified benefits)

– Modifying the benefits like changing a smaller amount

of indemnity or a longer elimination period.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Renewal Underwriting

� Some form of renewal underwriting is

necessary for adequate control of the

insurer’s claim experience.

� The degree of renewal underwriting that

may take place is limited by the renew

ability provision of the policy.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Renewal Underwriting

Optional Renewable Policies

� Information that could lead an insurer to take

adverse action on an optionally renewable policy

comes from many sources, including information

developed:

– At the time of a claim

– During the underwriting of a new application

for insurance

– During the reinstatement of another policy

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

� The insurer may choose to modify an optionally

renewable policy rather than to decline renew

ability. The modification may be:

– An exclusion endorsement or loading of

premium because of a given physical

impairment

– An increase in the basic premium because of a

change to a more hazardous occupation

– An increase in elimination periods to avoid

small, repetitious claims

Renewal Underwriting

Optional Renewable Policies

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Guaranteed Renewable Policies

� Limited to the rescission of the policy

during the contestable period (material

misrepresentation during the period)

� May be subject to premium rate changes if

the insurer has had to pay out more in

claims that it expected

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Non Cancelable Policies

� An insurer does not have the right to

increase premium rates for such policies

under any circumstances

� Premium rates are specified and guaranteed

in the policy

� Guaranteed to be renewable until the

insured’s age reaches maturity

� However, insurer may have to take action

to discontinue further sale of the product

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Payment of Premium

& Termination of a Policy

� Modes of Premium Payment– Monthly, quarterly, semi yearly and annually

– Premiums paid annually are always lower

� Billing arrangements

� Warranty/Grace Period– Allows the insured 31 to 61 days to pay the premium after its due date

� Policy automatically terminated

- on the death of Insured / Person

- on Policy Anniversary – insured maximum eligibility age

- if total benefits paid out under policy exceed maximum limit specified in benefit schedule

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Conditionally Renewable

� A conditionally renewable medical & health insurance policy grants an insurer a limited right to refuse to renew a health policy at the end of a premium payment period.

� It must be based on one or more specific reasons stated in the policy contact given to the insured

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Policy Policy

DocumentsDocuments

PolicyPolicy

FormForm

Proposal Proposal

FormForm

EndorsementEndorsement

RenewalRenewal

NoticeNotice

Proof of Medical & Proof of Medical &

Health Insurance Health Insurance

Premium Payment Premium Payment

for Tax Relieffor Tax Relief

Chapter 4 – Policy Documents

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Policy Administration

� Documents used in the conduct of medical

& health insurance business :-

– The Proposal Form

– The Policy Form

– Endorsement

– Renewal Notice

– Proof of medical & health insurance premium

payment for tax relief

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

� Section 149 of the Insurance Act 1996

provides for the control by and the

lodgment of proposal forms, policies and

brochures of insurers with Bank Negara

Malaysia

� Section 149 also provides that Bank Negara

Malaysia may specify a code of good

practice in relation to any description of

proposal form, policy or brochure

Policy Administration

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

- A document in the form of questionnaires

– Assist the insurer in gathering information

required to assess a risk

– Enables the insurer to consider application

speedily and accurately

– Frequently used in relation to simple risks

where information can be furnished in a

structured format

The Usefulness of Proposal Form

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

The Structure of a Proposal Form

Contents of a Proposal Form

� Disclosure Statement as per Requirements of Insurance Act, 1996

� Questions of a General Nature

� Risk Address

� Proposer’s Occupation

� Previous and Present Insurance

� Specific Questions relating to Health Insurance

� Declaration

� Signature

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

The Policy Form

� A document drafted by the insurers

� Not the contract of insurance but represents

the written evidence of it

� Has to be stamped in accordance with the

provisions of the Stamp Act

– Otherwise it cannot be used as evidence in

court

� Scheduled typed form are frequently used

� Endorsement – Form part of the policy

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Renewal Notices

� The Practice in Relation to Medical & Health Insurance Products – sold on annually renewable basis & thus subject to renewal by the insurers at the end of the policy period.

– No legal obligation on the part of the insurer

– The insurers to advise the insured that his policy is due to expire on a particular date

– The notice incorporates all relevant particulars of the policy

– A note advising the insured to disclose any material alterations in the risk since the inception of policy

– The usual business practice is to send a Premium Notice Reminder to the policy holder

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Entitle up to RM 3000 for premiums paid for education or medical insurance– This is over and above the RM 5000 deduction from taxable income already allowed for premiums paid in respect of life insurance policies and contributions to approved retirement schemes.

Inland Revenue Board guidelines:-

– Health insurance policy coverage should be for a period of 12 months or more

– The coverage should be related to the medical treatment or benefit payment for TPD resulting from disease or accident

� A copy of the health insurance policy must be submitted with the Tax Return Form, to qualify for tax allowance.

Documents for Tax Relief for Medical &

Health Insurance Premium Payments

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Claim Procedures

Notification of LossNotification of Loss

Checking of CoverageChecking of Coverage

Investigation of the ClaimInvestigation of the Claim

Settlement Settlement

of Claimof Claim

Repudiation of LiabilityRepudiation of Liability

DisputesDisputesNegotiation andNegotiation and

CompromiseCompromise

VALID NOT VALID

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Medical & Health

Insurance Claims

� Notification of Loss

– The insured must give the insurer written notice

of claims for any loss covered

– notice have to be given within 30 days after the

occurrence.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Proof of Loss / Claim

� The insured is required to furnish written

proof of loss, in the case of a claim for

disability benefits, within a stipulated

timeframe (eg 90 days) after the termination

of the period for which the insurer is liable.

� Affirmative proof like original

hospitalization bill and claim form is

required for hospital or medical claim

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Checking Coverage

� Conditions for a Valid Claim

– Is the policy in force?

– Has premium been paid?

– Is the loss caused by an insured peril?

– Is the subject matter affected by the loss the same as that insured under the policy?

– Has notice of loss been given without undue delay?

� Claims Register (Section 47 Insurance Act 1996)

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Investigation of a Claim

� The validity of a Claim

– Existence of loss

– Loss is caused by a peril insured under the

policy

– Loss does not fall within the scope of an

exclusion of the policy

– The person making the claim is the rightful

claimant

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Claim Documents� General information required in all Claim Forms

– Identity of the insured

– The insured’s interest in the loss

– Circumstances of and extent of loss

� Medical & Health Insurance Claim Forms

- comprises a claimant’s or insured’s statement and an attending physician’s statement. However, the format may be different with each insurer.

� Settlement of Medical & Health Insurance Claim

- having reviewed the considerations applicable

- having made the decision to pay the claim

- computing the amount payable & issue claim payment

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Repudiation of Liability by Insurers

� There was no loss or damage as reported

� The loss or damage for which a claim has

been made was not caused by a peril or was

excluded by the policy

� The policy has been rendered void as a

result of a breach in condition (implied or

express) or warranty

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

� Usually there are two ways in which

rejections are normally handled:

– By letter to the policyholder from the claims

office

- By letter from the claim office to the agent,

instructing the agent to contact the insured

personally and to notify the insured of the

rejection and explain the reason.

Repudiation of Liability by Insurers

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Disputes

� Disputes between claimants and insurers generally may involve one of the two issues:– The question of whether the insurer is liable

– The quantum of loss, if the insurer is liable

� When a dispute arises, it may be resolved through the following channels:– Negotiation and compromise settlement - discussion

– Litigation – claimant unhappy – take court action

– Arbitration – pertaining to insurance polices - a clause

– Mediation – eg Financial Mediation Bureau – a centre to air consumer complaints against all financial institutions regulated by BNM.

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Negotiation and Compromise Settlement

� Litigation

– Court action between the insured and the insurer

� Arbitration

– An out of court settlement unless it involves a huge

claim or an important point of principle

– Speedier and less costly than court action

� Mediation

– Set up by the Insurance Mediation Bureau (IMB)

– Offers free investigation and mediation services to

policyholders in insurance disputes

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

16. Life Insurance Preliminaries

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

16.2 Characteristics Of Life Insurance Products

1. Life Insurance Contracts Are Long-Term

Contracts

With Usually Level Premium .

* The long-term nature of the contract requires the insurer to adopt a

cautious view of the many factors which enter into the premium rate

calculations. Principal amongst these factors are the following :-

- mortality

- expenses

- rate of investment returns

- tax

* Legislative requirements in the form of minimum statutory reserves

and solvency margins must be maintained .

94

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

2. Both Parties Must Observe The Principle Of Uberrima Fides.Utmost good faith has to be observed by both parties, the insured and the insurer.

3. Life Insurance Contracts Are Aleatory Contracts.

* One party provides something of value to another party in exchange for a promise

that the other party will perform a stated act if a specific, uncertain event occurs .

* The claim amount is determined at the very beginning of the contract.

4. Insurable Interest* The purchaser of a life insurance policy must stand to suffer a financial loss on the

death of the person on whose life the life insurance policy has been bought .

* Insurable interest exist :

- Every person is considered to have an unlimited interest in

♠ his or her own life

♠ their spouse’s life

- Parent Child (below age of majority)

- Creditor Debtor

- Employer Employee

- Partner Partner (in business)

* It needs to exist only at the inception of the insurance .

95

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

5. Payment Of A Terminates Life Insurance Contract .

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

In life insurance, with the exception of permanent health insurance policies, the

settlement of a claim terminates the contract .

6. The Risk To Be Insured Increases With Time .

For life insurance, mortality risk increases with age and hence with the duration

of the contract .

7. The Basic Principles Of Insurance As Applied To Life

Insurance.* Insurable Interest

* Utmost Good Faith

* Indemnity

* Subrogation

* Contribution

* Proximate Cause

(Discussed in Chapter 3)

96

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Risk Covered By Life Insurance

Policies

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

* Premature Death

* Temporary Disability

* Permanent Disability

* Retirement Benefits

* Financial Guarantees

97

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

17.1 Introduction

3 Kinds Of Life Insurance Contracts

- Ordinary – Term, Whole Life, Endowment and Annuities

- Home Service – for lower income class of the population –

WL/END Plan / premium payments collected weekly

- Group Insurance

* Non -Participating Contracts- Mainly for protection purposes / SA is guaranteed

* Participating Contracts- Mainly used for protection & saving .

The total coverage / benefit is generally made up of a

guaranteed benefit, regular bonuses and a final bonus.

17. Life Insurance Products

98

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Term Insurance / Level Term Insurance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

•Also known as Temporary life insurance protection for a

specific period of time called policy term. Premiums payable

are relatively low and it does not provide any surrender

value.

• Policy benefit is payable only in the event of death or

becomes total and permanent disabled of LA within the

stipulated terms of the policy and nothing is payable if the

LA survives the term.

*It also act as an additional protection for financial or

mortgage loan, as a means of protecting mortgage

obligations.9999

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Whole Life Assurance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

1. Ordinary Life Policy

- Protection provided for the whole duration of Life with the sum assured

including any accrued bonuses.

- Participating or non - participating .

- Provides the cheapest from of permanent protection .

- Payment of premiums need to be continued until the death of the life

assured.

- This policy comes with non-forfeiture provisions for eg. surrender value,

automatic premium loan and paid-up value.

2. Limited Payment Whole Life Policy

- Sum Assured is payable only upon death or TPD, but premiums are

payable for a limited number of years only .

- It is eligible for non-forfeiture provisions, eg surrender value & paid up

value.

100

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Endowment Assurance

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Uses of Endowment Assurance:

1. As an incentive to save in a systematic manner.- putting aside a moderate sum

each year with a view of having all the accumulation available at the end of a fixed

period.

2. As a convenient and easy means of providing for old age.- when policy mature

3. As a means of hedging against the possibility of untimely death- despite

premature death of disability of the LA

4. As a means of accumulating a fund for specific purposes.- children educational

needs

Anticipated Endowment Assurance

* Installment cash payments by the insurance to the policyholder payable at regular

intervals during the terms of the policy .

* An additional benefits that the full sum assured shall be payable in the event of the

life assured’s death during the term of the policy.

* If the assured survives till the end of the term, he will be paid only the sum

assured less the instalment payments 101

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Types of AnnuitiesPPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

* SINGLE LIFE IMMEDIATE ANNUITY

- Annuitant pays a lump sum as the purchase price & in return he starts to

receives the annuity payments immediately for as long as he lives.

* GUARANTEED IMMEDIATE ANNUITY- Annuity will be paid for a fixed number of years, thereafter as long as

the annuitant is alive.

- If annuitant dies during this period, the annuity payments will continue

to be paid until the end of the guaranteed period.

* DEFERRED ANNUITY-paid one lump sum at entry

- Annuity payment will not start immediately but will commence only on

the attainment of specific age or defined period called deferred period.

- Annuity payments are made throughout the life of the annuitant of a

specified amount until death.

* JOINT LIFE ANNUITY – that provides a specified amount of:

- Annuities granted on two or more lives.

- Annuity payments stop on the first death. 102

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

* LAST SURVIVOR ANNUITY- It is issued on two or more lives and provides for annuity payments to be

made until the date of death of the annuitant.

* REVERSIONARY ANNUITY- Annuity commences at the death of the assured person, to be paid

throughout the life time of the annuitant (or nominee), eg wife on the death

of her husband.

* ANNUITY CERTAIN-In return for the payment of a certain sum of money, the annuitant received

a yearly, half yearly or quarterly payment for a specific number of years.

Types of annuity contracts

103

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Permanent Health Insurance (PHI)

* It provides for an income during periods of sickness or disability on a long term basic .

* The income provided is limited to a maximum of 2/3 or 3/4 of the insured’s earnings.

* It cannot be cancelled by the insurer because of an adverse claims experience.

* It is usually arranged with a “deferred period”. During this period of disability no benefits

are payable. (1 month, 6 months or 12 months)

Dread Disease Covers

A dread disease contract pays out a lump sum on the diagnosis of any of a number of specified

diseases.

The benefit can take either of these 2 main forms :-

- It may provide an acceleration of all or part of any death benefit, or

- It may be an additional benefit .

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Investment Linked Policies

* Premium divided into the following components .

- expenses related- mortality and/or morbidity cost related,

- investments related.

104

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Group Insurance

* Insure lives in large groups at low rates of premium and often without

medical examination.

* It covers all or a certain class or classes of employees of a company.

* Group term life insurance is a yearly renewable term insurance.

* It may extend to cover employee’s spouse and eligible children.

Requirements :-

* Minimum number must be 10.

- Non -contributory

- Contributory

Eligibility :-

* All full time employees between the ages of 16 and 55 and actively at

work on the effective date of the plan are eligible to join .

105

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Evidence of Insurability :-

* If individual amount of insurance is less than the Free Cover Limit, no

medical underwriting is necessary .

Amount of insurance :-

- Fixed amount for all

- Classified according to salary or occupation

Calculation of premium :-

- by age and sex

* A master policy is issued to the employer. A certificate of insurance is

issued to each employee.

* ‘Experience Rating’ is applied for large schemes of 2000 lives or more.

Group Insurance

106

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Disability Benefits

Before attainment of age 60, the assured become disabled and unable to engage in

any occupation or perform any work for remuneration or profit, the insurer will

- waive all future premiums

-pay the sum assured together with any bonus attached .

Sickness Benefits

-Hospitalization Benefits.

- Surgical And Nursing Fees Benefits.

Supplementary Benefits

Accidental Death Benefit

*This rider provides for payment of specified sums if the life assured should sustain

any body injury due solely and directly caused through external, violent and visible

means.

* Double Accident Benefit.

107

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Types Of Family Takaful

Business

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Objective :

1) Protection in the form of matual financial assistance to participants

against misfortune of their untimely death .

2) An investment to provide for some future financial need if they survive

the plan .

Supplementary benefits :

1) Permanent Total Disability

2) Personal Accident

3) Hospitalization Benefit

108

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Types Of Family Takaful Plan

1) Family Takaful Plans with term of

a) 10 years

b) 15 years

c) 20 years

d) 25 years

e) 30 years

f) 35 years

2) Takaful Mortgage Plan

3) Takaful Plans For Education

4) Group Takaful Plan

5) Health And Medical Takaful Plan

109

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Operation Of Family Takaful

Plans

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

• The Participant signs a takaful contract with the

takaful company based on the principle of

mudharabah .

• The Participant decides on the amount for takaful

installment which includes the proportion of tabaruk

to be paid regularly to the company .

• These installments are then credited into a fund

known as the ‘Family Takaful Fund’

110

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Contribution = PA + PSA

= (Saving / investment) + Tabaruk

= (Saving / investment) + risk premium

PSA = the amount credited into the PSA is made with the

intention of tabaruk to be pooled into a risk fund, and

company use the fund to make payment of takaful

benefits to the heir of any participant who may die

before reaching the term of the plan .

Participant’s

Special

Account

PA = the main function of the PA is for saving and investments

Participant’s

Account

111

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Family Takaful Benefit

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Divided into 3 main portions : Death Benefit

Maturity Benefit

Surrender Value

It shall be paid to participant depending on 3 cases :

• Case 1: The participant dies before the term of the takaful plan.

Death

Benefit

Amount of

Death benefit

defined

by plan

Accumulated

value of the

Participant’s PA= +

112

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

•Case 2 : The participant survives to the end of the term of the takaful plan

Maturity

Benefit

Total Accumulated

value of

participant’s PA

Share of

surplus from the

risk fund at maturity

= +

•Case 3 : The participant terminates the contract .

Only amounts to the accumulated value of

participant’s Personal Account

113

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

POLICY CONDITIONS

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Contract : An intangible and a legally

binding agreement between

the concerned parties .

114

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

(a) Privileges

Days Of Grace

- Days allowed for the premium payment (30 days) after due date

- The coverage under the policy continues during the days of grace

Surrender Value

-It is attached to a life insurance policy after premiums have been paid

for a certain minimum number of years .

Home service policy : 6 years or more

Ordinary policy : 3 years or more

115

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Policy Loans

Paid-up Policy

After premium have been paid for a minimum period, loans are generally

up to 85% or 90% of the acquired cash value of a policy .

A paid-up policy (also known as free policy) uses the cash value available

As a single premium to provide for an insurance on the original terms, but

a reduced sum assured .

116

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Non-Forfeiture Conditions

* A valuable privilege to assure who overlooks the payment of the

premium or is temporarily unable to meet it .

* It only comes into play after the policy has acquired a cash value .

Automatic Premium Loan

- premium is paid automatically as it falls due .

- the automatic premium loan provides for a continuation of the

insurance cover.

- Insurance protection decreases each time the amount of loan increase .

Paid-up Policy

- once converted, no further premium are required.

- all riders and supplementary benefits are cancelled .

- participating policy will crease to participate in future profits .

117

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Extended Term Assurance

- exchange the acquired cash value

for a paid-up term insurance for the

full sum assured .

- the need for insurance protection

continues, but financial capacity

impaired .

118

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Reinstatement Condition

- enables a person to apply for reinstatement

of the contract, notwithstanding that the

days of grace and the period of non-

forfeiture have both expired .

- policies reinstated subject to evidence of

health .Company reserves the right to

impose its own terms .

119

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

(b) Restrictive Conditions

Suicide Clause

If the insured commits suicide within a stated period of time

(1 year or 2 years) from the date of inception or reinstatement ,the policy

becomes void (may refund all premium paid).

Foreign Travel & Residence

Most policies do not impose any restriction on travel or foreign residence .

120

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Occupation And Dangerous Hobbies

Additional premiums may be charged for occupational risks.

Example : motor racing, policeman etc...... .

Incontestability Clause

The insurer cannot deny liability on a policy after 2 years of

its issue on the grounds of misrepresentation or non-

disclosure alone unless he can prove that such

misrepresentation ,non-representation or non-disclosure was

fraudulently made by the insured.

121

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

( c) Conditions Explaining The Contract

Admission of Age

Documents generally accepted as proof of age :

• official certificate of birth .

• school leaving certificate .

• extract from service record of government ,Semi-Government, Public

sector undertakings and reputed Commercial firms .

• certified extract from Baptism Register .

• Identity Card .

• International Passport .

• Statutory declaration by the life assured or by an elderly relative where

the birth certificate has been lost or destroyed or duplicate copy is not

obtainable.

122

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Misrepresentation of Age

-Age understated The amount of money payable would be such

sum, as the premium paid would purchase

according to the true age .

- Age overstated Excess premium paid could be refunded or

higher sum be payable.

Under Section 15 (C) of the Insurance Act, 1963

- A policy shall not be canceled by reason only of a

misstatement of the age of the life assured.

123

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Assignment of a life policy

The legal rights vested under a life insurance policy may be transferred by

an assignment .

Absolute Assignment

-one does not leave any right

with the assignor except

paying of premiums if he

chooses to pay.

Conditional Assignment

- assignor can revoke all the rights

If the assignee dies before the

payment becomes due under

the policy or if the life assured

survives till the maturity date of

an endownment policy.

Assignment can be carried out by :

- writing

- an endorsement or a separate deed.

- a written notice of the assignment served to the insurer.

- registration by the insurer to establish the order of priority in a claim

when a policy has multiple assignments.

124

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Practice Of Life Insurance New Business –

Selection Of Lives And Other Issues

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Risk Management

The Risk Factor - Mortality

• Age

• Sex

• Occupation

• Social Status

• Ethnicity

• Geographical Location

• Marital Status

• Personal Habits & Family History

• Avocation

• Foreign Residence

125

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Selection Of Lives To Be Insured

• The insurer has to select the lives to be insured to avoid anti-selection.

This is principally done through the process of underwriting .

Financial Underwriting (Seek to discover the presence of moral

hazard)

The proposal form will be checked for the following :-

* the existence of insurable interest.

* the earning capacity ,financial standing .

* whether the insured maintains multiple insurance policies.

* whether the proposer has been turned down by any insurer.

Medical Underwriting (seek to assess the extent of physical hazard)

* if there is any unusual features in the proposal ,supplementary

questions, medical report ,or further medical examination is

required.

* if proposer is in good health , he would be offered coverage at normal

terms.

* if proposer is not in good health ,he would be considered as a sub-

standard life or as an impaired life.126

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

For sub-standard lives :-

* Charge extra premium.

* Charge a debt or a lien I.e. reduce the amount payable in the event of

death .

* Offer an alternative contract.

• Decline or postpone coverage .

Non – Medical Underwriting

* The advances in medicine ,together with the rising costs of obtaining

medical evidence and the need to process increasing volumes of business

quickly, led to the issuance of policies for which medical evidence is not

required.

* This privilege is usually given only to the permanent forms of insurance

such as whole life and endownment insurance, and age related limits on

the sum insured when imposed.

127

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

The Role Of The Agent In The Underwriting Process Of Non-Medical

Insurance

The insurers rely on the integrity, loyalty and good judgment of their

agents to ensure that the proposers for non-medical coverage disclose all

material information honestly.

“ Cooling Off ” period

The insured within 15 days of receipt of the policy can return the policy

with a notice in writing objecting to a term or condition of the policy and

the insurer then has to refund the premium .

Loading Letter

A letter indicating the loading is issued to the proposer as a counter-offer if

there is an extra loading on the proposal. If the proposer agrees, he will be

required to return a copy of the letter of consent to the company .

128

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Backdating Of Commencement Date

It may be backdated to an earlier date, usually

up to a maximum of six months. The purpose

is to benefit the proposer for paying the

premium applicable to a lower age .

129

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Practice Of Life Insurance - New Business

- Premium Rating

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Quantifying The Risk

Pooling Of Similar Risk

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 period .

Law Of Large Number

When a large number of lives are insured, the fluctuation in the rate of

death from year to year, under normal circumstances will not be very

significant .

The Past Forms A Guide To The Future

The mortality statistics of insured lives give the results of the experience

of the past, and these are used as a guide to chart the mortality trend for

the future .

130

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

20.2 Costing

The Risk

For the purpose of premium calculation ,the following factors need to be

considered :

MortalityInvestment Returns

Expenses

- Initial expenses

- Renewal expenses

- Termination expenses

Tax

Other Factors

- Financing costs

- Reinsurance costs

- Bonus loading (participating

policies)

- Cost for options and guarantees, if

any

- Cost for maintaining statutory

reserves and solvency margins .

131

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Birthday :21 March 1965

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Calculation Of Age

•Age Last Birthday Calculations :

31March 21, 1996December 31, 1996

29March 21, 1994January 1, 1995

30March 21, 1995May 20,1995

Age Last BirthdayLast Birthday

Reference Date

(Date of the

proposal submitted)

132

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Birthday :21 March 1965

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

32March 21, 1997December 31, 1996

30March 21, 1995January 1, 1995

31March 21, 1996May 20,1995

Age Last BirthdayLast Birthday

Reference Date

(Date of the

proposal submitted)

•Age Next Birthday Calculations :

133

PPRREE

--CCOONNTT

RRAACCT T

EEXXAAMM

AANNAATTII

OON N

Thank YouThank You

&&

All the BestAll the Best