Preparatory Pack for

The Certificate Examination in Investment-Linked Life

Insurance (CEILLI)

Disclaimer:
“This preparatory pack is purely a training tool for the internal agency training programme of
Great Eastern Life Assurance (Malaysia) Berhad. All or any part of the contents of this
presentation shall not be used directly or indirectly for soliciting insurance business,
policyholder services and/or facilitating any other form of communications with any external
party whatsoever. This information is correct as at 30082016.”

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Welcome Message from Senior Vice President & Head, Centre for Excellence

Congratulations for taking your first step towards becoming part of Great Eastern Life
Assurance (Malaysia) Berhad (GELM), the number one life insurance company in Malaysia.

Recognized for our quality service, millions of Malaysians have trusted us to deliver on our
promises since 1908. With a growing field force of more than 17,000, we look forward to
having you be part of this dynamic team.

The Certificate Examination in Investment-Linked Life Insurance (CEILLI) is the basic

examination required for you to be licensed as an insurance agent. More importantly, it is also the
first step of an agent’s learning curve in the profession.

This learning package was designed by Centre for Excellence to supplement the Malaysian
Insurance Institute CEILLI textbooks. Used along with the textbooks, this preparatory pack will
help you master the course material as you prepare for the CEILLI examinations.

It is a comprehensive and interactive self-learning tool for knowledge enhancement that can
be used at your convenience. You will find within the chapters summary notes, a self-assessment
test with answers, explanatory notes as well as sets of trial examinations.

Thorough preparation with our preparatory pack will serve as your key towards success in
CEILLI

I wish you all the best.

Andy Ng Yen Heng

Senior Vice President & Head
Centre for Excellence

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The Certificate Examination in Investment-Linked Life Insurance (CEILLI)

Summary Notes and Work Book Page

Disclaimer 1

Message from Head of Centre for Excellence 2

Table of Contents 3

Chapter 1: Introduction to Investment-Linked Life Insurance 4-5

Chapter 2: Mechanism & Features of Regular Premium Investment-Linked 9-13

Chapter 3: Mechanism & Features of Single Premium Investment-Linked 18

Chapter 4: Consideration for Purchasing an Investment-Linked Policy 22 -24

Chapter 5: Investment Consideration 28-31

Chapter 6: Types of Investment Vehicles and Potential Risks 35 - 43

Chapter 7: Common Types of Investment Linked 47-88

Chapter 8: Pertinent Guidelines on Investment-Linked (IL) Business 52-53

And Guidelines on Investment-Linked Business

Chapter 9:Agents Professional Approach and Guidelines 57-64

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CHAPTER 1 – Introduction to Investment-Linked (IL) Life Insurance

1.1 Introduction
The insurance industry in Malaysia has experienced steady growth in the last 20
years. What are the factors that contributed to this steady growth?

 Insurance companies in Malaysia designing and offering plans that

continue to meet customers’ needs
 Introduction of investment-linked insurance
 Increasing popularity and demand

Investment-linked insurance was first introduced in Malaysia in December 1999.

Investment-linked policy allows:

 Owners to choose the amount of coverage they need with their selected
annual premium
 Owners to select the minimum sum assured (SA) as set by the relevant
regulator based on age at the time of policy inception or opt for higher
coverage amount if more protection is needed
 May accrue returns on their contributions in the form of long-term savings

What is an investment-linked insurance policy?

 Offer policyholder a chosen amount of insurance cover

 Provides that a portion of the premiums paid is used to purchase
funds in one or an array of investments offered by the insurance
company

Insurer may appoint external fund manager to tailor and manage certain funds on its
behalf. The level of the investment account can go down to zero, or to a level
insufficient to cover the cost of protection and other related charges. If so, the policy
will terminate. It is vital that policy owners must be adequately informed and be made
aware that their IL policy is directly linked to investment performance. An IL policy
thus combines investment and protection in the policy.

IL plans allow individuals to invest in a diversified portfolio with a minimum of

RM1,200 a year (regular premium) or a one-time single payment (single premium) of
RM5,000. An average income earner may not possess sufficient financial resources
to invest in a spread of assets. However, IL plan allows individual to own cumulative
units of such investment spread over progressive stages by paying affordable
regular premiums.

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The IL funds of an insurer can acquire a wide array of assets like equities or stocks,
bonds, fixed interest, foreign funds, real estate, currency and so on.

In some countries, investment-linked life insurance is known as unit-linked insurance.

In the USA, it is called variable life insurance.

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Chapter 1: Self-Assessment Questions:

1) What are the factors that have contributed to the steady growth of the life
insurance industry in Malaysia since 2000?
i) The Malaysian Government granting more flexibility to life insurance
companies to run business operations based on their own
management philosophies and at their own prudent discretion
ii) Malaysia’s dynamic economic growth experience
iii) Life insurers designing and offering customer-centric plans
iv) The introduction of investment-linked insurance and the steady growth
of this product
a) i and ii
b) ii and iii
c) iii and iv
d) ii

2) Which of the following is the correct description of an investment-linked life

policy?
a) A participating policy offering lifetime coverage
b) A capital guaranteed policy
c) An endowment policy which provides minimum return
d) A policy offering protection while also investing in funds which form the
basis for returns to the policy owner

3) An investment-linked life insurance policy is also known as the following in

some parts of the world:
i) Mutual fund-linked policy
ii) Unit-linked policy
iii) Variable life policy
iv) Universal life policy

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 a) i, ii, iii and iv
b) i, ii and iii
c) ii, iii and iv
d) ii and iii

4) Investment-linked funds are managed by:

i) The insurer’s own professional managers in its internal investment
department
ii) Funds managers/fund houses appointed by the insurer through
outsourcing
iii) Outsourcing to the funds of unit trust companies since investment-
linked funds are similar to unit trust funds
iv) The insurer’s board of directors who can make special decisions on the
types of investment vehicles to offer to policy owners
a) i, ii, iii and iv
b) i
c) i and ii
d) i and iv

5) Since investment-linked insurance has an insurance element, a prospective

policy owner is allowed to opt for
i) A nominal amount of sum assured of his selection
ii) No life protection at all
iii) At least the minimum amount of sum assured according to age, basic
premium paid and a formula set by the relevant regulator
iv) The sum assured offered by the insurer concerned based on its
internal underwriting guidelines in relation to the financial status and
circumstances of the intended policy owner
a) i
b) i and ii
c) iii
d) iv

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 6) Which of the following statements are correct?
i) Policy owners of investment-linked plans should be made to
understand that they wholly bear the gains or losses from the
investment portion of their policies
ii) As responsible corporations, life insurers are obliged to be partly
responsible for any drastic drop in prices of funds under their custody;
thus, they have to bear part of the losses suffered by policy owners if
such incidents occur
iii) For investment-linked policies, an individual can invest in a diversified
portfolio with a sum as low RM1,200 per year. This is possible as the
overall collected premiums contributed by investment-linked policy
owners form a sufficiently large pool for spreading over varied stocks or
securities in the market
iv) An average income earner may not possess ready sufficient liquidity to
invest in a spread of assets if he wants to do it in the open market on
his own
a) i, iii and iv
b) ii and iii
c) i and ii
d) i, ii, iii and iv

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Chapter 2 – Mechanisms and Features of Regular Premium Investment-Linked
(IL) Life Insurance

2.1 Introduction:
IL insurance products cater for more flexibilities and transparencies. Hence, their
structure is slightly more complex than traditional insurance products. The primary
focus of the regular premium IL insurance is protection, with IL as the secondary
focus.

2.2 Minimum Regular Premium:

Bank Negara Malaysia’s (BNM) guidelines on IL insurance do not stipulate a
minimum premium amount. This is left to the discretion of insurers. The current
practice is that generally, the minimum annual premium varies from RM1,200 to
RM1,800, depending on the product and the marketing directions of an insurer.

2.3 Allocated and Unallocated Premium

The allocated premium ratio set by insurers normally commences at 40%-50% in the
first year, and the rate increases until the 7th year and from this time on, it will be
100%.

The money received by the insurer as regular premium (either monthly, quarterly,
semi-annual or annual mode) is allocated to 2 accounts – Allocated Premium
Account and Unallocated Premium Account.

Insurance
Premium

Allocated for
Unallocated for Insurer
Investments

Less insurance charges, Less agent’s

Add Investment
policy fee and fund commissions and
Returns
management fee management expenses

2.4 Regular and Ad Hoc Top-up Premium

Besides basic regular premium (RP), top-ups (TUs) of premium are also allowed.
The purpose of TU is to enhance the accumulation of units. After deducting an
upfront charge of about 5% from each TU, the rest is put into the fund/s selected by
the policy owner.

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Most insurers allow TU of a certain minimum amount on a regular basis together with
the basic RP. Ad hoc TU is paid at any time, and not on a due date. No limit to the
amount and frequency is imposed. Ad hoc TU may be needed to keep a policy in
force when the account value gets depleted due to the high Cost of Insurance (COI)
at later ages of the policy owner or due to substantial withdrawals made along the
way. Insurers have the discretion to set the minimum amount for ad hoc TU. Some
policy owners make ad hoc TU when they sense that the market is reaching the
bottom of the trough and is expected to pick up.

2.5 Sum Assured Multiple (SAM) Rule

SAM stipulates the minimum multiple factors, depending on the age range of the life
insured when the policy is signed, which is measured as a multiple of annual
premium. The SAM factor for the youngest age range (1-16) is 60 while for the oldest
age range (56 and above), it is 15.

Example: Let’s say a 56-year-old wants to insure himself by paying RM5,000

premium a year. He will have to be covered for at least RM75,000 (5,000 x 15). For
the same premium amoung covering the life of a minor who is 16 years old, the
minimum coverage is RM300,000 (5,000 x 60).

Regular TU premium is excluded from the multiple factor for calculating the minimum
sum assured.
Age SAM Factor
1 – 16 60
17 – 25 55
26 – 35 50
36 – 45 35
46 - 55 25
56 and above 15

A unit-deducting rider (UDR) which does not involved extra premium caters for the
deduction of COI from the account value. COI is lower than for the full rider premium.
The treatment depends on the 2 categories of UDR:
1. Riders with Sum Assured (SA) payable on death.
2. Riders without SA payable on death.
The SAM formula for UDRs is as follows:
SAM = Total Sum Assured / (Total Annual Premium – Notional Premium of Riders)

Example:
1) A person age 30 wants RM300,000 basic coverage and RM300,000
enhanced critical illness coverage – total SA is RM600,000. Based on the
SAM factor of 50 for a 30-year-old, the minimum annual premium will be
RM12,000 (600,000 divided by 50).

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 2) A person aged 24 has decided to set aside RM3,600 a year for a basic plan
with a hospital and surgical rider that pays only hospitalization bills. Assuming
that the notional premium for the rider is RM200. The minimum SA for the
basic coverage will be 3,400 (3,600 – 200) x 55 (the multiple factor for this
age), which will be RM187,000.

2.6 Optional Riders

Various types of supplementary coverage or riders are offered as options to the
basic coverage. Examples are: accident rider, medical rider, critical illness/dread
disease rider, waiver of premium rider, payor benefit rider, disability income rider etc.

A rider may be available in the form of a premium-paying rider (PPR) or a unit-

deducting rider (UDR), depending on the product design for each rider. A PPR
requires extra regular premium to be paid for the rider concerned together with the
basic premium. On the other hand, UDR does not require extra regular premium but
it entails the additional COI charge for the rider to be deducted from the investment
account value of the policy owner. Agency commissions are payable from PPRs, but
not from UDRs.

With the benefits of policy owners in mind, the trend of insurers is shifting to UDRs
for new rider products design.

2.7 Account Value

This is the projected value of units that one may receive if one decides to surrender
the policy and it is net of tax and all applicable charges. The value of the policy
depends on 2 factors:
i) The value of each of the units, and
ii) The number of units the policy has accumulated to date

2.8 Partial Withdrawal, Surrender and Charge

Policy owners may make a partial withdrawal from their accrued account value when
they need money. Most insurers do not limit the frequency of withdrawal or the
maximum amount per withdrawal as long as the remaining account value is not
below a certain minimum (eg RM1000). A minimum amount per withdrawal is
normally imposed, say RM1,000. Also, total surrender is allowed without restrictions.

Insurers may impose an early withdrawal or surrender charge. For example, charge
if withdraw within 2 years. The discretion lies with an insurer as to whether to impose
such a charge, in line with its marketing strategy and product structure.

2.9 Fund Switching and Switching Fee

If a life insurance company sells IL life policies and it offers more than one IL fund, it
usually provides switching facility which allows policy owners to switch part of all of

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their investment from one fund to another fund. Switching facility is very useful for
financial planning.
Switching practices vary. It may be
i) Offered free of charge, or
ii) Offered free of charge for a limited number of switches within a given
period (normally a year) and charges imposed for subsequent switches, or
a specific charge and each and every switch.

2.10 Premium Holiday

When a due premium is not paid and if the accrued account value is sufficient to
cover due premiums, premium holiday (PH) comes into play to prevent the policy
from lapsing.

2.11 Free-look period

There is also a 15-day free-look period from the date of delivery of the policy. If you
decide to cancel your plan within this period, the insurer shall refund:
i) The unallocated premiums,
ii) The value of units that have been allocated (if any) at the unit price at the
next valuation date, and
iii) Any insurance charges and policy fee that have been deducted, less
expense which may have been incurred for the medical examination of the
life insured.

2.12 No-lapse Guarantee Period

This clause stipulates that the IL policy will lapse in the first few years if the account
value is not sufficient to cover the COI and other necessary charges, unless:
 The regular premium has been paid without fail;
 No premium holiday has been effected;
 No changes have been effected to the policy, including any partial
withdrawal from the account value and investment requests like
fund switching
Any unpaid COI and monthly administrative/service charge will be deducted from the
account value contributed by all future premiums and TUs, if any, until fully repaid.
However, no-lapse guarantee is only for the first few years.

2.13 Death Benefit Mechanism

The death benefit (DB) at any time is the basic sum assured plus the accrued
account value. DB amount should never be less than the basic SA as long as due
premiums are paid faithfully.

2.14 Dual Pricing and Single Pricing

Dual pricing refers to the bid-offer spread, which is normally a 5% difference. The bid
price is the lower figure in the spread. On the other hand, single pricing means the
acquisition or disposal of units in a fund is at the same price per unit. However, there

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may be a charge imposed at the point of acquisition (upfront charge) or at the point
of disposal (back-end charge). The trend in Malaysia is shifting to single pricing for
new policies
2.15 The Long Horizon
In the longer run, the Dollar Cost Averaging phenomenon creates a positive impact
on the cumulative effect on the account value. Each investment-linked fund
comprises a spread of assets.

2.16 Dollar Cost Averaging

Unit price will rise and fall with market fluctuations; however, the continued payment
of premiums will bolster the averaging effect. When prices go down, policy owner will
be able to acquire more units at a lower price. When prices go up, the units acquired
at lower prices will appreciate in value. Dollar Cost Averaging means leveraging
price fluctuations.

2.17 Spread-out Risk among Varied Assets

Not all assets in a fund have the same experience at any point in time. Some may
perform better in a given short period; some may not. So long assets selected are
sound and fund manager exercises prudence, the fund price should end up higher in
the long run despite fluctuations.

2.18 Retirement plan, Medical plan and Education plan

The tax relief for qualified medical plans is up to RM3,000 a year, subject to approval
by the Inland Revenue Board (IRB).

There are also limited term investment-linked plans sold as education plans. The tax
relief for qualified education plans is up to RM3,000 a year, again subject to the
approval of IRB.

The tax relief for both qualified medical and education plans (combined) owned by a
policy owner is also RM3,000 a year.

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Chapter 2: Self-Assessment Questions:

1) Which options are open to policy owners of a regular premium investment-

linked plan?
i) A policy owner may opt for a higher sum assured than the minimum
amount stipulated by the Sum Assured Multiple rule
ii) A policy owner can pay top-up premium to accelerate the accumulation
of the account value in the policy
iii) A prospective policy owner can apply to combine a single premium
plan with a regular premium plan into one policy
iv) A prospective policy owner can select the death benefit based on either
the sum assured or the account value, whichever is higher
a) i and ii
b) i, ii and iii
c) ii and iii
d) i, iii and iv

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% is deduced from each top-up
a) ii, iii and iv
b) i, ii and iv
c) i and iv
d) i, ii, iii and iv

3) A female, aged 30 has budgeted to set aside RM3,000 a year for a basic
regular premium investment-linked plan with a Unit-Deducting Hospitalization
Rider. According to the SAM formula, the multiple factor for her age is 50
times. How would you calculate the minimum sum assured for the basic plan?

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 a) RM3,000 minus the notional premium for the rider, multiply by 50
b) RM3,000 multiply by 50
c) RM3,000 multiply by 55 times
d) RM3,000 minus the notional premium, then multiply by 55 times

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
a) i, ii, iii and iv
b) ii and iii
c) i, iii and iv
d) Ii, iii, and iv

5) Identify the correct statements from those given below

i) The free-look period is 15 days commencing from the date of delivery
of policy contract to the policy owner
ii) The no-lapse guarantee clause stipulates that as long as premiums are
paid without fail by the grace period and there was no previous
premium holiday or partial withdrawal, the regular investment-linked
policy will never lapse over the entire policy tenure although the

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 account value may be insufficient to cover the cost of insurance at any
point in time
iii) The no-lapse guarantee clause stipulates the regular premium
investment-linked policy will not lapse in the first few years (e.g. 2
years) even though the account value is not sufficient to cover the cost
of insurance, provided:
- All premiums were paid during the period
- No premium holiday was exercised during the period
- There was no partial withdrawal or fund switching during the period
iv) As the basic death benefit of a regular premium investment-linked
policy is basic sum assured plus account value, the life insurer will
continue to deduct the cost of insurance for the basic coverage as long
as the policy remains in force
a) i, iii and iv
b) ii, iii and iv
c) ii and iii
d) i, ii, iii and iv

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

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 a) i, ii and iv
b) i, ii and iii
c) i and iii
d) ii and iv

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Chapter 3 – Mechanisms and Features of Single Premium Investment-Linked
Life Insurance

3.1 Introduction
Single premium investment-linked (SP-IL) life insurance has almost the same
characteristics as regular premium investment-linked (RP-IL) life insurance with
regard to the sum assured (SA) and death benefit (DB) mechanisms, allocated
premium/unallocated premium ratio, COI deduction mechanisms and the objective
for purchasing this product.

3.2 Main Objective for owning SP-IL insurance

While the main objective of RP-IL is protection, the priority for policy owners of SP-IL
would presumably be investment first and protection second.

3.3 Minimum Basic Single Premium

Setting the minimum basic single premium (SP) is at the discretion of individual
insurers and the current range is RM5,000 to RM20,000.

3.4 One-Time Unallocated Premium Charge

Since only one premium is paid, the unallocated premium charge or upfront charge
is a one-time payment which is unlike the regular premium model whereby the
unallocated portion spans over the first 6 years in reducing ratios. The normal charge
is around 5%, and the balance 95% will be channeled to acquire units in the selected
fund/s.

3.5 Sum Assured Formula

The basic sum assured (BSA) is 125% of the single premium paid. For example: For
RM10, 000 SP, the BSA is RM12,500. However, BNM allows insurers the discretion
to lower it to RM5,000 or 105% of SP, whichever is higher, for older age groups and
sub-standard lives.

3.6 Death Benefit Formula

All top-ups (TUs) are excluded from the BSA formula as such additional remittances
are meant for investment.

3.7 Cost of Insurance Deduction and Sum at Risk Mechanism

The minimum protection amount is the BSA. When the account value exceeds BSA,
the DB will be the account value. When the account value is below the BSA, the COI
will be deducted.
Deduction of COI purposes to cover the shortfall between the account value and the
SA – the shortfall difference is known as Sum at Risk (SAR). As the account value
increases, the COI reduces. When the account value reaches or exceeds BSA, the
COI will cease. If account value drops again below BSA, COI deduction will resume

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Chapter 3: Self-Assessment Questions:
1) SP-IL insurance is said to be more inclined towards investment than
protection because
a) Generally, about 95% of the SP is allocated for investment in fund units
b) The policy owner has the discretion to opt out for any protection coverage
so that no COI will be deducted from the account value
c) The usual sum assured is 25% above the SP outlay and may be lowered
to 5% above the premium for older age groups, i.e. RM125,000 for SP of
RM100,000, RM105,000 for senior ages with the same premium
d) Once the account value exceeds the basic sum assured, the DB will be
the account value, not inclusive of the sum assured

2) Mrs A, aged 45 signs up for a SP-IL plan by paying an initial RM100,000. 6

months later, she pays another RM100,000 as top-up. The total sum assured
in her policy after payment of the top-up is
a) RM250,000
b) RM125,000
c) RM205,000
d) RM210,000

3) Which of the statements below are correct regarding SP-IL insurance?

i) Most insurers set their minimum basic SP as ranging from RM5,000 –
RM20,000, depending on the product design
ii) All insurers set the minimum basic SP 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 SP
iv) COI 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

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 4) Which statement/s relate to the application of COI in SP-IL insurance?
i) COI is based on the sum assured or account value, whichever is higher
ii) When the account value of a SP-IL policy is still below the sum assured,
the shortfall gap between the 2 levels is called sum at risk
iii) Deduction of COI is based on the shortfall amount from the account
value level to sum assured level
iv) COI is based on the difference between the sum assured and account
value at any point in time
a) i
b) iii
c) ii and iii
d) iv

5) Top-ups for SP-IL plans are encouraged when

i) The market is on the upturn and unit prices are rising
ii) A market downturn sets in not long after policy inception, thus causing
the sum at risk to prolong longer than expected, based on the initial
premium outlay
iii) The nation is experiencing a period of strong economic or GDP growth
iv) The policy owner believes in the impact of Dollar Cost Averaging and
wants to leverage that to boost the account value instead of relying on
just one single outlay

a) i, ii, iii and iv

b) i and iii
c) ii and iv
d) i, ii and iii

6) The few mechanism and features of a SP-IL plans which differ from RP-IL
plans are:
i) The sum assured formula for SP plans is different than that for RP
plans
ii) The DB formula for SP plans is not guided by the same minimum SAM
rule applicable to RP plans

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 iii) The allocated premium ratio for SP plans is different from that for
regular premium plans
iv) While the policy is kept in force, the COI deductions for SP plans may
not be continuous because the formula is based on sum at risk, unlike
RP 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

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Chapter 4 – Considerations for Purchasing an Investment-Linked Policy

4.1 Introduction
IL insurance plan is a life insurance that combines protection and investment.
Premiums paid provide not only life insurance cover, but a part of the premiums are
also invested in specific investment funds of the policy owner’s choice.

4.2 Benefits
4.2.1 Pooling and Diversification
IL funds offer the policy owner access to a “pooled” and diversified portfolio of
investments – which consists a wide range of equity assets and fixed income
securities.

4.2.2 Flexibility
Investment-linked products (ILP) consist of investment (unit-driven) and insurance
protection (charge-based). A policy owner may change the level of his premium or
protection as long as it is within the guidelines.

On the other hand, traditional with-profit life insurance products are very inflexible.
For example:
 A change of plan from a whole life insurance policy to an
endowment policy involves complicated calculations
 A traditional life insurance policy does not allow policy owners the
option of choice of investment portfolio

4.2.3 Expertise
Managed by professional fund managers with investment expertise to achieve high
return.

4.2.4 Access
Access to well diversified IL funds managed by professional investment managers.

4.2.5 Administration
Policy owners are relieved of the day-to-day administration of their investments.

4.2.6 Transparency
Regular premium IL insurance promotes full transparency relating to official sales
materials presented at the point of sale. There is a requirement for the intended
policy owner to sign as confirmation he has received and understood the contents of
the sales quotation and policy disclosure sheet (PDS). The soliciting agent/sales
intermediary must also provide his signature to confirm having presented the
documents and explained the non-guaranteed elements in the sales quotation.

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4.3 Risks and uncertainties

4.3.1 Investment Fluctuations

The death and disability benefits of a regular premium IL plan are based on the sum
assured and the value of units. The sum assured is always guaranteed but the value
of the units is not guaranteed because it is directly linked to the investment
performance of the underlying assets of the fund. In times of a volatile stock market,
the account and maturity values of an IL life insurance policy will rise and fall. For
long term, policy owner can expect to achieve higher return for IL plan than a
traditional whole life product.

4.3.2 Charges
The administration fee, insurance charge, fund management fee etc of an IL life
insurance policy are usually not guaranteed. These are subject to review and can be
changed by the insurance company after giving 3 months’ written notice. Except for
the insurance charge or COI which gradually increase yearly according to attained
age, insurers in Malaysia have not so far been known to revise their fund
management fees and nominal administrative charges unnecessarily or frequently.

4.4 Regular Premium Investment-Linked Plans vs Whole Life Participating

Plans

No Regular Premium Investment-Linked Whole Life Participating Plan

Plan
1 Whole life coverage up to age 100 Whole life coverage up to age 100
2 Account value is not guaranteed as Cash value (CV) is guaranteed and
it depends on fund performance incorporated in the policy contract
3 Surrender value is based on an Surrender value is based on cash value
accrual in the account value payable plus vested bonus or dividend
4 Death benefit is payable from the Death or maturity benefit is payable
sum assured plus account value. from the sum assured plus vested
Maturity benefit is payable from the bonus or dividend
account value
5 Policyholder can choose from an Investment instruments are decided by
array of funds insurer
6 Policyholder can choose a higher Premium amount is based on sum
sum assured with the same assured
premium
7 Policyholder can add rider/s via cost Policyholder has to pay extra premium
of insurance deduction from account for the rider/s chosen
value. This means that no extra
premium is required
8 Top-up premium is allowed at any Top-up is not allowed

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 time
9 Partial withdrawal from the account No partial withdrawal is allowed from
value is allowed the cash value but withdrawal can be
made from the surrender value of
bonus or vested dividend
10 There is no policy loan feature Policy loan is available with interest
chargeable
11 Policyholder can choose to request There is an automatic premium loan
premium holiday if he does not have (APL) feature with interest chargeable
the means to pay the premium. The to cover the premium in default, if there
cost of insurance will still be is sufficient cash value
deducted from the account value if it
is sufficient
12 Same tax relief as accorded to a Same tax relief as accorded to a
whole life participating plan regular premium investment-linked plan
13 Minimum age of 18 years to apply Minimum age of 10 – 16 can apply on
on own life own life. Age 10 – 15 will require
parental consent. Parental consent is
not required for age 16.

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Chapter 4: Self-Assessment Questions:

1) The benefits of an IL policy are:

i) It provides access to a diversified investment portfolio. Thus, it has
better risk characteristics than a non-diversified portfolio
ii) It offers flexibilities
iii) Fixed nominal charges are levied on the policy
iv) The life insurer insulates the policy owner against market risk
a) i and ii
b) ii and iv
c) i and iii
d) i, ii, iii and iv

2) When an IL policy reaches maturity, the maturity value will be

a) The basic sum assured and the account value
b) The account value
c) The account value plus terminal/maturity bonus
d) The basic sum assured and the account value plus terminal/maturity
bonus

3) When are 2 similarities between a RP-IL plan and a whole life participating
plan?
i) Both plans provide lifetime coverage up to maximum age 100
ii) Both plans allow the addition of riders without additional premium
iii) Both are entitled to the same income tax relief treatment for
premiums paid
iv) The minimum age for an individual to apply on our life, and not as
juvenile application arrangement, is age 16 for both products
a) i and ii
b) ii and iii
c) i and iii
d) i, ii, iii and iv

4) Which of the following statements are correct?

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 i) The minimum age for applying a regular investment-linked policy on
own life is age 18 last birthday
ii) A minor aged 16 last birthday who is applying for an IL policy on
own life needs parental consent
iii) A minor age 16 last birthday can apply for a whole life participating
policy without parental consent
iv) Minors aged 10-15 last birthday can apply for a whole life
participating policy with parental consent
a) i, ii, iii and iv
b) i, ii and iii
c) i and iii
d) i, iii and iv

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. 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 COI 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

6) Which of the following statements regarding a life insurer’s sales

illustration/quotation document are correct?

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 i) The projection of future returns is based on the past 5 years’
performance experience of a specific fund or funds proposed to the
prospect
ii) Projected returns are based on assumed rates for the high and low
scenarios of the specific fund/s
iii) Normally, the actual historical returns of the various offered funds in
the past 5 years are also shown for the purpose of transparency
iv) Projection of values is based on assumed rates of return up to 20
years
a) i and iii
b) ii, iii and iv
c) i, iii and iv
d) ii and iii

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Chapter 5 – Investment Considerations

5.1 Introduction
Over the years, an increasing number of clients have become more inclined to
investing.
The following key considerations must be made known to the client:
1) Investment Objectives 5) Accessibility of Funds
2) Availability of Funds 6) Taxation Treatment
3) Risk or Security 7) Investment Performance
4) Investment Horizon 8) Diversification

5.2 Investment Objectives

All investment vehicles can be categorized according to 3 fundamental
characteristics: safety, income, and growth. Depending on objectives, the person
would need to choose between investing in income-producing instruments or growth-
weighted instruments. While it is possible for an investor to have more than one
of the objectives stated above, the success of one must come at the expense of the
others.
a) Safety
Purchase of government-issued bonds, sukuk (Islamic bonds), treasury bills
and fixed deposit accounts found in money market have relatively safe
investment return (able to hedge against inflation) but the client has to forgo
growth and income stream.
b) Income
The safest instruments are also the ones that are likely to have the lowest rate
of income, eg: fixed deposit accounts in bank.
c) Growth
Investors who seek growth in their investments could invest in growth-based
investments such as common stocks (generally ranks among the most
speculative of investments as their return depends on what will happen in an
unpredictable future), commodities and other share-based investment. The
objective of the client here is to realize capital gains and to hold stocks for a
long time to derive profit from the growth of the investments.
d) Other Investment Objectives
While the basic objective of every investor can fall into one or more of the 3
categories discussed above, investors also have secondary objectives such
as:
 Ensuring a comfortable standard of living
 Providing funds for their dependents
 Providing funds for the education and upbringing of their children
 Improving their financial position
 Hedging inflation
 Liability cancellation
 Retirement income

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  Achieving a state of financial freedom
 Funds for paying necessary expenses and taxes upon death

5.3 Funds Available

Clients need to know how much funds are available for them to invest as this will
affect their investment decision. To do this, a personal budget, cash flow analysis
and net worth analysis could be done. These analysis assist them to ensure that
they have enough money to put aside for investments and that they will be able to
follow through with the financial obligations of the investment.

An example of a Simple Monthly Cash Flow Analysis is as below:

No Income (A) RM Expenditure (B) RM
1 Salary 5,000.00 Rental/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 (Car, Credit Cards, etc.) 2,000.00
6 Insurance Premiums 500.00
7 Savings 500.00
8 Misc. 1,000.00
Total 6,500.00
Based on the analysis, we can identify that this client has RM1,000 a month as
surplus fund and this can be utilized to fund an investment plan.

An example of a Simple Net Worth Analysis is as below:

No Assets (Present Amount Liabilities Amount
Value)
1 House 220,000.00 Housing Loan 200,000.00
Balance
2 Car 30,000.00 Car Loan Balance 35,000.00
3 EPF 20,000.00 Credit Card Balance 5,500.00
4 Saving Account 1,500.00 Personal Loan 10,000.00
Balance
5 Insurance Cash Value 20,000.00 Others 15,000.00
291,500.00 265,500.00

Based on the example above, the client has a positive net worth position of
RM291,500 – RM265,500 = RM 26,000. Here, the client should consider how much
immediate net worth he wants to create and increase. If he/she decides to upgrade
his net worth to RM300,000, he needs to understand that he has a leeway of up to
RM1,000 a month to ensure himself for RM274,000 (RM300,000 – RM26,000),

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which will immediately fulfill his new net worth goal for his family in the event of an
early untoward demise.

Assuming he is 30. At the SAM factor of 50 times for his age, he only needs to pay
RM457 per month (or RM5, 480 annual premiums) to own a RP-IL policy of RM274,
000 sum assured.

5.4 Risk or Security

There is a trade-off between expected return and risk. Investors whom are unwilling
to assume risk must be satisfied with the risk-free rate of return. If they wish to earn
a larger rate of return, they must be willing to assume a larger risk.

5.5 Investment Horizon

The investment horizon can be defined as the length of time a sum or money is
expected to be invested. It is also used to determine the investor’s income needs
and desired risk exposure which is then used to aid in security selection. An
individual’s investment horizon depends on when and how much money will be
needed, and the horizon influences the optimal investment strategy. In general, the
shorter the investor’s horizon, the less risk he should be willing to accept.

5.6 Accessibility of Funds

We should understand that a client will invest with the objective to make money. With
this in mind, we can categorize the accessibility of funds into 3 as below:
a) If a client needs the funds in a short period of time, the client would not want
to place his money in an investment that will not allow him to unlock it in a
short time frame.
b) The second element is the cost or penalty that the client has to pay if he exits
early. This is important because if the cost is big, then it defeats the purpose
of the investment objectives.
c) The third consideration is how much it is going to cost the client to get into an
investment.

5.7 Taxation Treatment

Clients should consider the different tax treatment for different types of investments
before investing. Different types of investment portfolios attract or enjoy a different
tax treatment.

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5.8 Investment Performance
The performance of an investment depends on the following factors:
a) The country’s economic, regulatory and political factors
b) Regional and global economic factors
c) The competencies and capabilities of the management team
d) The invested company’s level of costs
e) Past experience of the investment
f) The history of the invested company
g) The life cycle of the investment

5.9 Diversification
Diversification is used by professional fund managers and it involves spreading of
risks by putting money under management into several categories of investments
such as shares, bonds, money market instruments and real estate investment trusts
(REITs). This strategy can also be achieved by buying shares in different countries
and by choosing different types of shares.

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Chapter 5: Self-Assessment Questions

1) An example of investment in Money Market is

a) 5-year bond
b) Currencies and forex
c) Treasury bills
d) Savings account

2) People generally want to invest

i) To lead a comfortable lifestyle
ii) To be comfortable during retirement
iii) To amass great wealth
iv) To provide adequate funding for their children’s education and their
upbringing
a) ii, iii and iv
b) i, ii and iii
c) i, ii and iv
d) ii, iii and iv

3) Which statement below explains what a simple (current) net worth analysis
involves?
a) The forecast of a person’s future net wealth and financial status (e.g.
middle income, upper middle income, etc)
b) A calculation of the sum of assets in current monetary terms that a person
presently owns, not including any future inheritance
c) The total sum of all assets owned by a person in present value minus the
existing total sum of all liabilities he is obliged to settle. The balance, if any,
is his present net worth to his family in the event of his early demise
d) A personal plan outlining the targets for values of current and future assets
to be achieved at a certain time in the future

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 4) The main purpose of an agent conducting a risk profile on his potential client
is
a) To assess whether the potential client is willing to use a major portion of
his savings or liquid assets to purchase a large investment-linked plan
b) To help the potential client understand his own risk profile, i.e. whether he
has conservative, aggressive or balanced risk characteristics, and also to
consider the type of asset categories suitable for his profile
c) To assess whether the potential client will be attracted to the product/s
being offered
d) To assess whether the potential client is willing to forego some of his
existing liquid assets in order to buy an investment-linked product

5) Which of the statements below are true?

i) A person’s investment horizon is the length of time that he is prepared to
hold a particular asset before he liquidates it
ii) The investment horizon of an individual, among other factors, also
depends when he needs liquidity in the future date for specific objective/s
iii) The cost or penalty that an investor has to pay in the event he needs to
liquidate the asset earlier than expected also has a bearing on his choice
of investment horizon
iv) It is pertinent for an agent to strike a clear understanding with a potential
client as to how much the latter is
a) i, ii, iii and iv
b) i, ii and iii
c) ii, iii and iv
d) i, ii and iv

6) Which of the following statements in correct?

a) Diversification means spreading out investment in different asset
categories or fund types
b) Diversification not only means spreading out investment in different asset
categories or fund types, but also acquiring various assets of the same
category or fund type

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 c) Investment-linked funds in Malaysia confine the investment diversification
to assets in the country as a way of discouraging the outflow of funds
d) When the stock market shows sign of going up, an investor should give
key focus to leverage the market trend and switch all fixed income or bond
assets to equities

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Chapter 6 – Types of Investment Vehicles and Potential Risks

6.1 Introduction
The common investment instruments available to individual Malaysian investors
include:
 Cash and Deposits  Real Estate
 Fixed Income Investment Trusts
Securities  Sukuk
 Shares  Bonds
 Unit Trusts  Capital Guaranteed
 Properties Funds
 Commodities

6.2 Cash and Deposits

The term “cash and deposits” refers to all liquid instruments that carry little or no risk.
However, cash cannot be considered an investment – it is just a means to finance
investments. The capital value of cash will not increase and will not generate any
additional income. It has no value in itself. It is of value only as a medium of
exchange.

For the purpose of this course, however, the definition of “cash” will include short-
term debt instruments. These cover: a) Treasury bills b) Bank accounts

6.2.1 Treasury Bills (T-bills)

Malaysian Government finances amenities such as roads, schools, hospitals etc.
using the taxes collected. However, total government expenditure cannot be fully
funded by taxes alone; thus, the government has to obtain funds through borrowing
on a short-term basis.

One of the methods used by the Government to borrow money from its citizens is by
the issuance of T-bills. These are short-term government funding vehicles issued on
a regular basis with repayment, normally within a year. T-bills are issued by BNM to
the discount market, at a price lower than the par value (redemption value) which is
payable at the end of the short tenure. The difference between the discounted price
and the par value represents the yield. Institutional investors are the main buyers of
T-bills.

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6.2.2 Bank Accounts
Time/Term/Fixed deposits are placed with banks for fixed periods with fixed interest
rates for that period. Generally, the longer the deposit period, the higher the interest
rate. Few factors that may influence the choice of deposits are as follows:
 Funds available for  Emergency
investment withdrawals
 Duration of funds  Prevailing market
remaining in the conditions
account

6.2.3 Perbadanan Insurans Deposit Malaysia (PIDM)

PIDM is a Government agency established under Akta PIDM 2005 to protect against
the loss of deposits in the unlikely event of a bank failure and to promote financial
system stability. The current maximum protection limit granted by PIDM is
RM250,000 per depositor per bank.

PIDM was set up to protect Islamic and conventional deposits, provide incentives for
promoting sound risk management and to promote and contribute to the stability of
the financial system in Malaysia. Only banks which are member institutions of PIDM
are covered by the protection scheme. Examples of non-members are investment
banks and international Islamic banks. Coverage is not extended to branches and
subsidiaries of domestic banks operating outside Malaysia as the host countries may
have their own scheme.

PIDM also protect owners of insurance policies and holders of takaful certificates in
the event of the failure of a member insurance/takaful institution. The maximum for
insurance/takaful coverage (per insured/covered person) is RM500,000. Examples of
insurers/takaful operators which are non-members institutions of PIDM: reinsurance
companies and retakaful operators, international takaful operators, and offshore
insurance companies.

A levy is imposed on all member institutions for the protection coverage.

6.3 Fixed Income Securities

A group of investment vehicles that offer a fixed periodic return is known as Fixed
Income Securities. It can be regarded as promissory notes issued by companies or
the government to raise funds. It usually stress current income and offer little or no
opportunity for appreciation in value. The types of fixed income securities include:
 Government Bonds
 Corporate Bonds
 Preference Shares (please refer to 6.4.2)

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6.3.1 Government Bonds
Government bonds are effectively financial instruments used by the government to
borrow money from the public. It is also the safest types of investments (government
guarantees interest payments and repayment of the principal).

The key difference between government bonds and T-bills is the tenure. T-bills are
issued with very short-term maturity of not more than 1 year, example: 1 month, 3
months, 6 months, 12 months. Government bonds are of longer tenure, example: 5-
10 years or as long as 15-20 years.

Government bonds can be classified according to their maturity periods as follows:

 Short-term bonds: < 5 years to maturity
 Medium-term bonds: 5-10 years to maturity
 Long-term bonds: >15 years to maturity

The only disadvantage is that in times of high inflation, capital invested in this type of
investment can be eroded. While being the safest as an investment vehicle, the
return potential is comparatively lower than for other assets, including corporate
bonds.

6.3.2 Corporate Bonds

Companies can also issue bonds or loan stocks to raise capital. Just as Government
raises capital to fund its development programs, companies also raise these
instruments to fund the growth of their operations. Corporate bonds can be classified
into 3 categories: Debenture stocks, Loan stocks, and Convertible stocks.

6.3.2.1 Debenture Stocks

Debentures stocks are effectively, secured loans to a company. The security is either
a fixed charge on the company’s property or some of its assets such as trading stock.
If the company defaults on the loan, the investor can take over the said assets and
sell them to get his money back. Like government bonds, debenture stocks pay fixed
interest rates for a fixed term at the end of which the capital is repaid.

The company also has an option to repay the debenture stocks earlier. Corporate
stocks are not as secure as government bonds. A company can become insolvent
and be unable to pay the interest due. Hopefully, the charge on property would mean
that this could be sold to repay the capital, but a forced sale might not raise enough
money to cover the capital. Interest rates for corporate bonds tend to be higher than
for government bonds as the security is lower.

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6.3.2.2 Loan Stocks
These are unsecured loans to a company. Both the interest rate and the term are
fixed.

If the company defaults, the investor has no security and thus is in the same position
as all the other unsecured creditors of the company. Investors may or may not get
back their capital, depending on the company’s performance. Compared to
debentures, loan stocks are much less secure and therefore they carry a higher
interest rate.

6.3.2.3 Convertible Stocks

Convertible stocks can be converted to ordinary shares of a company on a fixed date
at a discount to the market price at the time of conversion. From then, investor can
convert his investment from a fixed interest loan to being a part-owner who is then
entitled to a share of its profit through dividends declared. The decision to convert
depends on whether dividend income and capital appreciation in share price are
better than the fixed interest given.

6.3.2.4 Advantages and Disadvantages

In general, corporate bonds tend to give a higher return than government bonds.
However, they are more risky than government bonds.

6.4 Shares
A company is a separate legal entity, i.e. it is owned by all of its shareholders.
Companies can be public or private. Private companies operating in Malaysia are not
listed on Bursa Malaysia and are not available to ordinary investors. Public Limited
companies can be quoted on stock exchanges if they meet the requirement.

Share prices fluctuates and are influenced by factors such as general performance
of the country’s economy, the current interest rates, inflation rates, the specific
company’s earnings and the prevailing currency performance. Adverse events in
other regions and adverse performance of other major stock markets might affect the
performance of the local stock market. The costs of buying and selling include
stockbroker’s commission as well as the difference between the buying price and the
selling price.

6.4.1 Ordinary Shares

The holder of an ordinary share in a company is a part-owner of the company and is
entitled to share in its profits in the form of dividends. Dividends are paid out of the
company’s profits as decided by the directors. There is no certainty that a company
will make profits and thus no certainty if there will be dividend. Dividends are usually
paid bi-annually as income to shareholders.

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6.4.2 Preference Shares
These are shares which give the holder the right to a fixed dividend provided enough
profit has been made. This right takes precedence over the right of ordinary
shareholders to dividends. Although the dividend from this asset is fixed, it is not
interest payment and may not be paid if profits are not made.
Dividends of preference shares are usually lower than common dividends granted to
common shareholders. The dividend will never be more than the fixed rate even if
profits are more than enough to warrant so. Preference shares are slightly more
secure than ordinary shares but with less return potential. These assets are like a
hybrid containing the structures of both an equity and a debt instrument or fixed
income combined into one.
In the event the company winds up, preferred shareholders have the right to be
compensated from the company assets first after holders of debt papers and before
normal shareholders or stockholders. Preferred shareholders do not have voting
rights.

6.4.3 Advantages and Disadvantages

Advantage:
 Shares provide potential good dividends, capital appreciation and
liquidity (since they are easily traded in open market)
Disadvantages:
 Shares have risks as their value can go below the price the shares
were originally bought for, especially in times of market downturns

6.5 Unit Trusts

Unit trusts are useful vehicles for small private investors. In Malaysia, unit trusts are
authorized and supervised by the Securities Commission Malaysia. It is a pool of
funds contributed by many investors, kept in trust by a trustee (usually a bank) and
managed by a professional fund manager or a team of fund managers.

Unit trust investment comprises of an array of funds ranging from equity, bond, fixed
income, balanced fund etc. which is established by a trust deed. This deed enables a
trustee to hold the pool of money and assets in trust on behalf of the investors.
Investment manager (fund manager) manages the pool, manages the portfolio of
investments and administers the buying and selling of shares in the unit trust. This is
essentially a 4-way arrangement among – investors, unit trust operating company,
trustee and fund manager.

Unit trusts chosen should match the investment objectives of the particular investor.
All unit trusts are required to clearly state their investment objectives in their
prospectus. Every investor should have this prospectus and understand it before

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buying into the unit trust. The types of assets that may be bought by the fund
manager are also specified in the objectives of the trust contained in the trust deed.

Advantage of unit trust

 The risk is spread out over the assets
 Investment services are provided by professional fund managers
 Dividends can be reinvested into the selected fund in the form of
additional units to unit-holders
 Malaysians who contribute to the Employees Provident Fund (EPF)
are allowed to utilized a portion of their EPF account to invest in
funds offered by approved unit trust operating companies

Some people tend to compare single premium investment-linked (SP-IL) life

insurance with unit trusts because of similarities in the investment approach.
However, there are a few variations or slight differences too.

Similarities and Differences between UTs and SP-IL

UTs SP-IL
1. Regulator Securities Commission (SC) Bank Negara Malaysia (BNM)
2. Investment Acquisition of units in funds Acquisition of units in funds
Approach entailing a spread of assets entailing a spread of assets
Wide array of funds Array of funds available for
available for selection selection, although array offered
by insurers may generally be
less than that offered by a UT
company
3. Fund Price Daily validation Daily validation
Validation
4. Life No sum assured on Minimum sum assured of 125%
Protection investor’s life of initial Single Premium, 105%
Element Not an inherent feature of for senior ages and sub-standard
UT products cases
5. Cost of Nil Both are chargeable
Insurance &
Policy Fee
6. Top-Up Allowed at any time Allowed at any time
7. Fund Allowed Allowed
Switch
8. Sales Charge imposed by some Usually 5%
Charge UT schemes may be slightly
higher than 5%
9. Trustee Must be appointed Trustee appointment not

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 Small trustee fee is charged
compulsory. At the discretion of
the board of directors
If no trustee, then no trustee fee
10. Fund Usually up to 1.5% of Usually up to 1.5% of account
Manageme account value charged value charged annually,
nt Fee annual, depending on fund depending on fund category
category
11. EPF Can make withdrawal from Cannot make withdrawal from
Withdrawal EPF to buy EPF to buy

6.6 Properties
Real estate has always been an investment vehicle. There are basically 3 types of
real estate investments. These are (a) agricultural property, (b) residential property
and (c) commercial/industrial property, in Malaysia and overseas.

The price of an agriculture property depends on the following factors:

 Quality of the land as reflected by the quality and profitability of the
crops grown
 The location of the land
 The type of crops grown, example: rubber, oil palm, fruits
 Existing facilities on agriculture property, example: processing mill,
storage house, power supply

On the other hand, the price of residential and commercial/industrial properties

generally depends on the following factors:
 Location and types of buildings on the land
 Availability of infrastructure, example: public transportation like LRT
or MRT
 Reputation of the developer

6.6.1 REITs
Another popular form of real estate investment is known as Real Estate Investment
Trust (REIT). The concept of a REIT is similar to a unit trust as the money is invested
by many investors. Apart from investing in and managing properties, REITs distribute
rental income as dividends back to the investors. REITs are traded on Bursa
Malaysia like equities. Some REITs target at specific real estate like shopping malls
while others invest in a variety ranging from shopping malls, office blocks,
apartments and warehouses to hotels; while some invest in a specific region.

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6.6.2 Advantages and Disadvantages
Property is a low risk investment which provides good capital appreciation and
steady flow of income. By mortgaging the property, capital financing can be obtained.
If financed by a financial institution, property owners need to pay the annual
Assessment Tax and the Land Tax (or Quit Rent).

At the time of the purchase of a property in Malaysia, the initial fees that have to be
paid are:
 Legal fee  Mortgage loan
 Stamp duty agreement fee
 Valuation fee

For properties sold within 5 years after their purchase, the Real Property Gains Tax
(RPGT) on the gain (sale price over acquisition price) will be imposed on the seller.
RPGT rates depend on how long the seller holds the property:
- 30% if disposed within 3 - 15% if disposed within 5
years years
- 20% if disposed within 4
years

6.7 Sukuk
“Sukuk” is the Arabic term for financial certificates and is commonly referred to as
the Islamic equivalent of bonds. Since fixed income (interest-bearing bonds) are not
permissible in Islam, sukuk securities are structured to comply with Islamic law and
its investment principles which prohibit the charging or paying of interest. Malaysia is
the world’s largest issuer of sukuk.

Sukuk is similar to an obligation backed by an asset but is not really a bond because
it is not based on debt. It can be regarded as a commercial paper which gives the
investor a share of ownership in the underlying asset. It is considered less risky than
conventional bonds. In the event of default, ownership of underlying assets of the
issuer will be transferred to the holders of the papers – this provides a form of
protection to holders.

Sukuk papers are securities which have the following characteristics:

- They are issued by pooled funds (mutual funds)
- They are based on hard assets that generate steady income and
expectations
- They may be guaranteed or not by their originators
- Investors receive a fee equal to the income of the underlying assets
- These securities are issued by Special Purpose Vehicles (SPVs), often
subsidiaries of banks or trusts called SPVs
- Sukuk may be issued in USD

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 - Sukuk papers differ from conventional bonds because they are based on
tangible assets instead of being based on the debt

6.8 Capital Guaranteed Funds (CGF)

A CGF is an investment vehicle offered by certain institutions that guarantee the
investor’s initial capital from any losses. On one hand, the fund guarantees the
invested capital while on the other hand; the return is capped at a specific rate
although the actual investment experience may be higher. If you do not redeem your
investment before the maturity date, it is guaranteed that you will not lose any money.

6.9 Commodities
Commodities represent an avenue for investors to venture out of stocks or bonds
with the objective of gaining from price movements. A popular way to do so is by a
future contract (an agreement to buy or sell in the future a specific quantity of a
commodity at a specific price – speculating future price movements). Apart from
deploying futures for hedging purpose, speculating on price movements itself is a
high risk exposure.

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Chapter 6: Self-Assessment Questions:

1) Malaysian T-bills are debt instruments that are considered safe because
i) They are issued by the Government of Malaysia
ii) They are short-term instruments
iii) They are guaranteed by the World Bank
iv) Their tenure is normally 12 months
a) i, ii, iii and iv
b) i, ii and iii
c) i and ii
d) i, ii and iv

2) Which of the following statements are correct?

i) Normally, when interest rates fall, the prices of fixed income or bond
assets may rise; when interest rates rise, their prices may drop
ii) Government bonds are safer than corporate bonds but their returns are
comparatively lower
iii) The maturity period of short-term government bonds is usually less than 5
years; for the medium-term ones, it is usually 5-10 years and for the long-
term ones, it is usually above 15 years
iv) Preference shares are hybrid securities with both equity and fixed income
characteristics. In the event the company concerned winds up, preferred
shareholders have the first right to be compensated from the company
assets first before normal shareholders
a) i, ii, iii and iv
b) ii, iii and iv
c) i, ii and iii
d) i and iv

3) The similarities and differences between unit trusts and single premium
investment-linked plans are:
i) The investment approach of both are similar
ii) The life insurance protection element is not part and parcel of unit trust
products, whereas for single premium investment-linked plans, it is

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 iii) Unit trusts do not impose COI and policy fee charges since the life
protection element is absent
iv) A trustee must be appointed for unit trusts but this is not compulsory for
single premium investment-linked plans
a) i and ii
b) i, ii, iii and iv
c) ii, iii and iv
d) i and iii

4) Which of the following statements about REITs it NOT true?

a) REITs operate in a way similar to unit trusts
b) Rental income from the properties invested by a REIT is distributed to
investors in the form of dividend
c) A REIT can invest in a wide range of properties like malls, office blocks,
apartments, commercial lots, hotels etc
d) REITs may acquire shares in property development companies

5) Which of the statements below is incorrect?

a) Sukuk are like bonds but they are based on Shariah-compliant principles
b) Malaysia is the world’s largest issuer of sukuk
c) Sukuk securities are issued by Malaysia in Ringgit only
d) Sukuk securities issued by Malaysia can be in USD

6) The protection offered by PIDM on the deposits placed in banking institutions

are 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

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 iv) With a levy charged to member institutions
a) i and iii
b) i and iv
c) ii and iv
d) iii and iv

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Chapter 7 – Common Types of Investment-Linked Funds

7.1 Introduction
Just as for unit trust plans, the investment aspect of investment-linked plans involve
channeling a portion of policy owners’ money to acquire units in funds administered
by professional fund manager.

7.2 Fixed Income/Cash and Money Market Funds

These funds target at assets which have been elaborated. Please refer to Chapter 6
– 6.2 and 6.3.

7.3 Equity Funds

This type of funds acquires units of stocks in companies. Most fund managers
design such funds to allow a minor portion in cash/money markets for temporary
hold after units of a certain stock are sold and before channeling them to another
stock when the timing is right. Chapter 6 (6.4) gives you an explanation of equities.

7.4 Property Funds and REITs

These funds invest either in:
 Property development companies: involve acquisition of stocks in
development companies
 REITs: invest in real estate (refer to Chapter 6, 6.6.1)

7.5 Managed Funds

Managed funds invest in various asset categories such as in equities, fixed incomes,
properties, cash/money markets etc.

7.6 Balanced Funds

Also called hybrid funds, these comprise specified proportions of specified asset
categories.

7.7 Specialized Funds

These funds are designed with specific themes or regions in mind. Example: Asia
Pacific Fund, Emerging Markets Fund etc.

7.8 Sukuk
Some life insurers also offer sukuk. This is because sukuk is increasingly popular
among Malaysians due to its positive historical performance and growth potentials.
With strong support from the Malaysian Government and mega corporations, sukuk
is gaining dominance in the Malaysian capital market and is gaining ground in terms
of transaction volumes.

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7.9 RISKS vs RETURNS of Investment-Linked Funds
Bonds are less volatile compared to equities. Malaysian bonds are less volatile than
global bonds. Bonds return are stable, however they provide lower return potentials
as compared to equities. Return potentials for equities can be significantly higher,
especially during periods of market buoyancy.

Risk of loss facing investment-linked equity funds can be softened by the mechanism
of Dollar/Ringgit Cost Averaging via continuous contributions and/or topping up to
the fund concerned over a long horizon, and the spread-out to various stocks in one
equity basket.

Another advantage of IL funds is the services of professional fund managers who

manage the transactions on behalf of policy owners. An ordinary person who is not
an adept stock market player may not have the necessary knowledge, information
and experience to aim and time correctly. Neither does he have the time to keep
close watch on market trends.

Policy owners of investment-linked plans rely on professionals to manage for them –

that is a key difference between investing directly in the stock market on one’s own
and investing via IL – which at the same time also caters for protection.

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Chapter 7: Self-Assessment 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

2) The average yield of Malaysian T-bills with tenures of 6-12 months is

i) Around or slightly better than 3%
ii) Normally around 4-5%
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

3) It 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 identity 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

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 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 optimizing 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

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

5) Compared to government bond funds, corporate bond funds have

i) Lower yield and lower risks
ii) Higher yield 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

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 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

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Chapter 8 – Pertinent Guidelines on Investment-Linked (IL) Business

8.1 Guidelines on Investment-Linked Business

In addition to the SAM rule, some of the pertinent points regarding the IL Guidelines
issued by BNM relevant to the knowledge of agents are:
 Agent must ensure professional and proper conduct in the sales/marketing
of IL insurance policies
 The valuation of units shall be carried out every business day
 Insurers may undertake unit splits for any IL fund, provided these
conditions are met:
(a) A unit split/combination can only be done once in a financial year
(b) The unit split may only be exercised when there is a sustainable appreciation
in the NAV over a 6-month period preceding the split. This refers to an
increase in the average monthly NAV from 1 month to another over the 6-
month period.
 In the case of premium holidays, insurers are required to explicitly seek
policy owners’ consent before deducting from the fund any charges for
riders
 The requirement for minimum death benefits does not apply to top-up
premiums. As such, the whole of the top-up premium can be used to
purchase units
 If a policy is cancelled with the 15 days free-look period, the insurer shall
refund:
(a) The unallocated premium
(b) Value of units that have been allocated at the unit price at the next valuation
date
(c) Any insurance charges and policy fee that have been deducted; less expense
which may have been incurred for the medical examination on the life insured
 Insurers shall provide a separate Fund Fact Sheet for each of its IL funds
 Insures shall provide to each policy owner a statement on the value of
his/her policy at least once a year
 Insurers shall provide to each policy owner a report on the performance of
each IL fund in which the policy owner has units at least once a year

Insurers shall publish the latest NAV per unit of all IL funds daily in at least one
widely-circulated English and one widely circulated Bahasa Malaysia national
newspapers, and on the insurer’s website
- The initial offer period (of a new fund) shall not exceed 2 months. Where the
minimum required fund size is not reached, the insurer shall refund monies
contributed with any interest/investment profits earned on premiums received
during the offer period
- The maximum gross rates for sales/marketing illustrations for various types of
funds should be within the limits as follows:

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 Illustrated Return for X% Y%
Generic Funds
Equity 2% 9%
Managed 3% 8%
bond 4% 7%

The maximum period of projection for both single premium and regular premium
plans should not exceed 30 years to avoid inappropriate expectations.

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Chapter 8: Self-Assessment Questions:

1) Valuation of units in an investment-linked fund must be done

a) 6 days in a week, including Saturdays (half day)
b) Every business day
c) Everyday
d) 7 days a week. For a day that falls on a weekend or a public holiday,
valuation processed by the automated system will be based on the same
unit price as the previous business day

2) The guidelines stipulated by the regulatory authority in allowing a life insurer

to undertake unit splits for an IL fund once a year is on the condition that
“there is sustainable appreciation on net asset value (account value) over a 6-
month period preceding the split”. Which of the statements below is correct
regarding the above statement?
a) This means that appreciation over the 6-month period must be considered
substantial by reasonable standard compared to the previous 6 months
b) This refers to an appreciation rate of at least 20% at the end of the current
6 months over the previous 6 months
c) This refers to an increase in the average monthly net asset value (account
value) consecutively for 6 months
d) This means that the discretion to define “sustainable appreciation” may lie
with the life insurer as long as there is growth in the fund in the prevailing 6
months over the previous 6 months, subject to the approval of the board of
directors

3) Since part of the initial premium of a regular premium IL plan may already
have been allocated and invested to acquire fund units by the time the
customer decides not to take the plan within the 15 days free-look period, in
what manner will the refund be made?
a) Refund of full initial premium
b) Refund of full initial premium minus policy fee and medical examination
expenses (if any) incurred by the life insurer

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 c) Refund of unallocated premium + net asset value (account value) at next
valuation date + insurance charges and policy fee already deducted –
medical examination fees if any
d) Refund of unallocated premium + net asset value (account value) – cost of
insurance and policy fee-medical examination fees if any

4) Life insurers offering IL insurance are obligated to provide certain fundamental

“transparencies” as required by regulatory guidelines. These are:
i) A separate Fund Fact Sheet for each of the funds
ii) A statement on the policy owner’s net asset value (account value) details
at least once a year
iii) A performance report on each fund of the policy owner at least once a
year
iv) Publishing of fund unit prices daily in at least one notional English
newspaper and one national Bahasa Malaysia newspaper, and on the
insurer’s website
a) ii, iii and iv
b) i, ii and iii
c) i and ii
d) i, ii, iii and iv

5) Which of the statements below regarding sales illustrations for IL plans are
correct?
i) The high and low 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

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 a) i, ii, iii and iv
b) i, ii and iii
c) i and ii
d) ii, iii and iv

6) What are the pre-requisites for the launch of a new IL fund?

i) A minimum fund size can be set by the insurer
ii) The initial offer period shall not be more than 2 months from the date of
launch
iii) If the minimum fund size is not reached by the end of the initial offer period,
the insurer can call off the fund and refund all premiums collected
iv) The insurer will also have to pay interest or profit from the premiums
collected during the initial offer period to the intended policy owners
a) i and ii
b) i, iii and iv
c) i, ii, iii and iv
d) i, ii and iii

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Chapter 9 – Agents Professional Approach and Guidelines

9.1 Introduction
We shall look at the process of marketing and selling IL life insurance and the
guidelines for agents in conducting IL life insurance business in Malaysia.

9.2 Marketing
Customers should be buying policies which they understand, meet their needs and
affordable. On the other hand, agents need to sell policies with the objective of
satisfying customers’ requirements and needs while also earning an income.

With personal selling, the objective of satisfying customers’ requirement can be

achieved through the use of financial needs analysis, knowing the customer tools,
sales illustrations and other materials approved and provided by the insurance
company – these tools are important as they allow insurance agent to render proper
advice to the customer.

An agent who engages in personal selling requires:

(a) Product knowledge
(b) Market knowledge
(c) Knowledge of the buying process
(d) Knowledge of the selling process
(e) Selling technique

9.3 Consumer Buying Decision Process

Knowledge of the consumer’s buying decision process is important to an insurance
agent because it helps the agent to adjust to different consumers’ needs.

There are 5 stages in the consumer buying decision process:

(a) Problem Recognition
At this stage, the consumer becomes aware of the threat of risks or a potential
opportunity and feels the need for the product to protect him from financial
difficulties or to satisfy his needs. Agents are to conduct a proper fact-find
process before moving to the product package identification stage. Also, agents
must utilize their respective company’s Customer Fact-Find (CFF) form. Minimum
details required to be recorded in an insurer’s CFF are:

 Personal details
 Personal and family circumstances
 Objectives with regard to various needs, i.e. protection, retirement,
children’s education, savings and retirement
 Risk appetite or tolerant
 Elements identified in a financial needs analysis
 Advice by agent/intermediary

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  Recommendation of appropriate product by the agent/intermediary
 If the intended new policy owner prefers to be given specific product
information only, he should declare so in the form
 Signature of the intended new policy owner as evidence he has gone
through the fact-find process and documentation with the
agent/intermediary
 Signature of the agent/intermediary as evidence and witness that the
due process has been carried out

Prospective policy owner has the option to either fully or partially declare his financial
status or prefer product information only. However, he is encouraged to go through
the entire process to ensure the product package finally selected by him fits his
needs well.

(b) Information search

When the needs have been perceived, the consumer searches for information
and shop around. The intensity for these efforts depends on:
- The consumer’s experience in purchasing the product
- The importance of the purchase (benefits from the purchase)
- The value involved

(c) Evaluation of alternative policies

The consumer will decide on which seller to buy from. Studies shown that the
selections of insurers are:
- Reputation of the insurer (60%)
- Quality of coverage and services provided (26%)
- Policy benefits (14%)
Other factors which have influence on consumer buying decision are:
- Agent’s personality and friendliness
- Agent’s professional capability
- Premium and other terms

(d) Purchase
Consumers make decision after evaluating the alternative products based on
criteria and factors set by the consumer himself (which often are influenced by
personal, public and market-dominated sources)

(e) Post-purchase evaluation

After purchase is made, buyer begins to evaluate his purchase. The agent who
delivers a policy promptly, keeps in contact with his customers, and provides
important information of risk evaluation will have a better chance of securing the
loyalty of his customer at the time of renewal

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9.4 The Selling Process

The process of personal selling involves 5 basic steps:

(a) Locating the prospective customer
An insurance agent’s potential customers are called prospect. Prospecting
involves identifying, contacting and qualifying potential customers. The name of
prospects can come from many sources including: Current and past customers,
friends, relatives, neighbors, business associates, social and professional
contacts, mailing lists and directories, and many more.

(b) The sales presentation

The sales presentation is the promotional message an insurance agent delivers
to a prospect to explain, stimulate interest in, and motivate the prospect to
purchase the product(s) recommended in the proposal. It is important to note that
insurance agents must use sales brochures or sales illustrations that are
authorized by the insurer.

(c) Conducting the sales interview

An insurance agent must firstly gain the attention of the potential customer,
secondly develop prospect’s interest via sales presentation, and thirdly create a
desire for the product which would satisfy the prospect’s need.

(d) Handling objections

The success of the sales interview hinges on the effectiveness of the insurance
agent’s skill in handling objection.

(e) Closing the sale

If the presentation is successful, the sale will be made. Sales are not always
closed at the end of the first presentation. If more meetings are required, the
insurance agent should try to set a date for a follow-up interview.

9.5 After-sales services

The follow-up stage helps ensure that customers remain satisfied with the purchase.
After-sales calls on customers also help reduce customers’ further questions and
concerns, if any. In the after-sales calls, the agent can address the customer’s
concerns and reinforce the customer’s original decision to buy the product.

Most insurance companies have rules and regulations on activities that must be
completed between the time a policy is sold and the time the policy is issued, such
as:
- Making sure that the application is complete and that all the proposer’s
answers have been recorded accurately and clearly
- Providing timely response to any applicant’s or company’s questions or
request

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The delivery of a policy is also an important aspect of providing after-sales service
because it gives agent an opportunity to perform the following:
- Address any post-sales concerns that policy owners may have and
reassure them about their decision in buying the policy
- Provided a basis for future sales by reminding the policy owner about any
currently unmet or future financial needs or expectations
- Re-emphasize the insurance agent’s commitment to providing the policy
owner quality service
- Encourage the policy owner to call the agent if there is any problems or
questions that need to be answered
- Explain the policy’s provisions, terms and conditions
- Obtain the names of referred leads and other prospects
- Strengthen the customer relationship and help encourage persistency

After explaining the contractual provisions and benefits during the delivery, agents
must ensure new policy owners sign the delivery acknowledgement slip and indicate
the date of receipt. Then, agents must return the signed acknowledgement slip to
their principal for recording and filing. This is important because the 15 days free-
look or cooling-off period commences from the date of policy delivery acknowledged
by the new policy owner.

Agents selling IL products should conduct reviews on their client’s investment profile
and investment progress periodically – ideally once a year – and discuss alternative
next steps for consideration by the client, if necessary.

9.6 LIAM guidelines on the code of conduct

The guidelines formulated by Life Insurance Association of Malaysia (LIAM) for self-
regulating the life insurance business apply to the investment-linked life insurance
business as well:
Part I – Guidelines on the Code of Conduct
Part II – Life Insurance Selling
Part III – Statement of Life Insurance Practice

9.6.1 Part I – Guidelines on the Code of Conduct

This part deals with the following aspects concerning the Code of Conduct:
(a) Statement of Philosophy (b) Coverage (c) Monitoring Devices

(d) Seven Principles of the Guidelines (e) Code of Conduct

9.6.1.1 Statement of Philosophy

These guidelines hinge on the following:
i. The life insurance business is based on the philosophy of risk sharing and
be operated and administered with the highest degree of integrity and
ethics

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 ii. It is a business based on trust and honesty, requiring a high degree of
responsibility and professionalism
iii. The confidence of policy owners and members of the public in the integrity
and honesty of life insurers shall be safeguarded and enhanced
iv. Life insurers shall at all times see that their business is soundly managed
to ensure the safety of policy owners’ savings and the credibility of their
companies

9.6.1.2 Coverage
The guidelines cover all employees of a life insurer operating in Malaysia. Insurers
are free to formulate more comprehensive set of rules.

9.6.1.3 Monitoring Devices

To ensure that guidelines are abided by, the management of a life insurance
company is required to establish the following minimal procedures:
i. Require all employees to sign a declaration to observe the guidelines
ii. Require all intermediaries to sign a declaration to observe the guidelines
iii. Assign responsibility to the heads of department to ensure compliance
with the guidelines on a day-to-day basis and to handle enquiries from
employees on matters relating to the code of conduct
iv. Report breaches observed to an audit/disciplinary committee which reports
directly to the Board of Directors. In addition, the committee is required to
submit quarterly reports to BNM on breaches observed and the actions
taken on these
v. Maintain centralized records of breaches
vi. Report immediately cases of fraud to the police and BNM

9.6.1.4 The Seven Principles Underlying the Guidelines

i. To avoid conflict of interest
ii. To avoid misuse of position
iii. To prevent misuse of information
iv. To ensure completeness and accuracy of relevant records
v. To ensure confidentiality of communication and transactions between the
life insurance company and its policy owners and clients
vi. To ensure fair and equitable treatment of all policy owners and others who
rely on or who are associated with the life insurance company
vii. To conduct business with the utmost good faith and integrity

9.6.1.5 Code of Conduct Only a Guide

The guidelines serve as a guide to promote proper standards of conduct and
establishing sound and prudent business practices
i. It is not the intention of the guidelines to restrict or replace the matured
judgment of employees in conducting their day-to-day business

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 ii. When in doubt as to matters relating to the code of conduct, employees
are to seek guidance from their respective heads of department.

9.6.2 Part II: Life Insurance Selling

i. Introduction iv. Disclosure of Underwriting
ii. General Sales Principles Information
iii. Explanation of the Contract v. Accounts and Financial
Aspects

9.6.2.1 Introduction
9.6.2.2 General Sales Principles
The intermediary shall:
- When he makes contact with the prospective policy owner, make it known
that he is an agent of which insurance company and product his
Registered Intermediary Authorization Card to identify himself
- Ensure as far as possible that the policy proposed is suitable to the needs
and not beyond the resources of the prospective policy owner
- Give advice only on those matters in which he is competent to deal with
and seek or recommend other specialist advice if this seems appropriate
- Treat all information supplied by the prospective policy owner as
completely confidential to himself and the life office which he represents
- In making comparisons with other types of policies or other forms of
investment, make clear the different characteristics of each
policy/investment
- Render continuous service to the policy owner

The intermediary shall not:

- Make inaccurate or unfair criticism of any insurers
- Attempt to persuade a prospective policy owner to cancel any existing
policies unless these are clearly unsuited to the policy owner’s needs

Twisting is strictly not allowed and action will be taken if ‘twisting’ is proved. Twisting
is a form of misrepresentation in which a policy owner is induced to discontinue an
insurance policy to purchase a new policy with another company or the same
company, without the policy owner being clearly informed of the differences between
the two policies and of the financial consequences of replacing the original policy.

9.6.2.3 Explanation of the Contract

i. The intermediary shall explain all essential provisions of the contract and
ensure that policy owner understands it.
ii. Where a policy offers participation in profits or investment performance,
descriptions of the benefits shall distinguish between fixed and projected
benefit

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 iii. Where projected benefits are illustrated, it should be made clear that the
benefits may be lower or higher than those presumed
iv. Where an intermediary has been supplied with an illustration by the life
insurer, he shall use the whole illustration and shall not add to it or select
only the most favorable aspects of it.

9.6.2.4 Disclosure of Underwriting Information

i. Avoid influencing proposer
ii. Ensure consequences of non-disclosure and inaccuracies are pointed

9.6.2.5 Accounts and Financial Aspects

i. Acknowledge all receipt and maintain a proper account of all monies
received
ii. Forward to the company without delay any monies received for life
insurance

9.6.3 Part III: Statement of Life Insurance Practice

i. Introduction
ii. Claims
iii. Proposal forms
iv. Policies and accompanying documents

9.6.3.1 Introduction
The aim of this part is to reduce the formalities involved in the issue of new policies
and payment of a claim.

9.6.3.2 Claims
i. The guidelines require that an insurer may not unreasonable reject a
claim
ii. If there is a time limit for notification of a claim, the claimant will not be
expected to do more than to report a claim and subsequent developments
as soon as reasonably possible
iii. Upon the claimant proving the insured event and the right to receive the
claim, the claim has to be settled without undue delay
iv. The insurer shall not collect any claim processing fees from the policy
owner or the beneficiary

9.6.3.3 Proposal Forms

i. If the proposal form calls for the disclosure of material facts, a statement
should be included in the declaration or on the form:
ii. A life insurer shall provide a copy of the proposal form relating to the policy
owner together with the policy

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9.6.3.4 Policies and Accompanying Documents
i. Insurers will continue to develop clear proposal forms and policy
documents taking into consideration the legal nature of insurance
contracts
ii. The policy and accompanying documents must indicate whether there are
rights to a surrender value. If the policy carries a right to a surrender value,
then this right must be indicated

In respect of a proposal for whole-life or endowment, the sales literature should bring
out:
i. These are long-term contracts
ii. Surrender values, especially in the early years are often less than the total
premiums paid. The policy will not have a cash value on termination until
the policy owner has paid premium for 3 years or more

9.7 Guidelines on Minimum Standards for Treating Customers Fairly (TCF)

Agents should take note of the following:
- Customers are fully informed about the key benefits, key risks and
exclusions
- Agents should be well-trained, especially in investment and savings
product
- That products are sold based on customer’s suitability, needs and risk
appetite.

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Chapter 9: Self-Assessment Questions:

1) Which of the following statements are correct?

i) Agents must utilize the sales materials and sales illustrations provided by
their respective principal in their sales process
ii) Agents must utilize the sales materials and sales illustrations provided by
their respective principal in their sales process. However, they may have
the discretion to supplements 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

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

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 a) i and ii
b) ii and iii
c) i, ii, iii and iv
d) i, iii and iv

3) Agents who have sold IL plans should conduct reviews with their clients
ideally once a year. The purposes are
i) To provide updates on the performance progress of fund/s selected by the
clients
ii) To discuss and ascertain whether the client’s financial objectives might
have changed due to certain circumstances
iii) To discuss and ascertain whether the original risk profile of the client has
changed due to certain circumstances
iv) To discuss alternative next steps where necessary
a) i, ii and iv
b) ii, iii and iv
c) i, ii, iii and iv
d) iii and iv

4) The Code of Conduct pertaining to life insurance selling applies to

i) All agents
ii) All employees of life insurers
iii) Insurance brokers
iv) Agents and insurance brokers
a) i, ii, iii and iv
b) i and iii
c) i and ii
d) i, ii and iv

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

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 ii) The CFF 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

6) The pertinent points highlighted by the Guidelines on Minimum Standards for

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

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Answers to CEILLI Self-Assessment Questions

Q1 Q2 Q3 Q4 Q5 Q6
Chapter
C D D C C A
1
Chapter
A B A D A B
2
Chapter
B B B C C B
3
Chapter
A B C D B D
4
Chapter
C C C B A B
5
Chapter
D A B D C C
6
Chapter
B A B B B D
7
Chapter
B C C D A C
8
Chapter
A B C C C A
9

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CEILLI Examination: 100 Mock Questions:

1. What is the amount of life cover for Encik Ahmad who bought a single premium
investment-linked whole life plan RM20, 000 single premiums?
A. RM5,000
B. RM10,000
C. RM25,000
D. RM30,000

2. What are the pertinent provisions an agent should take note under the treating
customers fairly (TCF) guidelines?
I. Customers must be well informed about the key benefits, key risks and
exclusions.
II. Agent should be well-trained.
III. Agents should receive large commissions.
IV. Products sold must be based on customers' needs and risk appetite.
A. I, II and III
B. I, II and IV
C. II, III and IV
D. I, II, III and IV

3. If a policyholder withdraws RM 2000 from 10000 units of his investment-linked

fund and assuming the unit price is RM 2, how many units does he still have?
A. 1,000 units
B. 9,000 units
C. 8,947 units
D. 10,543 units

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 4. Funds that restricted to investment in particular geographical regions or
industries are known as....................... Funds.
A. Bond
B. Managed
C. Specialised
D. Balanced

5. Mr. Tan, age 35, bought a single premium investment-linked life insurance by
paying an initial premium of RM 50,000.00. Two year later, he paid an
additional RM 30,000 as top-up. The total sum assured in Mr. Tan’s policy
after the top-up is
A. A RM50,000
B. B RM62,500
C. C RM80,000
D. D RM100,000

6. When in doubt about the code of conduct, employees can seek guidance from
I. An experienced agent
II. The company's management
III. Bank Negara Malaysia
IV. Their respective heads of department
A. I, II and III
B. I, II and IV
C. II, III and IV
D. I II, III and IV

7. Which of the following statements is true ?

I. Equity assets are inherently lower risk in nature
II. Bond funds are also known as ' income ' or ' fixed income ' funds
III. Specialised funds are normally segmented based on geographical regions or
particular industries.
IV. Property funds are generally considered to be safer than equity funds, but
have lower liquidity.

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 A. I, II and III
B. I, III and IV
C. II, III and IV
D. I, II, III and IV

8. Which of the following statements is true concerning debenture stocks?

A. Debenture stocks are not secured loans to a company
B. Interest rates for debenture stocks tend to be lower than government bonds
C. Debenture stocks pay a fixed interest rate at the end of which the capital is
paid
D. If the company defaults on the loan , the investor cannot sell the company's
property to get his money back.

9. From the statements about the similarities and differences between single
premium investment-linked life insurance ( SP-IL ) and unit trusts ( UTs ) given
below, select the statement that is NOT true.
A. EPF withdrawal is allowed for investment in both UTs and SP-IL.
B. Fund switching is allowed for both UTs and SP-IL.
C. A policy fee is charged only in the case of SP-IL.
D. Cost of insurance only applicable to SP-IL.

10. Which kind of investment vehicles allow small private investors to get
professional investment management as well as access to a wide range and
spread of investments?
A. Preference shares
B. Government bonds
C. Unit trusts
D. Derivatives

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 11. Investment-linked insurance offers investors policies where values are directly
linked to
A. Actuarial profits
B. Actuarial valuation
C. Investment objectives
D. Investment performance

12. Identify the statement that is correct about ordinary shares and preference
shares.
A. Dividends for ordinary shareholders are decided by the security commission.
B. Dividends will be paid to ordinary shareholders will never be more than the
fixed.
C. The dividends of preference shareholders will never be more than the fixed
rate.
D. Preference share are less secure than ordinary share.

13. Which of the following statements is NOT true?

A. Amount of funds available affects the investment decision.
B. The choice of Investment available does not depend on the availability of
funds.
C. If the investor can set aside a fixed amount of current income which is surplus
to his need, he can consider insurance policies.
D. None of the above

14. Which of the following statements is NOT true regarding ordinary shares ?
A. Shares are not risky
B. Dividends provide income from the investment
C. There is no certainty that there will be a dividend
D. Dividends are paid out of the company's profits as decided by the
shareholders.

15. Which combinations do different type of investment produce ?

I. Capital gains
II. Residual sum

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 III. Capital acquisitions
IV. Regular income flow
A. I and III
B. I and IV
C. II and IV
D. III and IV

16. Which of the following are the monitoring devices used by life insurance to
ensure the code of conduct guideline are observed?
I. All employees and intermediaries need to sign a declaration to observe the
code of conduct guidelines.
II. All heads of department are responsible to ensure compliance in their day-to-
day work.
III. Report cases of mis-selling to agency manager and allow them time to train
their agents.
IV. Cases of fraud to policy and must be reported to Bank Negara Malaysia.
A. I, II and III
B. I, II and IV
C. II, III and IV
D. I, II, III and IV

17. Amount of premium allocated to buying of units is RM5,000

- Service charge: 5%
- Unit price: RM1/unit
- Mortality charge: 1%
- Policy fee: RM72
Based on the above information, calculate its cash value by using the single pricing
method.
A. RM4,250
B. RM4,750
C. RM4,900
D. RM4,630.50

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 18. What are the benefits of investing in investment-linked funds ?
I. Diversification
II. Flexibility
III. Expertise
IV. Easy access to well diversified investments

A. I, II and III
B. II, III and IV
C. I, III and IV
D. I, II, III and IV

19. What are the overriding obligations of intermediaries?

I. To sell only for one insurer
II. To conduct business at all times with utmost good faith
III. To uphold integrity in conducting business
IV. To satisfy all customer demands
A. I and IV
B. I, II and III
C. II and III
D. III and IV

20. Assuming the nit price for single pricing method for single premium policy at
time of withdrawal is RM3; calculate the withdrawal benefit if a policyholder
withdraws 100 units.
A. RM285
B. RM180
C. RM300
D. RM250

21. The following are the secondary objectives of investment ,EXCEPT :

A. Safety
B. Hedging inflation
C. Retirement income
D. Achieving financial freedom

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 22. The guidelines on investment-linked business specify that the requirement for
minimum............................ does not apply to top-up premiums.
A. Death benefits
B. Partial withdrawal amount
C. Switching amount
D. Premium holidays

23. Under the calculation of death benefits on unit value or death cover basis,
what is the criteria for payment upon death?
A. The unit value
B. The unit value plus sum assured
C. The sum assured
D. Unit value or death cover, whichever is higher

24. Which using the single pricing method, what comprises the formula to
determine the number of units a policyholder of an investment-linked life
insurance policy is entitled to ?
I. Age of policyholder
II. The premium received
III. Iii .Deduction of policy charge
IV. The unit price
A. I, III and IV
B. II, III and IV
C. II and IV
D. II and III

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 25. The factors that do NOT influence the choice of deposits in a bank include
I. Prevailing market conditions
II. The gender of the depositor.
III. The funds available for investment
IV. The academic qualifications of the depositor
A. I and II
B. I and III
C. II and III
D. II and IV

26. Which of the following is NOT a benefit enjoyed by policy holders of

investment-linked life plan
A. Non-flexibility
B. Easy access
C. Easy administration
D. Pooling or diversification

27. An investment-linked life insurance policy holder may make withdrawal in

terms of the
I. Net cash value
II. Number of units
III. Fixed monetary amount
A. I only
B. II only
C. II and III i
D. I, II and III

28. Which of the following investment vehicles is categorised as fixed income

securities?
A. Shares
B. Cash and Deposit
C. Corporate bond
D. Unit trusts

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 29. Which type of investment-linked fund has lowest risk?
A. A less diversified fund
B. A company with a big fund from many policy holders
C. A well-diversified Fund
D. A well-known insurance company specialising in certain fund

30. Which of the following are NOT key consideration in investments?

I. Funds available
II. Loans available
III. Risk or Security
IV. Actuarial Objectives
A. I and II
B. II and IV
C. II and III
D. III and IV

31. Deposit Insurance coverage includes the following, EXCEPT:

A. All current and savings deposit accounts and fixed deposits.
B. Foreign currency fixed deposits accounts
C. Islamic and conventional fixed deposits
D. Unit trust bought through bank

32. The death and disability benefits of an investment-linked policy are based on
A. The sum assured and guaranteed investment return
B. The sum assured and/or value of units
C. On the guaranteed investment return only
D. The minimum fixed value of units

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 33. During an equity market crash, _____________ are usually the first to
depreciate in high amounts.
A. Property Funds
B. Balanced Funds
C. Cooperate Funds
D. Equity assets/funds

34. Why was the investment-linked life insurance policy introduced?

A. To offer investors to make more profits than the life policy with bonus
B. To provide investor with management advice
C. To Offer Investors life insurance policies with values linked directly to
Investment performance
D. To offer investor life insurance cover together with a guaranteed investment
return

35. Which type of Shares is Listed on the stock exchange and is available to
ordinary investors?
A. Public Limited company shares which meets the Exchange’s requirements
B. Private company shares.
C. Sole-proprietorships company shares
D. All Public limited companies shares

36. With investment-linked Products, policy holders are allowed to

I. Add a single premium top-up
II. Take premium holidays
III. Switch their investment between funds
IV. Change the level of the sum assured
A. I, II and III
B. II, III and IV
C. I, II, III and IV
D. I, II and IV

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 37. Debenture stocks pay a fixed interest rate for a fixed term. The company
A. Cannot repay The capital until the end of the fixed term
B. Can repay the capital earlier than the fixed term
C. Can negotiate the interest rate before the end of the fixed term
D. Can make a partial repayment of the capital before the end of the fixed term

38. Which of the followings are the stages of the consumer buying decision
process?
I. Problem recognition
II. Information search
III. Evaluation of alternatives polices
A. I, II and III
B. II, III and IV
C. I, III and IV
D. I and III

39. The switching facility is provided in investment-linked life insurance policies is

very useful for the purpose of
A. Financial planning by policy owners
B. Profit planning by life offices
C. Sales planning by fund managers
D. Asset planning by trustees

40. Premium Relief is allowable when the _______ is on the life of the spouse of
the individual
I. Life insurance
II. Deferred annuity
III. General insurance
A. I only
B. II only
C. I and II
D. II and III

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 41. What need to be understood before giving clients advice on investment?
A. The amount of profit that can be made
B. The importance of managing investment
C. The key consideration in investment
D. The key consideration in management

42. In Malaysia, _______ could be considered as a good investment tool for a

long term retirement plan
A. Fixed Deposit
B. Term life insurance
C. Equity investment
D. Real Estate Investment Trust (REIT)

43. Which type of investment Fund Fluctuates drastically in times of a volatile

stock market?
A. Property Fund
B. Equity Fund
C. Fixed Deposits Fund
D. Specialized Fund

44. _____ will be imposed if a capital guaranteed fund is redeemed before its
maturity.
A. Entry fee
B. Service charge
C. Redemption Fee
D. Processing Fee

45. ____________ review must be done if there is a major change that might
have happened to the clients investment account.
A. A regular
B. An ad hoc
C. An emergency
D. An accidental

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 46. The promotional message delivered to a prospect by an agent is known as the
A. Marketing plan
B. Sales Presentation
C. Purchase Presentation
D. Sales report

47. Who has limited investment options?

A. A Speculative investor
B. A long term investor
C. An investor which large funds available
D. An investor with a small fund available

48. Short term government funding issued on a regular basis with repayment
normally within a year is known as
A. Government bonds
B. Central bank bills
C. Finance bills
D. Treasury bills

49. Traditionally Guaranteed without-profit life insurance products do NOT include

A. Temporary Assurance
B. Non-participating whole life insurance
C. Investment linked life insurance
D. Non-participating endowment insurance

50. The payment made to the insured upon the cancellation of a policy is called
A. Investment value
B. Return of premium
C. Surrender Value
D. Penalty payment

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 51. If a policyholder buys units on the dual pricing basis, how many units can he
get by paying RM10, 000 for a unit priced RM2?
A. 10,000 units
B. 8,000 units
C. 5,000 units
D. 6,000 units

52. Compared to traditional participating life policies, investment-linked life policies

I. Bear a higher degree of risk
II. Have the potential for higher return
III. Are subject to volatility in investment performance
A. I and II
B. I and III
C. II and III
D. I, II and III

53. For Single premium investment-linked life insurance the shortfall between the
account value and sum assured is called
A. Premium holiday
B. Cost of insurance
C. Partial withdrawal
D. Sum at risk

54. Which of the following is considered INCONSISTENT with after-sales-service?

A. Providing a basis for future sales on current needs
B. Explaining the policy’s provisions terms and conditions
C. Establishing the customer/agents relationship
D. Strengthening the customer/ agent relationship

55. What are the types of investment property funds?

A. Real estate only
B. Property Shares only
C. Individual property only
D. Real Estate and property shares

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 56. All the following are types of real estate investments, EXCEPT:
A. Liquid assets
B. Agricultural property
C. Commercial property
D. Domestic property

57. What is guaranteed under an investment-linked policy?

A. The fixed value of units
B. The annual investment income
C. The sum assured
D. The investment under property fund

58. If a regular premium investment-linked policy is cancelled with the 15 days

free-look period, the insurer shall NOT refund the following:
A. The unallocated premium
B. Value of units that have been allocated
C. Any insurance charges and policy fee that have been deducted
D. All the initial premium plus 5% bonus unit

59. Why are the rules for the conduct of the insurance business and for the selling
of competency standards required?
A. To ensure that business in increased
B. To get agents with good performance
C. To ensure that the highest standards required for insurance business
transaction are maintained
D. To ensure that the reputation of insurers are protected

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 60. How do investment-linked life insurance policies work?
A. Part of the premium is used to purchase units in the fund at the price at the
time of payment
B. Part of the premium after initial expenses is set aside to purchase units in the
fund set up by the life insurance company
C. All of the premium is used to purchase unit trust
D. Part of the premium is reserved for the fund and profits are declared at the
end of each year.

61. Investment-linked Permanent Health Insurance

I. Provide disability income
II. Contain cash value
III. No cash value
IV. Price is more competitive when compared to traditional with-profit life
insurance product
A. I, II and III
B. I, II and IV
C. I, III and IV
D. II, III and IV

62. What is defined as ‘the management process for identifying, anticipating and
satisfying customers requirement profitably’?
A. Investment
B. Investment-linked
C. Marketing
D. Marketing investment

63. Which one of the following statements about Investment Trust is true?
A. The unit price is recalculated once a week
B. The unit price will be quoted every month in at least one national Bahasa
Melayu newspaper and one national English language newspaper
C. The price reflect the value of the underlying investment
D. The unit price will not fluctuate in line with stock market prices

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 64. The 4 basic forms of life insurance cover include
A. Whole life insurance, endowment insurance, mortgage insurance, key
person insurance
B. Whole life insurance, endowment insurance, term insurance, annuities
C. Term insurance, annuities, medical insurance, health insurance
D. Whole life insurance, endowment insurance, term insurance, personal
accident insurance

65. In times of volatile stock market, the policyowner may want to switch all or part
of his investment
A. In cash fund and equity fund
B. In managed fund to property fund
C. In equity fund to cash fund in order to protect the capital value if he thinks
the stock market will crash
D. In balanced fund to equity fund

66. The total relief allowable for all insurance premium on the life of individual on
his/her spouse and on contribution to approve provident funds (e.g. to EPF) in
a basis year is
A. RM3,500
B. RM3,500 plus RM2,000 for children education and medical policies
C. RM5,000
D. RM5,000 plus RM2,000 for children education and medical policies

67. Under the single pricing method, Joo Eng pays a premium of RM4,000 for his
single premium Investment-linked life insurance policy. The price per unit is
RM1.00. The life office deduct a charge of 5%. The number of units that Joo
Eng can buy is
A. 4,200
B. 4,000
C. 3,800
D. 380

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 68. A well-diversified investment-linked funds has
A. Many professional fund managers who take care of many funds
B. A better risk characteristics than a less-diversified fund
C. A simple designed product which cater separately for investment and
insurance protection
D. Provision of flexibility to change the level of premium payment and take
premium holidays

69. Customers who have purchased policies from an organization who are sales-
oriented, usually ended buying policies which
I. They do not understand
II. Cannot meet their needs
III. Can meet their needs
IV. They surrender for its value or paid-up
A. I, II and III
B. I, II and IV
C. I, III and IV
D. II, III and IV

70. Conducting the fact-finding requires an agent to obtain relevant information like
A. What is the sex of the customer
B. What are the customer’s hobbies
C. What are the customer’s personal details
D. What is the favorite fruit of the customer

71. What is the extra knowledge/requirement needed for an investment-linked life

insurance agent?
A. All relevant knowledge about technical aspect of life insurance, coverage
and scope
B. All aspects about life cover
C. All aspects of life insurance and legal requirement
D. The financial advice in order to fulfill the customer’s needs

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 72. What are the 3 components of accessibility of fund?
I. If individual requires the fund in a short period of time
II. Cost or penalty of realizing the investment before the maturity period
III. Individual’s attitude towards risk
IV. The initial cost in setting up or buying into the investment
A. I, II and IV
B. II, III and IV
C. I, II and III
D. I, III and IV

73. What are the key considerations in investment?

I. Fund for education
II. Improvement in their financial position
III. Income for retirement
IV. Depositors’ academic qualification
A. I
B. I and II
C. I, II and III
D. All of the above

74. What if an investor has a small amount of free funds?

A. Certain types of investment are not accessible to the investor
B. Most types of investment are not accessible to the investor
C. All types of investment are accessible to the investor
D. Only variable life insurance is accessible to the investor

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 75. What are the criteria of investment-linked permanent health insurance
I. Provides health coverage such as disability income
II. Contains cash value unlike traditional health product that does not
have cash value
III. No cash values like traditional health products
A. I
B. II
C. I and II
D. All of the above

76. The policyowner may cash out all his units or partially from his units. These
two processes are known as _______ respectively.
A. Withdrawal or surrender
B. Surrender or withdrawal
C. Surrender
D. Withdrawal

77. Under single premium pricing method, Alex bought a single-premium

investment-linked policy. He hold 3,800 units at RM1.00 unit price. With 1%
mortality charge and policy fee of RM100, what is the cash value of his policy?
A. RM3,938
B. RM3,800
C. RM3,700
D. RM3,662

78. If the offer price in an investment-linked policy is RM2.50 and the premium
amount of RM250.00 is used to buy units it will buy
A. 0.01 unit
B. 10 units
C. 100 units
D. 100 units less the unallocated premium

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 79. Currently, the financial instrument which investment-linked funds are invested
include
I. Cash fund
II. Equity fund
III. Property fund
IV. Balanced fund
A. I
B. I and II
C. I, II and III
D. I, II, III and IV

80. Unit trust is essentially for

A. Two-way arrangement between the investors and the fund manager
B. Two-way arrangement between the investors and the trustee
C. Three-way arrangements among the investors, the trustee and the fund
manager
D. Three-way arrangements among the investors, the trustee and the super
authority

81. Which of the following IS NOT the characteristic of the debenture stock?
A. If the company defaults on the loan, the investor can take over the
charged properties for sale
B. Debenture stocks pay a variable interest according to the base lending
rate set by Bank Negara Malaysia
C. Trustee are appointed to supervise the company performs its obligations
D. Corporate stocks are less secured compared to government bonds

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 82. Regular premium investment-linked whole life insurance has one or more of
the following characteristics:
I. Premium payment in a lump sum
II. Premium payment at a regular interval
III. Serves as investment and life protection
IV. No provision for top-ups
A. I, II and III
B. I only
C. II and IV
D. II and III

83. The value of an investment-linked insurance can be estimated depending on

________.
I. The value of each of the units
II. The value of the invested shares
III. The number of units the policy has accumulated to-date
IV. The number of shares the policyowner holds in hand
A. I and II
B. III and IV
C. I and III
D. None of the above

84. Investment-linked life insurance products are known for its flexibility. The
followings are its flexible options EXCEPT:
A. Top-ups
B. Withdrawal of units
C. Take premium holidays
D. Fixed unit price

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 85. A policyowner invested RM5,000 in single premium investment-linked life
insurance product. The unit price is RM1, the mortality charge is 1% and the
policy fee is RM100. In single premium method, the cash value calculated
is______/
A. RM5,000
B. RM4,850
C. RM4,950
D. RM4,900

86. Traditional life insurance policy has the following features EXCEPT:
A. A reserve to smoothen the fluctuations of the investment
B. Never reduce in value unless the life company becomes insolvent
C. Investors may choose a particular investment area which he believes can
offer a good return at that time
D. The value of the sum assured is guaranteed at inception

87. A range of investment choices is available to individual investors. Which of the

following investment choices are considered as liquid assets:
I. Cash
II. Term deposit
III. Current account
IV. Malaysian Government Securities
A. II and III
B. I and II
C. I, II and III
D. IV only

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 88. Loan stocks offer higher interest rate compared to Government Bonds.
Investors still have the preference towards government bonds as for loan
stocks ____________
A. If the company defaults, the investors has no security and may not recover
the capital
B. It is not supervised by Government
C. The company may repay earlier if it wishes
D. It cannot be converted into ordinary shares

89. Convertible stocks offer lower interest rate compared to other fixed income
securities such as loan stock. However, it is still popular among the investors
because ________
A. The Government guarantees the performance of the company in interest
payment
B. A trustee is appointed to ensure the solvency of the company
C. Investors are given the privilege to redeem capital if the company defaults
D. It may be converted into ordinary shares within a stated period

90. Physical commodities and financial instruments are typically traded in cash
markets. There are two types of cash markets i.e. market for immediate
delivery and market for deferred delivery. These are respectively referred to as
________ and _________.
A. Future market, forward market
B. Spot market, future market
C. Forward market, foreseeable future market
D. Spot market, forward market

91. ‘Unit Trusts’ are useful vehicles for small private investors. ‘Unit Trusts’ refers
to
A. Some form of loyalty expressed by the public to the Government
B. A type of trust deed signed by an apartment unit owner
C. A pool of funds contributed by many investors held on trust by a trustee
and managed by a professional fund manager
D. A trust signed between a remisier and a shareholder

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 92. The sum assured is payable only upon the death of the life assured within a
specified period __________.
A. Endowment insurance
B. Whole life insurance
C. Term/temporary insurance
D. Annuity

93. Warrants are seldom issued on their own but are often issued free as
sweetener to loan stock. Warrantholders have the option to subscribe the
shares in the company:
I. At a pre-determined ratio
II. At a pre-determined exercise price
III. Within a specified time period
IV. At a negotiable price
A. I and II
B. I, II and III
C. I and IV
D. I, II, III and IV

94. The following Laws are governing the investment-linked life insurance in
Malaysia EXCEPT:
A. Insurance Act 1996
B. Companies Act 1965
C. Income Tax Act 1967
D. Companies Act 1956

95. Surrender charges under the investment-linked life insurance policy_______

A. Are deducted from the value of units at surrender
B. Are deducted from the value of units at the commencement of the policies
C. Are applicable to policies with no uniform allocation
D. Represent initial expenses which have already been incurred and
recovered

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 96. The offer price under an investment-linked life insurance policy is
____________
A. A fixed amount throughout the life of the policy
B. Also known as the bid price
C. The price at which units under the policy are bought back by the life office
D. The price at which units under the policy are offered for sale by the life
office

97. The switching facility under investment-linked life insurance policies is very
useful _________.
A. For the purpose of assets planning by the trustee
B. For the purpose of profit planning by the life policies
C. For the purpose of financial planning by the policy owners
D. For the purpose of sales planning by the fund managers

98. The administrative fee, insurance charge, fund management fee and the like
under an investment-linked life insurance policy are ____________.
A. Usually guaranteed
B. Not subject to review
C. Subject to change by the life office after written notice is given
D. Always up-front charges

99. In Malaysia, unit trusts are authorized and supervised by ____________.

A. Clearing House
B. Securities Act, 1933
C. Securities Commission
D. Securities and Exchange Commission

100. Which of the following fund is of the highest risk and highest return?
A. Cash Fund
B. Managed Fund
C. Equity Fund
D. Bonds Fund (109)

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Answer for CEILLI

1. C 11. D 21. A 31. B 41. C

2. B 12. C 22. A 32. B 42. A
3. B 13. B 23. D 33. D 43. B
4. C 14. A 24. B 34. C 44. C
5. B 15. B 25. D 35. A 45. B
6. C 16. B 26. A 36. C 46. A
7. C 17. D 27. C 37. B 47. D
8. C 18. D 28. C 38. A 48. D
9. A 19. C 29. C 39. A 49. C
10. C 20. C 30. B 40. A 50. C

51. C 61. B 71. D 81. B 91. C

52. D 62. C 72. A 82. D 92. C
53. D 63. C 73. C 83. C 93. B
54. A 64. B 74. A 84. D 94. D
55. D 65. C 75. C 85. B 95. A
56. A 66. D 76. B 86. C 96. D
57. C 67. C 77. D 87. C 97. C
58. D 68. B 78. C 88. A 98. C
59. C 69. B 79. D 89. D 99. C
60. B 70. C 80. C 90. D 100. C

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Great Eastern Life Assurance (Malaysia) Berhad (93745-A)
This material is developed with reference to Malaysia Insurance Institute (MII) –
Certificate Examination in Investment-Linked Life Insurance (CEILLI), 2014

No part of this publication may be produced, translated, stored in a retrieval system or

transmitted in any form or by any means, electronic, mechanical, photocopying and recording
without the prior written permission of Great Eastern Life Assurance (Malaysia) Berhad,
except for internal training and learning purposes.

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