LIFE

INSURANCE
AND INVESTMENT-
LINKED POLICIES II
( 6 th E D I T I O N )
CHAPTER
01
RISK AND LIFE INSURANCE

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Risk Risk is the possibility of loss, and there is an uncertainty element to it.
Speculative risk Speculative risk involves three possible outcomes: loss, gain, or no change.
Pure risk Pure risk involves no possibility of gain; either a loss occurs or no loss
occurs.

This is the only kind of risk that can be insured (provided that it meets
certain other requirements)
Requirements of insurable risks • Loss must be significant in financial terms.
• Loss must occur by chance.
• Loss must be definite.
• Loss must be calculable.
• Loss must not be catastrophic to the insurer.
• Loss must be based on large number of insured.
Dealing with risk For example, we can avoid the risk of personal injury that may result from
• Avoiding the risk a car collision by never driving a car.
Dealing with risk An example will be to undergo a health screening examination yearly,
• Controlling the risk when one reaches a certain age (e.g. 40 years old), so that one can detect
and treat an illness before it is too late.
Dealing with risk For example, an employer can provide medical expense benefits to its
• Retaining the risk employees, by either setting aside money to pay their medical expenses,
or paying the expenses out of its current income.
Dealing with risk For example, a breadwinner may transfer his risk of premature death or
• Transferring the risk disability to the insurer by paying a small, predictable amount of premium
to the insurer.
Personal risks that can be insured • Risk of premature death.
• Risk of outliving resources or longevity risk.
• Risk of poor health and disablement.
Life insurance policy A life insurance policy is a policy under which the insurer promises to
pay a benefit upon the death of the person who is insured. As such, life
insurance provides financial protection against the economic loss caused
by the premature death of the person insured. This benefit is commonly
known as Death Benefit.
Applicant of a life insurance policy The applicant (also known as the proposer or intending insured) is the
person or business that applies for an insurance policy.
Policy owner of a life insurance When a policy is issued, the person or business that owns the insurance
policy policy is known as the policy owner.
Life insured of a life insurance The person who is insured by a life insurance policy is referred to as the
policy life insured.
Beneficiary of a life insurance The person or party whom the policy owner named to receive the policy
policy benefit.
Third-party policy When one person purchases insurance on the life of another person.
Physical hazard A physical hazard is a physical characteristic that may increase the
likelihood of loss. For example, a person with a history of heart attacks
possesses a physical hazard that will increase the likelihood of that person
dying sooner than that of a person of the same age and gender without
such similar medical history.

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Moral hazard Moral hazard is the likelihood that a person may act dishonestly in the
insurance transaction. For example, if an individual applies for a sum
assured which is far in excess of what others in the same financial
situation would buy, the insurer would be concerned about the reason for
the high cover.
Anti-selection Individuals who believe they have a greater-than-average likelihood of loss
tend to seek insurance protection to a greater extent than do those who
believe they have an average or less-than-average likelihood of loss.
Methods to minimise anti- • Underwriting or selection of risks.
selection • Offering policies with different excess.
• Offering policies with exclusions.
Term insurance Provides a death benefit if the insured dies during a specified period.
Whole life insurance Whole life insurance provides life insurance coverage throughout the
insured’s lifetime and also provides a savings element.
Endowment insurance Endowment insurance provides a policy benefit that is paid either when
the insured dies or on a stated date if the insured lives until then.
Universal life insurance Universal life insurance is a form of “interest sensitive” whole life insurance
that offers a death benefit, and because of its flexible premium feature,
provides the opportunity to build cash values which the policy owner can
borrow from or withdraw.
Annuity An annuity is a series of periodic income payments to a named individual
in exchange for a premium or a series of premiums.
Investment-linked Life Insurance ILPs provide a combination of protection and investment elements.
policies (ILPs)
Health insurance products These products are designed to cover hospital expenses, surgical expenses
and emergency accident outpatient expenses incurred as a result of
accident, sickness or disease commencing or occurring during the period
of insurance.
Life insurance as a financial • Financial protection against premature death.
protection tool • Financial protection against outliving resources.
• Financial protection against ill health and disablement.
 Critical illness insurance.
 Medical expense insurance.
 Hospital cash (income) insurance.
 Disability income insurance.
 Long-term care insurance.
• Financial protection for businesses
Other uses of life insurance • Assist in making savings possible.
• Provides a safe investment.
• Encourages thrift.
• Minimises worries and provides peace of mind.
Risk pooling Pooling brings together a large number of exposures of similar risk
characteristics, thereby allowing the application of the law of large
numbers to predict the frequency (probable number of losses) and
severity of losses (probable size of the losses).
How insurers can accept so many An insurer accepts the risk of financial loss of a large number of people,
risks? but only a small percentage of these people will actually suffer an insured
financial loss at any given period.
Law of large numbers - insurance With the increasing number of insured persons, risk and uncertainty will
diminish. Thus, the larger the insured group, the more predictable will be
the loss experience for the insured group as a whole.
Principle of utmost good faith • Disclose all material facts (see explanation below) which they are
aware of or ought to have been aware of, even if no question is
specifically asked in the proposal (or application) form; and
• Not to make any mis-statement of material facts.
Material facts Material facts are facts that can cause an underwriter to deal with a case
differently if the information was disclosed at the time of application of the
insurance policy.

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 Facts which need not be disclosed • Facts which the insurer already knows [e.g. An insurer should know
about outbreak of civil unrest in a certain country, or influenza a (h1n1)
in various parts of the world];
• Facts which the insurer ought to know;
• Facts about which the insurer waives information;
• Facts which can be discovered, where enough information has been
given to provoke enquiry by the insurer (e.g. In answering a proposal
form question on other existing life insurance policies taken out with
the same insurer, the proposer states as “refer to details in your
company’s records”, instead of writing down all the policy details as
requested in the proposal form); and
• Facts which lessen the risk (e.g. A person applying for personal
accident insurance does not like to take part in hazardous activities).
Duty of disclosure – at inception Under common law, the duty of disclosure starts at the beginning of
negotiations and ends at the formation of the insurance contract.
Duty of disclosure – on renewal On the renewal of a policy, the duty of disclosure by the insured is revived
for general insurance. There is no such duty of disclosure for life insurance
policies, as they are not renewable annually, but which are issued for a
specific number of years or for life.
Duty of disclosure – on alteration During the currency of the insurance contract, it may be necessary to
change the terms of the policy. In these cases, the duty of disclosure is
revived as a new contract is being formed.
Insurer’s duty of disclosure • Notifying an insured of a possible entitlement to a premium discount
resulting from a good previous insurance history;
• Only taking on risks which the insurer is licensed to accept, i.e. Avoid
unenforceable contracts; and
• Ensuring that statements made are true, as misleading an insured
about policy cover is a breach of utmost good faith.
When does insurable interest An insured interest exists when the policy owner is likely to benefit if the
exist? insured continues to live and is likely to suffer some loss or detriment if
the insured dies.
Insurable interest requirement If the insurable interest requirement is not met when a policy is issued, the
not met. policy is not valid.
Why is insurable interest • Excludes the possibility of gambling (i.e. minimise problems of moral
necessary? hazard in insurance).
• The proposer is expected to safeguard the subject matter (i.e. the
proposer is interested in its preservation).
Insurable interest in life insurance There must be an insurable interest, or a presumed insurable interest,
present at the inception of the insurance contract, but it need not be
present at the time of the life insured’s death. A beneficiary, therefore,
need not provide evidence of insurable interest in order to receive the
benefits of a life insurance policy.
Insurable interest in general • Insurable interest must be present at both the inception of the
insurance insurance contract and at the time of loss.
• For marine cargo insurance, there is no need for insurable interest to
be present at the inception of the insurance contract. Rather, insurable
interest must exist only at the time of loss.
Principle of indemnity • States that the financial position of an insured is to be restored
approximately to the position that existed immediately prior to the
occurrence of the loss.
• The principle of indemnity applies to General Insurance as well as
Health Insurance. However, it does not apply to Life Insurance and
Personal Accident Insurance. It is because we cannot price the value of
a human life.
Buyers of insurance • Individuals (including sole proprietors);
• Commercial enterprises (such as multinational corporations, small and
medium enterprises, partnerships, companies, etc.); and
• Government (including its various agencies, ministries and statutory
boards).

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Sellers of insurance • Direct insurers (which include: life insurers, general insurers, and
composite insurers).
• Reinsurers (which include life reinsurers, general reinsurers and
composite reinsurers).
• Captive insurers
• Lloyd’s Asia scheme.
Intermediaries An insurance intermediary means a person who, as an agent for one or
more insurers or as an agent for insureds or intending insureds, arranges
contracts of insurance in Singapore, and includes an insurance agent or an
insurance broker.
• Representative Of A Life Insurance Company (Insurer).
• Representative Of A Bank Or Other Financial Institution.
• Representative Of A Licensed And Exempt Financial Adviser (FA) Firm.
Introducer of life insurance The introducer is not authorised to give advice, provide any
advisory services recommendations, or market or arrange any contract of insurance.
Web aggregator Web aggregators compile and provide information about insurance
policies of various insurance companies on a website.
Rating agencies Rating agencies play an increasingly important role in the capital markets
today, by providing an independent assessment and opinion on the overall
financial capacity or credit worthiness of financial institutions that issue
a broad range of capital market instruments, such as debt obligations,
securities, etc.
Market associations The main function of such associations is to protect, promote and advance
the common interest of their members.
Professional bodies A professional body is usually a non-profit organisation that exists to
further the interests of a particular profession, by representing the views
of that profession and its members in matters of public and professional
interests.
Financial Industry Disputes • Affordable and accessible one-stop avenue for consumers to resolve
Resolution Centre (FIDReC) their disputes with financial institutions. It also streamlines the dispute
resolution processes across the entire financial sector of singapore.
• Affordable avenue for consumers who do not have the resources to go
to court or who do not want to pay hefty legal fees. It is staffed by full-
time employees familiar with the relevant laws and practices.
Jurisdiction of FIDReC • For claims between insureds and insurance companies: up to
S$100,000 per claim.
• For disputes between banks and consumers, capital market disputes
and all other disputes: up to S$100,000 per claim.
Dispute resolution process of • Mediation (1st Stage).
FIDReC • Adjudication (2nd Stage).

The decision of the Adjudicator or Panel is final and binding on the

financial institution, but not on the consumer. If the consumer is not
satisfied with the decision, he has the option to continue to pursue the
complaint through other channels or means such as litigation.
Three tires of financial literacy – • Tier I - Basic Money Management.
MoneySENSE programme • Tier II - Financial Planning.
• Tier III - Investment Know-How.

5
CHAPTER
02
SET TING LIFE INSURANCE PREMIUM

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Actuaries • The premiums of life insurance policies are calculated by professionals
called Actuaries.
• The job of the actuary is to set the premiums, such that they are
sufficient to cover the claims that the insurer must pay, and the costs
of doing business, which will include profits to the insurer.
• In addition, they have to make sure that the premiums are not too
high, such that they are not competitive with that of the other life
insurers.
Considerations when setting • Mortality and morbidity rates.
premiums • Investment income.
• Expenses.
• Gender.
• Smoking status.
• Amount of sum assured.
• Frequency of premium payments.
Mortality rate • When the actuary calculates the mortality rate, he is not concerned
with how long an individual may live, but rather, how many individuals
in a large group may die in a given period of time.
• Having decided on the number of deaths, the actuary then divides it by
the total number of people of that age to arrive at the mortality rate.
Morbidity rate Morbidity rate is primarily used to determine the premiums for Health
Insurance, such as Critical Illness or Dread Disease Insurance.
Net premium • The net premium is the amount needed just to pay for the insurance
protection.
• An insurer uses just the rate of mortality/morbidity and investment
income to calculate the premiums.
Expenses • First category includes the salaries for staff, commissions for
representatives of financial advisers, rents, advertisements, taxes, and
other costs of running the business.
• Second category is the lapse rate of policies.
Frequency of premium payments • Regular Premiums.
• Single Premiums.
• Recurrent Single Premiums.
• Yearly Renewable Premium.
• Limited Premium.

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CHAPTER
03
CL ASSIFICATION OF LIFE
INSURANCE PRODUCTS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Participating Policies Life insurance products that share in the profits or surplus of the life
insurance fund. Such products are also known as with-profits policies, and
the policy owners receive from the insurer bonuses and / or dividends as
declared from time to time.
Non-Participating Policies Life insurance products that do not share in the profits or surplus of the
insurance fund, i.e. the policy owners of such products are not entitled
to any bonus or dividend payment by the insurer. Such products are also
known as without-profits policies.
Investment-linked Life Insurance Primarily investment products with an insurance protection element. They
Policies differ from the traditional life insurance products (i.e. Term, Whole Life
and Endowment Insurance policies) in that they allow the policy owners to
combine insurance protection with investments in funds managed by the
insurers or third-party fund managers.
Term Insurance Policies Provide death cover for a fixed term.
Whole Life Insurance Policies Provide death cover for whole of life.
Endowment Insurance Policies Provide death cover for a fixed term and a lump sum at the end of the
term.
Investment-linked Life Insurance Provide mainly for investing in unit trusts or similar investments with some
Policies (ILPs) insurance protection.
Universal Life Insurance Provides flexible death coverage, premium and premium payment period.
Annuities Provide retirement income.
Critical Illness Insurance Protects against contracting one of the covered critical illnesses.
Long-Term Care Insurance Protects against being unable to perform a specific number of Activities of
Daily Living (ADLs).
Medical Expense Insurance Protects against risk of ill health and hospitalisation.
Disability Income Insurance Protects against risk of loss of income if a person is disabled.
Single Life Policy The most common type of life insurance policy issued, as most policies are
taken on the proposer’s own life, i.e. the policy owner and the life insured
are the same person. As the policy covers only one life, hence, the name of
this policy is called Single Life policy.
Joint Life Policy This policy provides cover for two lives (usually limited to only husband
and wife).
First-to-die Life Insurance policy The policy pays on the death of one of the lives insured. The death benefit
is paid to the surviving life insured and the policy cover ends.
Last Survivor Life Insurance policy Also known as Second-to-die Life Insurance policy. This policy only pays
out the death benefit when both the lives insured have died i.e. on the
second death. The premiums for this type of policy may be payable only
until the first life insured dies or until the death of both lives insured.
Third-Party Policy This policy also involves two persons. It is usually issued to the husband on
the wife’s life and vice versa, or the parent on the child’s life.
Group Policy This is a policy which covers a large number of lives. It is usually issued to
employers covering the employees’ lives.

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 Contractual (non-contributory) It is a type of Group Insurance policy where all the eligible employees will
plan be contractually covered under the plan, and the premiums are paid by
the employer.
Voluntary (contributory) plan It is a type of Group Insurance policy. It does not require full participation
from the employees who are expected to pay part of the premiums.
However, the insurer will normally require a minimum number of
employees participating in the plan.

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CHAPTER
04
TRADITIONAL LIFE
INSURANCE PRODUCTS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Term Insurance This type of insurance provides life insurance cover for a specific period of
time, called the policy term. People usually buy Term Insurance when they
need temporary insurance protection, i.e. the buyers are not looking for
insurance for their entire life. Once the policy expires, the cover will cease
and the insured will receive nothing. The sum assured (or death benefit) of
the policy is payable to the beneficiaries only if the life insured dies during
the policy term. That is why Term Insurance is also known as temporary
insurance.
Level Term Insurance policy The simplest and most straight forward type of life insurance policy.
It is called a Level Term policy because both the death benefit and the
premium remain level throughout the policy term. Level term is designed
to meet a constant need.
Decreasing Term Insurance policy This type of policy provides a diminishing amount of cover over the term
of the policy. The death benefit begins at a certain amount and then
gradually decreases over the term of coverage according to the stated
method that is described in the policy.
Mortgage Decreasing Term For this policy, at any point in time, the death benefit is designed to be
Insurance equal to the remaining balance on the loan. As the balance on the loan
gets smaller, the death benefit will also get smaller.
Increasing Term Insurance This type of policy is not common in Singapore. Its purpose is to protect
the death benefit against the effect of inflation. An Increasing Term
Insurance policy provides a death benefit that starts from one amount and
increases by some specified amount or percentage at stated intervals over
the policy term.
Renewable Options This option gives the life insured the right to renew his policy at the end of
the policy term, without evidence of insurability. Most insurers offer this
type of policy on a short-term basis. Renewal is allowed, as long as the
expiry date of the policy does not exceed a specified age (usually the age
of 60 years).
Convertible Options This option gives the life insured the right to change, or to convert his
Term Insurance policy into a permanent policy (e.g. Whole Life Insurance
policy), as specified by the insurer, without evidence of insurability. The
premium that the policy owner is charged for the permanent coverage
cannot be based on any increase in the insured’s mortality risk, except for
an increase in the insured’s age.
Attained Age Conversion When term coverage is converted to permanent insurance under an
attained age conversion, the renewal premium rate is based on the
insured’s age when the coverage is converted.
Whole Life Insurance Whole Life Insurance provides for the payment of the policy’s face value
(plus bonuses, if applicable) upon the death of the insured, regardless of
when death occurs.
Non-Forfeiture Options Non-forfeiture options, are offered to policyholders when there are cash
values built up in a Whole Life Insurance policy.
Ordinary Whole Life Insurance A type of Whole Life Insurance for which premiums are based on the
assumption that they will be paid until the insured’s death. This type of
policy provides permanent protection with some degree of flexibility, to
meet changing needs and circumstances for both long-lived persons and
those with average-duration lifetimes.

9
 Limited Premium Payment Whole A type of Whole Life Insurance for which premiums are limited by contract
Life Insurance to a specified number of years. The extreme end of the limited-payment
policies spectrum is the single-premium Whole Life Insurance policy.
Endowment Insurance A type of life insurance that is designed to pay out the death benefit when
the life insured dies during the policy term, or the maturity value, which
will be equal to the death benefit, if he survives to the end of the policy
term. It combines insurance protection with a savings element for the
policy owner. An Endowment Insurance policy has a fixed maturity date.
The maturity date is when the policy term expires and the full maturity
value will be paid out to the policy owner if he survives to maturity.
Cover page In relation to a life policy, means a document highlighting the key
information from the policy illustration and the product summary, which is
prepared by a direct life insurer pursuant to this Notice No: MAS 318.
Product summary In relation to a life policy, means a summary setting out the principal
features of the life policy, which is prepared by a direct life insurer
pursuant to this Notice No: MAS 318.
Bundled product disclosure In relation to a bundled product, means a document highlighting the
document principal features of the bundled product and contrasting that against
the most comparable term life insurance product, which is prepared by a
direct life insurer pursuant to this Notice No: MAS 318.
Product Highlights Sheet In relation to an investment-linked policy, means a product highlights
sheet prepared by a direct life insurer in accordance with the Notice on
Investment-Linked Policies [MAS Notice 307].

10
CHAPTER
05
RIDERS (OR
SUPPLEMENTARY BENEFITS)

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Riders Also known as supplementary benefits, are special policy provisions that
provide benefits which are not found in the basic policy contract, or that
make adjustments to it. These special provisions are attached to (or “ride”
on) a basic policy.
Waiver of Premium Rider One of the most common riders attached to a life insurance policy.
This rider does or offers is to keep a policy in force in the event that
the life insured is not able to pay the premiums, when he is totally and
permanently disabled or is suffering from one of the critical illnesses
covered under his policy. In other words, it causes the premiums under a
policy to be waived once any of the specified events happens.
Total and Permanent Disability TPD is disability such that there is, neither at the time disability
(TPD) commences, nor at any time thereafter, any work, occupation or
profession that the life insured can ever be capable of doing or following
to earn or obtain any wages, compensation or profit.
Waiver Of Premium Upon The purpose of this rider is also to keep a policy in force by having all
Diagnosis Of Critical Illness the future premiums under the policy waived, in this case when the life
insured is diagnosed to be suffering from any of the critical illnesses
covered under the rider.
Critical Illness Rider A Critical Illness (also known as Dread Disease) Rider provides for a
lump sum to be paid in the event that the life insured is diagnosed to
be suffering from one of the covered critical illnesses. It can be attached
to Whole Life, Endowment, Term and Investment-linked Life Insurance
policies. There are basically two types of Critical Illness Riders.
Acceleration Benefit Critical Illness Often known as the accelerator or enhancer rider. This rider provides for
Rider the pre-payment of a portion (e.g. 50%) or the full sum assured (i.e. 100%)
of the basic policy to which it is attached. For example, a person buys a
S$200,000 Whole Life Insurance policy attached with a 50% acceleration
benefit Critical Illness Rider to it. . In the event that he is diagnosed to
be suffering from one of the critical illnesses covered under his policy,
the insurer will pay him S$100,000 (i.e. 50% x S$200,000) plus 50% of
the bonuses (if any). The Critical Illness Rider will then be terminated.
The balance of the sum assured plus bonuses (if any) will be paid when
he dies or suffers TPD. On the other hand, if he dies or suffers TPD
without contracting any critical illness as defined, the full S$200,000 plus
bonuses (if any) will be paid to his beneficiaries or him in a lump sum or
instalments respectively.
Additional Benefit Critical Illness The payment of the rider sum assured is in addition to that of the basic
Rider plan to which it is attached. 1.44. The rider sum assured is usually limited
to a certain multiple of the basic sum assured of the main policy (e.g. five
times the basic sum assured). When the life insured is diagnosed to be
suffering from one of the covered critical illnesses, only the sum assured
of this rider will be paid. The sum assured of the basic policy remains
intact and will be paid out only when an insured event (such as death)
occurs. So buying this rider is like having a separate policy covering critical
illness only (with no death cover).
Lump sum payout Pay a lump sum amount upon diagnosis of an insured’s critical illness
covered under the policy.
One critical illness claim only Only one covered critical illness claim can be made on a policy. Even in the
unlikely event that two or more critical illnesses are diagnosed at the same
time, the rider sum assured is paid out only once.
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 Cap on sum assured Some insurers may impose a limitation on the total amount, for example,
S$300,000 that the life insured can buy, to minimise the risk of moral
hazard.
Level premium Premium is level and is either guaranteed for the whole policy period or
subject to change by the insurer.
Meets Definition The definitions of the various critical illnesses as specified in the rider form
an extremely important part of the rider, as they will determine whether a
claim is payable.
Term Rider A Term Rider is a term plan attached to a permanent policy. It cannot be
attached to a Term Insurance policy (since the buyer could simply increase
the sum assured under the Term Insurance policy). The amount of the
Term Rider coverage is usually expressed as a ratio of the sum assured
of the basic plan e.g. 3 to 1 or 5 to 1, depending on the practice of the
insurer.
Level Term Rider A Level Term rider is usually used to increase the coverage under a basic
policy. It is commonly used when additional life insurance is needed for a
certain period of time, such as while the children are growing up.
Family Income Benefit Rider This rider is usually attached to a juvenile policy to provide a monthly,
quarterly or annual income to a child till the end of the term of this rider in
the event of the breadwinner’s premature death.
Decreasing Term Rider The sum assured for Decreasing Term rider decreases yearly. It is
normally issued in periods of 10, 15 and 20 years, etc. As the sum assured
decreases yearly, the amount of cover in the last few years of the rider
term is usually very small.
Payor Benefit Rider This rider provides that, if the person (usually the parent) who is paying
the premiums on the juvenile policy dies, or becomes disabled before
the child (life insured) has reached a specified age (usually either 21 or
25 years old), the insurer will waive all future premiums until the child
reaches the specified age.
Guaranteed Insurability Option This rider is not an insurance cover, but a right to purchase additional
Rider amounts of insurance at specified intervals or when certain events occur
over an extended period of time, without evidence of insurability.
Accidental Death Benefit Rider (ADB) Rider provides for the payment of an amount in addition to the
(ADB) basic sum assured should the life insured die as a result of an accident.
1.105 The amount paid under an accidental death benefit rider is usually
the same as the basic sum assured, and is therefore, often referred to as
double indemnity.
“Accident” Must be an event caused by external, violent and visible means.
“Accidental injury” Must be a bodily injury caused directly and independently of any other
cause(s) by accident, of which there is evidence of visible contusion or
wound on the exterior of the body.
Accidental Death And Basically an Accidental Death Benefit Rider with the added protection
Dismemberment / Disablement against physical loss by amputation or severance (dismemberment)
Rider or functional permanent loss (disablement) of limbs (including fingers
and toes), speech, hearing, and the sight of eyes, etc. The insured event
and the corresponding sum assured payable (usually expressed as a
percentage of the sum assured of this rider) will be listed out in the
endorsement.
Hospital Cash (Income) Benefit This rider provides a fixed daily benefit (e.g. S$150 per day) based on the
Rider period of hospital confinement, without regard to the actual incurred
hospital charges.

12
CHAPTER
06
PARTICIPATING LIFE
INSURANCE POLICIES

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Participating policies Refer to life insurance products that participate in the performance of
the participating fund of the life insurer. Such products are also known
as with-profits policies as they share in the profits or surplus of the
participating fund.
Guaranteed benefit Is the amount guaranteed to be paid out to the beneficiaries if the life
insured dies within the policy term. There will also be guaranteed cash
values that will be paid on surrender.
Non-guaranteed benefits Benefits or bonuses that are not guaranteed, because the level of non-
guaranteed bonuses depends on the value of the assets backing the
policies, which in turn depends, among other things.
Cash Dividends Some participating policies provide non-guaranteed benefits in the form
of cash dividends rather than additions to the sum assured.
Interim Bonus Interim bonuses are typically determined based on the prevailing bonus
rates, or bonus rates used in the reserves for future bonuses or results
from an interim bonus investigation report.
The 90:10 Rule It sets out in the Insurance Act, which states that the profits that the
insurer can take out of the participating fund in any year are limited to
1/9 of the amount allocated to policy owners as bonus for that year. It is
referred to as the 90:10 rule, because it means that 90% of any surplus
determined to be distributable, as bonus goes to policy owners in the
participating fund, and 10% goes to the insurer.
Product Summary The product summary is meant to help the consumer understand the
practical aspects of the high-level concepts mentioned in the consumer
guide “Your Guide to Participating Policies”.
Policy Illustration It is a document, often in the form of a computer printout, which
illustrates clearly the premiums and benefits payable under the policy
every year. The Policy Illustration usually comes together with the Product
Summary.
Annual Bonus Update Under Notice No: MAS 320, an insurer is required to provide post-sales
information in the form of an Annual Bonus Update to all its participating
policy owners annually.

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CHAPTER
07
INVESTMENT-LINKED LIFE INSURANCE POLICIES
(ILPS): TYPES, FEATURES, BENEFITS AND RISKS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Investment-linked Life Insurance It is a life insurance policy which provides a combination of protection and
Policies (ILPs) investment. Premiums buy life insurance protection and investment units
in professionally managed investment-linked sub-funds.
Investment-Linked Sub-Fund It is a professionally managed investment fund, usually by an insurance
company (insurer) or external fund manager. An investment-linked sub-
fund pools together the premiums paid by policy owners with similar
investment objectives. The aggregate sum is then used by the fund to
build a diversified investment portfolio of assets which consists of stocks,
bonds and other assets according to the investment objective of the fund.
The price of each unit in a fund depends on how the investments in that
fund perform.
Investment-Linked Whole Life This policy is similar to a traditional Whole Life Insurance policy because it
Insurance Policy is designed to provide lifetime coverage. For a regular premium policy, the
policy owner can choose to vary the level of insurance cover.
Investment-Linked Annuity Policy An Investment-Linked Annuity or Variable Annuity policy generates a
regular stream of income for the policy owner for as long as he is alive, or
till all units in the policy have been cashed out.
Top-Ups During the policy term of an ILP, the policy owner has a choice to do a
top-up anytime by investing an additional premium. This top-up can be on
a regular or ad hoc (for a particular purpose) basis. Most insurers have a
100% premium allocation for top-up premiums.
Sub-Fund Switch This feature enables a policy owner to do a sub-fund switch according to
his personal circumstances. Sub-fund switch is just switching from one
investment sub-fund to another investment sub-fund.
Partial / Full Surrender The policy owner has the right to surrender part or the whole of the units
allocated to him. This is attractive to the policy owner who wants to have
easy access to the sub-funds.
Premium Holiday It is a period when the policy owner does not pay any premium, and yet
enjoy the benefits that are defined in the policy.
Offer Price It is the price which the insurer uses to allocate units to a policy when
premiums are paid. It is the price of a unit that is sold to a policy owner. If
the offer price is S$1 and the whole S$100 premium is to be applied to buy
units, it will, therefore, buy 100 units.
Bid Price It is the price which the insurer will give for the units if the policy owner
wishes to cash in or claim under the policy. It is the price of a unit to be
sold by the policy owner. This is always lower than the offer price. For
example, if the bid price is S$0.95, 100 units can be cashed for S$95.
Bid-Offer Spread It is one of the initial charges levied when the policy owner purchases
a unit in the sub-fund. It is a charge made by the insurer to cover its
expenses in setting up the policy. Usually, there is a 5% difference
between bid and offer prices, although there are insurers that charge
lesser than this rate. The bid-offer spread is sometimes called the initial
sales charge.
Front-End Loading In a front-end loaded plan, a certain amount of the premiums will be
used to help defray the insurer’s expenses, such as distribution and
administration costs in the early years. These expenses decrease over
time.

14
Back-End Loading Under a back-end loaded plan, 100% of the premiums are allocated to
purchase units from the start. To help insurers defray distribution and
administration costs, back-end charges are imposed if the policy owner
wishes to surrender his plan, in whole or in part, within a certain time.
Forward pricing Forward pricing is the most widely used pricing model in the local
insurance industry. It basically means that the number of units that are
purchased from the underlying investment sub-funds shall be determined
by reference to the offer price established on the next valuation date. In
essence, it means that the next available offer price after the premium has
been paid.
Sub-Fund Management Fee A sub-fund management fee is paid to the fund manager for portfolio
supervision and for general management of the sub-fund affairs. Such
fee also serves to compensate the manager for the expenses incurred
in providing the relevant services. There will normally be a sub-fund
management charge likely to range from 0.5% to 2% per annum. The level
of this charge will depend on the competition, the type of assets under
management, and the profit requirements of the life insurers.
Benefit / Insurance Charges These are charges incurred by the client for the insurer to provide
coverage for certain events like death, total and permanent disability or
critical illness, etc. occurring during the policy period of insurance for the
ILP.
Policy Fees These cover the administrative expenses of setting up the policy, as well as
the regular running expenses of administering the policy.
Administrative Charges These cover the initial expenses of the policy. The cost of administration is
incurred largely to provide record-keeping and transaction services.
Surrender Charges Surrender charges or back-end loads are the charges that a client would
incur should he decide to cash out a portion or all of his units before a
certain period of time. This serves to compensate the insurer for the costs
incurred in the setup and the administration of the policy. Surrender
charges are usually a percentage of the total surrender value that a client
will be cashing out or surrendering. The charges usually decrease from the
first year onwards.
Dollar Cost Averaging Dollar cost averaging simply means investing the same dollar amount in a
sub-fund at regular intervals, regardless of the sub-fund price fluctuations.
By regularly investing specified amounts of money over a period of time,
the policy owner is able to capitalise on market cycles, by purchasing more
units when prices are low and fewer units when prices are high.

15
CHAPTER
08 INVESTMENT-LINKED
SUB-FUNDS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Accumulation Structures of The investment income of these funds is ploughed (put) back into the
Investment-linked Sub-Fund fund. Hence, the unit prices will be enhanced.
Distribution Structures of The investment income of these funds is distributed to the policy owners.
Investment-linked Sub-Fund The unit prices will still vary as a result of capital gains or losses. However,
the policy owners will regularly receive income in the form of additional
units or dividend payments.
Mother Fund A mother fund is an existing fund that was incepted at an earlier point in
time. It may eventually be tapped into by subsequent funds
Feeder Fund A feeder fund is a fund that feeds into an existing fund (i.e. the mother
fund). Although the size of the feeder fund may actually differ from that of
the mother fund, it taps directly into the mother fund. As a result of this,
the feeder fund experiences the same level of fluctuation in terms of unit
price movements.
Mirror Fund A mirror fund follows closely the composition of an existing fund. The
mirror fund will attempt to duplicate the composition of the existing fund
in terms of asset, geographical and sector allocation, as well as in terms of
investment selection.
Portfolios To help investors overcome the complexities of investment selection,
insurers and financial institutions sometimes offer a preset mix of funds
to investors (based on the investor’s risk profile). This preset mix of funds
is referred to as a portfolio.
Equity Funds These are funds that concentrate their investments in equity assets, which
generally aim for capital appreciation.
Fixed Income Or Bond Funds These funds invest in corporate bonds, government securities and other
forms of fixed income instruments. The assets of these funds are chosen
on the basis of their income producing characteristics. Most risks of fixed
income funds include interest rate risk, credit risk and reinvestment risk.
Cash Funds These funds are also known as Money Market Funds. They invest only in
cash and its equivalents. As a result, the capital values of these funds are
unlikely to fall.
Managed Funds These tend to have a "managed" basket of assets, usually comprising
a higher proportion of equities and a lower proportion of fixed income
instruments. Sometimes, property or other assets can be part of the
portfolio. They are also known as Balanced Funds, when there is an
apportionment of investments between equity and fixed income
instruments, within a pre-determined range.
Property Funds These funds invest in properties and property shares. As property is an
illiquid asset, it is not always possible to liquidate the assets quickly, when
policy owners want to sell their units. Hence, property funds normally
include a provision under which unit redemptions, except on death, can
be deferred typically up to 12 months by the fund manager.
Specialised Unit Funds Funds restrict investments to particular industries or sectors, for example:
• gold;
• finance;
• technology;
• commodities; and
• small capitalisation companies.

16
Capital Guaranteed Funds With Capital Guaranteed Funds, policy owners are offered a combination
of security, as well as investment opportunity. Capital Guaranteed Funds
are funds that promise to return a minimum amount, usually after a
certain period of time, or at some particular points of time.
Managed Portfolios Managed Portfolios (also known as Risk Rated or Lifestyle Funds) come
with a pre-set mix of funds. Depending on the objective of the portfolios,
the investment manager will then decide on the amount of investment to
be put into an Equity Fund and / or Fixed Income Fund.
Switching Facility The switching facility allows a policy owner freedom to move part or all
of his money from one fund to another. Such switching usually does not
incur any cost, and the units are transacted at bid to bid price. When
selecting or switching an investment-linked sub-fund, it is important that a
policy owner takes his risk profile, investment objective and time horizon
into consideration. Normally, a policy owner will be entitled to a limited
number of switches in a year, without incurring charges.

17
CHAPTER
09 INVESTMENT-LINKED LIFE INSURANCE
P OLICIES: COMPUTATIONAL ASPECTS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Allocation Rates - How Premiums • For Single Premium ILPs, the premium received by the insurer is used
Are Allocated To Purchase Units to purchase units after deduction of fees and charges. Thus, there is
no apportionment as the full premium is allocated to purchase units.
• For a Regular Premium ILP, allocation rates will apply, particularly to
ILPs which have a front-end load; i.e. fees and charges are deducted
before allocation of units to the policy owner.
Mortality Charges Mortality charges (or the insurance cover) are dependent on the Death
Benefit method applied. They are charged on a periodic basis (e.g.
monthly) and can be different from the frequency of premium payment.
Computation Of Units To Be Two methods of applying policy fees, administrative charges and mortality
Allocated charges, namely:
• to deduct these charges before allocation of units; or
• to deduct these charges after allocation of units.
Withdrawal Benefit The policy owner may make partial withdrawal at any time. However, it
is subject to the minimum balance required to be maintained in the ILP
account.
Surrender Benefit The policy owner is normally allowed to surrender at any time all the units
in the fund at the bid price.
Return On Gross Premium Return on gross premium is the growth rate of your initial single premium
over a period of time, to provide you with the surrender value at the end
of the period. The rate is measured on a compound interest rate basis.
Time Value Of Money (TVM) TVM is the concept that a sum of money will increase over time as a result
of earning a return on the money while it is being held. This also implies
that to pay a sum of money in the future, less than that sum needs to be
held now, because of the return that can be earned on the money being
held now.

The TVM concept can be used to calculate present and future income
streams of a plan, e.g. the value of a series of monthly premium
payments. Complex problems that involve uneven cash flows or payment
frequency can also be analysed using the TVM concept.
The Role Of Interest Interest can be viewed as the cost of “renting” money, and is paid by the
borrower to the lender.

If someone borrows money from a bank, he will have to pay interest on

the loan. When he deposits money with a bank, he is actually lending his
money to the bank, although he does not usually think of it in this way.
In this case, since he is the lender and the bank is the borrower, the bank
pays him interest.
Simple Interest It is computed by applying an interest rate to only an original principal
sum.
Compound interest It is computed by applying an interest rate to the total of an original
principal sum and interest credited to it in earlier time periods.
Compounding The process by which money today, a present value, grows over time to a
larger amount, a future value, is called compounding.
Discounting The process by which money due in the future, a future value is reduced
over time to a smaller amount today, a present value, is called discounting.

18
Nominal interest rates Nominal interest rates are quoted when the effects of compounding is not
taken into consideration. “Nominal” actually means “in name only”. For
example, when a bank quotes you an interest rate, it quotes a nominal
interest rate, say 6% per annum.
Effective Interest Rates The interest rate that includes the effects of compounding is known as
the effective interest rate. The effective rate of interest is greater than the
nominal rate of interest because of the effects of compounding.
Basic Time-Value Formula The basic formula for computing the future value of a single sum of
money is as follows:

FV = PV x (1 + i) n

where: FV = the future value of a single sum

PV = the present value of a single sum
i = the compound annual interest rate, expressed as a decimal
n = the number of periods during which compounding occurs
Future Value Of A Single Sum The simplest form of time value of money problems involves obtaining the
future value (FV) from a present value (PV) of a single sum. Determination
of this future value entails a process of compounding a present value with
an interest rate (n) for a certain number of periods (n).
Present Value Of A Single Sum It is to find out the sum of money needed today if we were able to assume
the future amount needed.

Formula for Present Value

19
CHAPTER
10 ANNUITIES AND OTHER LIFE
INSURANCE PRODUCTS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Annuity An annuity is a contract that provides a guaranteed income to the
annuitant for life (or a shorter specified period) with income payments
made annually, semi-annually, quarterly or monthly.
CPF Life Plans Three CPF LIFE plans for CPF members to choose from:
• the LIFE Standard Plan – Higher level monthly payouts
• the LIFE Basic Plan – Monthly payouts that start lower but increases by
2% yearly
• the LIFE Escalating Plan – Lower monthly payouts
Immediate Annuities Annuities that start paying out (almost) immediately after the policy starts
are called “Immediate Annuities”. The income stream starts immediately
one payment period after the annuity is purchased. For example, if the
annuity payments are monthly, then the payments begin one month after
the purchase of the annuity.
Deferred Annuities The annuity payments begin only on a certain date, usually at least a few
years in the future, after the policy start date.
Single Premium This is the most common way of payment. The insurer will usually specify
a minimum amount (otherwise the resultant annuity will be too small to
be useful).
Regular Premiums Regular premiums are suitable for those who do not have a lump sum of
money for purchasing an annuity or who wish to pay the premium over,
say, their working years. The annuity owner may pay on a yearly, half-
yearly, quarterly or monthly basis.
Life Annuities Under a Life Annuity, the payout is guaranteed for life. This is the most
common type of annuity sold and can be sub-divided into two main
classes, namely Pure Life Annuity and Guaranteed Minimum Payout
Annuity.
Pure Life Annuity The insurer pays income benefits until the annuitant dies, whatever age
that may be. Upon the death of the annuitant, the insurer pays no further
benefits and has no further liability under the contract.
Guaranteed Minimum Payout This type of annuity guarantees a minimum number of payments
Annuity (irrespective of whether the annuitant is alive to receive them), or a refund
of the some of the consideration in the event of the annuitant’s premature
death. It is far more popular than the Pure Life Annuity. However, as part
of the premium paid is applied towards meeting the cost of guaranteeing
a minimum amount of benefits, the periodic income payment will be lower
than that of a Pure Life Annuity.
Life Annuity With Period Life With this option, the insurer also provides annuity payments for as long as
Annuity With Period the annuitant lives, but if the annuitant dies before the end of a specified
period (the period certain), the benefits will continue to be paid to the
beneficiary until the end of the period certain.
Life Income With Refund Annuity A Life Income With Refund Annuity also provides annuity payments for
as long as the annuitant lives, but if the annuitant dies before the total
payments made exceed the purchase price, then the insurer pays a refund
to the beneficiary. The refund is equal to the difference between the
purchase price of the annuity and the amount paid out to the annuitant.
Temporary Annuities Temporary annuities do not guarantee a lifetime income. Instead, the
insurer limits the annuity payment period in various ways.

20
Fixed Period Payments This product provides annuity payments until the expiry of a specified
period or the annuitant dies, whichever occurs first.
Fixed Amount Payment This product provides annuity payments until the total payments exceed a
specified maximum amount or the annuitant dies, whichever occurs first.
This product may also have a guarantee period or refund option.
Single Life Annuity The payment of annuities is dependent on one life. This is the most
common form of annuity.
Joint Life Annuity A Joint Life Annuity provides that the periodic benefits will be paid only for
as long as both of two designated annuitants are alive. The payment ends
when one of the joint annuitants dies.
Joint And Survivor Annuity Also called a Joint and Last Survivor Annuity, provides periodic benefits
to two or more individuals with financial relationships, e.g. parents plus
a disabled child. Very often though, they are purchased by couples. The
benefits under this annuity continue until both or all the individuals die.
There are many variations of such an annuity.
Increasing Rate Annuity An increasing rate annuity increases each year at a certain percentage, e.g.
1% or 2% simple interest. This type of annuity is useful for hedging against
inflation, but is rarely offered.
Universal Life insurance (UL) ULs do not have minimum cash value guarantees. Their premiums are
not level. They are also not “participating” policies, so the insureds do not
have a right to benefit from the life insurance companies’ participative
funds earnings. UL is a form of life insurance which offers the insured a
form of term life cover, as well as an element for cash value buildup. It
offers flexibility to the insured in terms of premium allocation, premium
payable, amount of sum assured (subject to the insurer’s approval), costs
and also other extra features, as compared to the traditional Whole Life
Insurance.
Minimum Credit interest The insurer guarantees an interest rate to the insured for amounts in the
cash value account.
No-Lapse feature This feature allows the UL to be in-force even if the cash value of the UL is
zero and the insured is not required to top up any money at all.
Premium Financing Premium financing is the borrowing of funds from a financial institution
to cover the cost of a policy. The funds borrowed is to be paid back in
instalments to the financial institution. As most ULs will have cash value
from Day One of the policy owing to the lump sum payment received
upfront, this Day One cash value provides a “collateral” which allows
premium financing for UL to be carried out.

21
CHAPTER
11 APPLICATION AND
UNDERWRITING

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Life Insurance Proposal Form To apply for a life insurance policy, the proposer (also known as the
applicant) must complete a life insurance proposal form (some insurers
refer to it as the “application form”).
Contents Of A Proposal Form • A typical proposal form for an adult applicant contains the following
information:
• Name and address of the insurer;
• Adviser’s name, Adviser’s code and policy number;
• Warning statement;
• Particulars of the proposed life insured (if the person applying for
insurance is not the life to be insured);
• Particulars of the proposer;
• Particulars of the policy applied for, e.g. whether it is a Term Insurance
or Endowment Insurance policy;
• Declaration of and replacement of existing policy(ies);
• Family history of the proposed life insured;
• Medical details of the proposed life insured;
• Remarks;
• Confirmation of receipt of compulsory documents;
• Declarations of Beneficial Owners/Payees/Politically Exposed Persons;
• Common Reporting System; and
• Declaration by proposer and / or proposed life insured.
Basic Principles Of Underwriting The completed proposal form is sent to the underwriter who will assess
the risk to see whether the cover can be granted and, if so, on what terms
and conditions. This process is called “underwriting”.
Purpose Of Underwriting To ensure that the premiums charged correspond closely with the risk
that each proposer presents. Proper underwriting helps to ensure that the
insurer has sufficient funds to pay claims.
Factors That Affect The Risk Underwriters determine the insurability of a proposed life insured based
on a number of factors as follows:
• age;
• occupation;
• physical condition;
• medical history;
• financial condition;
• place of residence; and
• lifestyle.
Other Sources Of Underwriting • Attending Physician's Report
Information • Specialist's Medical Tests
• Adviser's Report
• Questionnaires
Ordinary rate To accept a risk at ordinary rate means that the proposer needs to pay
only the premium as stated by the insurer to be a standard risk.
Lien When an underwriter accepts a case with a lien, it means that, in the event
of the death of the life insured within the lien period, the amount payable
will be the sum assured less the amount of lien, which is often expressed
as a percentage of the sum assured. In other words, the lien reduces the
liability of the insurer. Imposing a lien is common for juvenile policies
covering very young children (e.g. below the age of five years).

22
Letter Of Conditional Acceptance If the underwriter proposes to accept the case on terms other than
standard, the insurer sends the proposer a letter of conditional
acceptance, stating the proposed sub-standard terms. In this case, the
proposer is required to sign and return the letter and pay the premium (or
additional premium) within a limited time frame, in order for the cover to
be effected and the policy to be issued to him. The policy will contain an
endorsement or appendix specifying the additional terms.
Selection process for Group Life The underwriter assesses the risk based on a number of factors which
Insurance include the:
• group’s reason for existence;
• group stability;
• group size;
• nature of group’s business;
• employee classes;
• level of participation;
• age and gender within the group;
• expected persistency; and
• previous claims experience.

23
CHAPTER
12
P OLICY SERVICES

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Frequency Of Premium Payment Regular premiums can be paid via any one of the following frequencies:
(a) Monthly;
(b) Quarterly;
(c) Half-yearly; or
(d) Annually.
Change In Frequency Of Premium The policy owner may request for a change in the frequency of premium
Payment payment of his policy as follows:
(i) Change from less frequent basis to more frequent basis; or
(ii) Change from more frequent basis to less frequent basis.
Methods Of Premium Payment • By Cash Or Cheque
• By Cash Or Cheque
• By GIRO Deduction
• By Salary Or Payroll Scheme
• Using CPF Ordinary And Special Accounts
• Using CPF Ordinary And Special Accounts
Conditional Premium Deposit Upon the insurer’s receipt of the premium payment and the proposal
Receipt form, the issuing of a conditional premium deposit receipt will bind the
insurer to grant conditional cover only for accidental death (usually for any
new proposal), subject to the specified terms and conditions, before the
official acceptance of the proposal by the insurer. Such a receipt provides
conditional cover to the life insured immediately at the time of application
if the premium payment is made by cash. For any premium payment by
cheque, the conditional cover will commence once the premium deposit is
credited to the insurer’s bank account.
Official Receipt The official receipt is issued by the insurer. It is used to officially
acknowledge receipt of the first premium payment made by the client.
Premium Notice The insurers are not legally obligated to issue premium notices, they will
normally send premium notices to policy owners who pay their premiums
by cash or cheque, particularly to those policy owners who have opted for
annual premium mode of payment, to remind them of the premiums due.
Types Of Alteration Of Policy • Some of the common alterations which policy owners make are:
• change of address;
• change of name;
• change of frequency of premium payment;
• reduction in sum assured;
• increase in sum assured;
• change in type of policy;
• change in term of insurance;
• removal of extra premiums;
• extra benefits (riders); and
• change of insurance nominees or beneficiaries.
Requirements For The Issuance Of Some of the requirements for issuance of a duplicate policy:
A Duplicate Policy • A written request for issuance of a duplicate policy, stating the
circumstances of the loss;
• A statutory declaration that the policy has not been assigned to any
person;
• A copy of the police report if the policy has been stolen;
• An indemnity to indemnify the insurer against any possible loss as a
result of issuance of the duplicate policy;
• The payment of the cost of duplication; and / or
• A declaration that, if the original policy is found subsequent to the
issue, it must be returned to the insurer for cancellation.
24
What Is An Assignment? The transfer of rights and ownership of an insurance policy from one party
to another party is called an assignment. The person who transfers the
rights is known as the assignor, and the person to whom the rights are
transferred is called the assignee.
Absolute Assignment In an absolute assignment, the assignor transfers all his rights and
ownership to the assignee, except that he may choose to continue paying
the premiums.

Absolute assignment of a life insurance policy is a feature in a life

insurance policy allowing a policy owner to freely assign (give, or sell) a
policy to another person. The fact that life insurance is freely assignable
makes it a useful financial instrument through which to secure a loan.
Conditional / Collateral In a conditional or collateral assignment, the rights revert to the assignor
Assignment under certain circumstances, e.g. when a policy is used as collateral for a
bank loan, the rights of the policy will revert to the assignor when the loan
is fully repaid.
Assignment By Way Of Gift This type of assignment is made without consideration. For example, a
person may have bought a life policy where no beneficiary is named. He
may wish to see that the policy proceeds go to his mother in any case.
He may decide to make an assignment. In such a case, the assignment
is by way of gift, there being no valuable consideration involved, and the
mother would then become the owner of the policy.
Assignment For Valuable This type of assignment is commonly used when a person borrows from
Consideration a bank. The ownership will be transferred to the bank when assignment is
made, although there may be a clause preserving the right of redemption
when the loan is repaid.
Assignment By Operation Of Law Two main areas where such an assignment takes place in law relates to
death and bankruptcy.
• On death, where the estate of the deceased is substantial, there will
be an executor to take care of the estate or the administrator will
be appointed. The estate of the deceased will vest in these persons.
These persons will be holding the property as trustees until the estate
is distributed or disposed of.
• On bankruptcy, the Bankruptcy Act will apply. In Singapore, under
Section 76 of the Bankruptcy Act (Cap. 20), all divisible property of the
bankrupt will vest in the Official Assignee. However, property held in
trust by the bankrupt will not vest with the Official Assignee. Hence,
a trust policy effected before 1 September 2009 under Section 73
of the Conveyancing and Law of Property Act (Cap. 61) [which has
vested in the beneficiary] will not come under divisible property.
This also applies to an irrevocable nomination under the Insurance
(Amendment) Act 2009.
Policy Loans A policy that acquires cash value can be used as collateral for a policy loan.
Withdrawing Cash Bonus Bonuses are declared on participating policies annually. The cash value
of the bonuses may be withdrawn. The procedure for withdrawing the
bonuses varies among insurers.
Lapsing Of Policies The policy will lapse under one of the following circumstances:
• When premiums are not paid within the grace period and before a
policy has acquired any cash value; or
• When the policy status is in Automatic Premium Loan and the cash
value has been exhausted.
Reinstatement Of Lapsed Policies An insurer normally allows a lapsed policy to be reinstated (usually within
two or three years from lapsed date).

However, the policy owner has to pay all the arrears of premium with
interest on the policy. Note that for any regular premium ILP, the policy
owner also has to pay the fees or charges required by the insurer for the
reinstatement of the policy.

25
 Surrendering Of Policy According to Section 60(1) of the Insurance Act (Cap. 142), insurers must
pay surrender values (if any) for life policies which have accumulated cash
values and have been in force for a minimum of three years.
Alternatives To Surrendering Of Some alternatives to surrendering of policy as follows:
Policy • Apply for a policy loan;
• Change to a more frequent premium payment mode (e.g. from
annually to monthly premium payment);
• Surrender only the bonuses for cash;
• Convert to a paid-up policy;
• Convert to an extended Term Insurance policy;
• Reduce the premium payable by reducing the sum assured; or
• Apply for premium holiday (applicable only to selected ILPs).

26
CHAPTER
13
LIFE INSURANCE CL AIMS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Proper Claimants Proper claimants under Section 61(12) of the Insurance Act (Cap. 142)
refers to persons who are entitled to the policy monies either as executors
of the deceased, or who claim to be entitled to that sum (whether for their
own benefit or not) and are the deceased’s:
• spouse;
• child;
• parent;
• brother or sister; or
• nephew or niece.
Payment Of Claims Without Under Section 61(2) of the Insurance Act (Cap. 142), an insurer is
Probate permitted to make an advance payment of up to a prescribed amount to
the proper claimants on the death of the life insured, without insisting on
the production of any grant of probate or letter of administration.
Prescribed Amount Under Regulation 7 of the Insurance (General Provisions) Regulations
2003, S$150,000 is prescribed as the amount of life policy and accident
and health policy monies which may be paid by the insurer to the proper
claimant, without the production of any grant of probate or letter of
administration.
Types Of Claims • Death Claims
• Total And Permanent Disability Claims
• Maturity Claims
• Critical Illness Claims
• Hospital Cash (Income) Claims
• Accidental Death Benefit Claims
• Accidental Death And Dismemberment Benefit Claims
• Annuity Claims
LIA Register Of Unclaimed Life Since 4 January 2016, the Life Insurance Association, Singapore (LIA) has
Insurance Proceeds launched the “LIA Register of Unclaimed Life Insurance Proceeds” on its
website for members of the public, to search and contact the respective
insurers directly, should they have any policies with unclaimed death
proceeds of deceased relations or any unclaimed maturity policy proceeds
that have been outstanding for more than 12 months.

This is the industry’s effort to reach out to the claimants or beneficiaries of

unclaimed policy proceeds, being on top of efforts made by the individual
life insurers.

27
CHAPTER
14
THE INSURANCE CONTRACT

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Elements Of A Valid Insurance For the formation of a valid insurance contract; the following elements
Contract must be present:
(a) offer and acceptance;
(b) consideration;
(c) capacity to contract;
(d) insurable interest; and
(e) parties of the same mind (consensus ad idem).
Offer And Acceptance The first requirement of a contract is the intention of all the parties to
enter into a legal relationship. Without such an intention, the contract
cannot come into existence.

As a contract is an agreement, there must be a “meeting of minds” or

mutual agreement between the parties to the contract.
Valid contract A valid contract is one that is enforceable at law.
Void contract A void contract is one that was never enforceable at law.
Voidable contract A voidable contract is one in which a party has the right to avoid her
obligations under the contract without incurring legal liability.
Consideration A contract is ordinarily based on reciprocity (something given or done in
return). When a party promises to do certain thing(s) under a contract, he
is called the promisor. In giving the promise, the promisor must receive
something in return, and what he receives for the promise is called
consideration. Consideration can be in money or money’s worth. It can be
a return promise to do certain thing(s), or to abstain from doing certain
thing(s), or to forbear (cease or refrain from doing) some acts. All these
constitute the consideration.
Capacity To Contract A person of legal age, without mental or other incapacity, is legally
competent to enter into a contract. Such a person is said to have
contractual capacity.
Minors Minors cannot ordinarily enter into a contract, though with certain
exceptions. Under the Civil Law (Amendment) Act 2009, effective on 1 April
2009, a contract entered into by a minor having attained the age of 18
years, shall have the same effect as that of having attained full age (effect
is that such contract will be binding and enforceable against such a minor).
Persons Suffering Legal Disability Generally, a contract entered into by a mentally disordered or drunken
person is not binding on him, if at the time of contracting, he was
incapable of understanding the nature of the contract that he was
entering into, and the other party was aware or ought to have been aware
of his mental state.
Drunken Persons If a person who was unable to understand the nature of a contract due to
the influence of alcohol, entered into a contract with another person who
was aware or ought to have known of the first person’s intoxication, that
contract would be voidable at the option of the drunken person.
Undischarged Bankrupts The Bankruptcy Act (Cap. 20) places restrictions on the rights of an
undischarged bankrupt to enter into contracts.
Insurable Interest In order for the insurance contract to be valid, the policy owner must have
an insurable interest in the life of the proposed insured when the policy is
issued.

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Parties Of The Same Mind This term means in complete agreement of mind. In any contract, the
(Consensus Ad Idem) parties must be ad idem – of the same mind – as to the subject matter of
the contract. In ordinary commercial contracts, each party is deemed to
be equally able to assess the merits of the bargain offered. As long as a
seller makes no misrepresentations, they are under no duty to the buyer
to express any opinion about what is offered for sale.
caveat emptor let the buyer beware
Duty Of Disclosure The proposer must disclose all material facts known by them to the
insurer.

The duty is to disclose voluntarily, and the proposer cannot withhold a

material fact because no specific question was asked on that point in
the proposal or medical examination. A proposer might, however, be
justified in inferring from the fact that the question was not asked that the
information undisclosed was not regarded as material.
Prudent Insurer The test of the “prudent insurer” entails that the opinion of the insured
is irrelevant. Therefore, even if the insured believes that he had acted in
good faith, he may still fail to discharge the duty of disclosure.
Inducement There must be a causal link between the misrepresentation or non-
disclosure and the decision to enter into the contract. A case law
established that the insured for misrepresentation or non-disclosure must
show not only that the circumstance was material to the risk (the prudent
insurer’s test), but also that the misrepresentation or non-disclosure in
question induced him to enter into the contract of insurance.
Warranty A warranty is a statement guaranteed to be true in all respects.
Representation A representation is an applicant’s statement of facts on which the
insurer bases its decision to issue, or not to issue the policy applied
for. A representation need not be true in all respects, but need only
be substantially true as to facts material to the risk. If the applicant’s
statements are representations, the insurer ordinarily cannot rescind the
contract or defend a suit for benefits on the ground of misrepresentation
of a fact, unless that fact is material to the risk.
Misrepresentation A false or misleading statement in an application for insurance is known
as a misrepresentation. Some statements contained in the application are
more important to the insurer’s decision to issue a policy than are other
statements.

A misrepresentation that would affect the insurance company’s

evaluation of the proposed insured is called a material representation.
A misrepresentation is considered material when, if the truth had been
known, the insurer would not have issued the policy or would have issued
the policy on a different basis, such as for a higher premium or for a
lower face value. A misrepresentation in an application for life insurance
gives the insurer grounds to avoid the contract only if it was a material
misrepresentation
Ambiguous Questions Where a question in a proposal form is ambiguous, a fair and reasonable
construction will be employed to construe the meaning. Any doubts will
be resolved in the insured’s favour, as the insurer was the one who was
responsible for preparing the proposal form. This is the effect of what is
known as the contra proferentum rule.
Waiver Waiver is the intentional and voluntary relinquishment (giving up,
forgoing) of a known right. It can be based on a written or oral statement
that specifically relinquishes a right (express waiver), or it can be implied
by misleading conduct (implied waiver).
Estoppel Estoppel arises when an insurance professional intentionally or
unintentionally creates the impression that a certain fact exists when it
does not, and an innocent third party relies on that impression and suffers
damage as a result. In this case, the insurer will be estopped (prevented)
from denying this fact. For example, if a claims officer indicates by his
actions that a claim will be paid, the insurer will be estopped from denying
the liability.
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Innocent Non-Disclosure Omission to disclose a material fact inadvertently (unintentionally) or
because the party thought it was not material.
Fraudulent Non-Disclosure / Intentional suppression of a material fact.
Concealment
Innocent misrepresentation Inaccurate statements regarding a material fact, believing them to be true,
or are made without any intention to mislead.
Negligent misrepresentation Statements made carelessly or recklessly, where the insured has no
reasonable basis to believe it to be true, and yet has no intention to
deceive.
Fraudulent misrepresentation Statements made with the intention to deceive and known by the person
making them to be false.
Insurer's Duty Of Utmost Good The principle of utmost good faith also applies to the insurer. The insurer
Faith cannot make any wrong representation about the contract that the
insurer is offering.
Duress A contract is formed by mutual consent of the parties. Accordingly, if a
party is under coercion to consent, the contract may not be valid as the
consent given is not genuine.
Undue Influence When there is inequality between the parties to a contract (such as where
relations between the parties are such that one of the parties is in a
position to dominate the will of the other party), and one of them (i.e. the
dominator) takes an unfair advantage of the situation of the other and
forces an agreement upon him, the contract may be set aside under the
doctrine of undue influence.
Non Est Factum The term “non est factum” means “this is not my deed”. As a general rule,
if a person who is not a person under any incapacity signs a contract, he
will be bound by the contract whether he has read it or not. However, if he
can show that the document which he signed was not the one he intended
to sign and the mistake was not due to his carelessness, he may be able to
avoid the contract on the ground of non est factum.
Contract Provisions In Life • The Policy Owner’s Rights
Insurance Policies • Heading And Operative Clauses
• Policy Schedule
• General Provisions
Entire Contract The proposal form (including medical evidence), policy contract and all
endorsements that are attached to the policy make up the entire contract.
Travel, Residence And Occupation This provision defines the scope of coverage under the policy. Most
insurers do not impose any restriction on the life insured with regard to
travel, residence or occupation, unless it is specifically excluded by the
underwriter.
Payment Of Premiums This provision specifies that premiums are payable yearly, unless the
insurer agrees to other modes of payment (except single premium
policies).
Grace Period The grace period is a period of time (usually 30 or 31 days from the
premium due date) given by the insurer to the policy owner to pay the
renewal premium which has been due but not yet paid. During the grace
period, the life insured will continue to enjoy the insurance cover.
Suicide Under this provision, if the life insured commits suicide within a specified
period of time (usually one year) from the issue date of the policy or the
date of reinstatement of the policy, the policy will be void, and the insurer
is not liable to pay any claim. The insurer may refund all the premiums
paid from the effective date or date of reinstatement. The insurer usually
does not pay any interest on the premium refunded, because the interest
earned is used to offset part of the costs that the insurer incurred in
issuing the policy. However, once the specified period expires, the insurer
will have to pay the claim, even if the life insured has died as a result of
suicide.
Incontestability Clause By this provision, the insurer undertakes not to dispute the validity of a
life insurance contract and void it, after the policy has been in force for a
specified period of time (normally one or two years) with the exception of
fraud.
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Reinstatement Reinstatement is the process by which an insurer puts back into force a
life insurance policy that has either been:
• terminated because of non-payment of renewal premiums; or
• continued under the extended term or reduced paid-up insurance of
the non-forfeiture options.
Assignment The Assignment provision gives the policy owner (assignor) the right to
transfer his ownership rights under a policy to another person (assignee).
It also spells out the steps that the policy owner or the assignee must take
in order for the insurer to acknowledge the assignment, i.e. the policy
owner or assignee must inform the insurer of the assignment in writing.
Free Look Period This provision allows the policy owner 14 days to review his policy after
the policy has been delivered to him. If he is not totally satisfied with the
policy and returns it to the insurer within the specified period, he will
receive a full refund of the premium, less any medical fees incurred by the
insurer in assessing the insurance application, if applicable. In the case of
an ILP, in determining the amount payable to the policy owner, the insurer
may also make an adjustment to reflect the change in unit price of the ILP
sub-fund purchased.
Policy Loan The Policy Loan provision allows the policy owner to apply to his insurer
for a loan as long as the policy has a cash value. The insurer will charge
interest on the policy loan.
Non-Forfeiture Options Non-forfeiture options are only granted to traditional permanent
insurance policies (e.g. Whole Life and Endowment Insurance) that
accumulate cash values. However, they are not available for ILPs.
According to Section 60(2) of the Insurance Act (Cap. 142), a life insurance
policy which has been in force for a minimum of three years shall not
lapse or be forfeited by reason of the non-payment of premiums.
Cash Value Option The policy owner can receive the cash value which has been accumulated
under his policy, if he decides to surrender his policy after two or three
years.
Reduced Paid-up Insurance Option The policy owner can also use the cash value under the policy to purchase
a single-premium paid-up policy, at the attained age (i.e. the age at the
time of exercising this option), for a reduced amount of cover. To exercise
this option, the policy owner only needs to notify the insurer in writing.
As the sum assured after the conversion can be small as compared to the
original sum assured, it is important that you highlight this point to your
client before he exercises his right. In addition, you need to inform your
client that the paid-up policy is on a non-participating basis. Some insurers
also show the paid-up value for each anniversary year in a table form in
the policy contract.
Extended Term Insurance Option The policy owner may also use the cash value accumulation as a single
premium to purchase a paid-up extended Term Insurance policy for a
sum assured equal to that of the original policy. However, the length of
the term is dependent on the net cash value available, as a net single
premium at the life insured’s attained age to purchase the extended Term
Insurance. As such, a policy with a higher net cash value may purchase an
extended Term Insurance coverage that can remain in force for a longer
period of time.
Automatic Non-Forfeiture If the policy owner fails to elect (decide on) any one of the above-
Provision mentioned non-forfeiture options, the insurer will usually activate the
Automatic Premium Loan (APL) provision. Under this provision, the
insurer will advance the cash value under the policy as a loan to pay the
outstanding premium, thus keeping the policy in force.
Endorsements Endorsements are amendments to an insurance policy that become a part
of the insurance contract, and they expand or limit the benefits payable.

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CHAPTER
15
L AW OF AGENCY

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Agency An agency is a legal contractual relationship by which one party is
authorised to perform certain acts on behalf of another party.
Principal The party granting the authority is called the principal.
Agent The party that receives the authority is called the agent.
Express agency Express agency is created when the principal or any person authorised by
him expressly appoints the agent by way of a deed, a written contract or
orally. Under Section 35M(2) of the Insurance Act (Cap. 142), an insurer is
required to have a written agreement signed with its agents.
Implied agency Implied agency is created based on the conduct of the parties. It can be
implied when the mutual conduct of the parties makes it reasonable to
suggest that there is intention for the formation of an agency relationship.
Partnership An agency is created as every partner is an agent of the firm and his other
partners. For example, Partner A entered into a business relationship
with third parties and was declared a bankrupt, as he owed the banks
substantial amount of monies due to his property speculation.
Agency by necessity It is a type of relationship, whereby one party can make essential or critical
decisions for the incapacitated party who is not in a condition to do so.
Intermediaries An insurance intermediary is a person who, as an agent for one or more
insurers or as an agent for insureds or intending insureds, arranges
contracts of insurance. Hence, in legal terms every intermediary is an
agent, i.e. one who is authorised by a party, called the principal, to bring
that principal into a contractual relationship with another, namely a third
party.
Rights Of An Agent Under common law, an agent has the following rights in respect of his
relationship by his principal: the right to remuneration and the right to
indemnity.
Remuneration An agent’s right to remuneration is determined by the terms of his
contract with his principal. For an insurance agent, he is usually
remunerated by commission, which can be based on the values of the
policies sold or a percentage of the premiums on the policies sold.
Indemnity If an agent incurs liability or pays out money in the performance of his
duty as an agent, he has the right to be indemnified by his principal,
unless the agency agreement provides otherwise.
Actual Or Express Authority An agent’s express authority is determined by the terms of the agency
contract which he has signed with his principal upon his appointment as
the representative. This is the actual authority that he is granted by the
principal.
Implied Authority Implied authority is that which will be implied from the nature and practice
of the business that the agent is contracted to transact. It is impractical to
state in detail everything that the agent must do in the agency agreement.
Therefore, when an agent has an authority to act, he also has the implied
authority to do all the things necessary in the ordinary course of business
for the proper and efficient performance of his duties.

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Usual Authority An agent has the usual authority to explain the meaning of the questions
in a proposal form and the terms as listed in the policy contract. However,
he does not have the usual authority to enter into, renew or revive
any contract of insurance on behalf of the insurer. In addition, he does
not have the usual authority to vary any of the terms of the insurance
contract, or waive any of its conditions.
Apparent Or Ostensible Authority Apparent authority is created when the agent acts without actual authority
from the principal, but a third party reasonably believes that actual
authority exists. This can happen when the principal allows conditions
to exist that lead a third party to reasonably believe that actual authority
exists. The important distinction between apparent and actual authority is
that apparent authority is determined by the reasonable perception of the
third party.
Ratification Of A Contract When an agent acts outside his scope of authority, the principal is not
bound by the act. However, there may be circumstances, whereby the
principal may wish to accept the unauthorised act and retroactively (from
a date in the past) to claim that the person is his agent when carrying out
the act. This act of the insurer is known as ratification, which means the
validation of an unauthorised act. It may be done in an express manner,
either in writing or orally, or may be implied from conduct.
Revocation The parties to an agency agreement may terminate the agency by way of a
revocation (cancellation) by the principal.
Renunciation The parties to an agency agreement may terminate the agency by way of a
renunciation (giving up the right) by the agent.

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CHAPTER
16 INCOME TAX AND
LIFE INSURANCE

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Taxable Income In Singapore, income is taxed under the Income Tax Act (Cap. 134). Section
10(1) of the Income Tax Act (Cap. 134) provides that income tax may be
imposed upon the income of any person, accruing in or derived from
Singapore, or received in Singapore (from outside Singapore).
Statutory Income According to Section 35 of the Income Tax Act (Cap.134), statutory income
refers to the full amount of income for the year preceding the Year of
Assessment from each source of income.
Assessable Income Assessable Income
= Total Income - Allowable Expenses - Approved Donations
Chargeable Income Chargeable income of an individual is then derived from the remainder of
the assessable income after deducting all personal reliefs, such as earned
income relief, spouse relief, child relief, deductions for CPF and SRS
contributions, etc. Since a company is not able to claim personal reliefs,
the assessable income is the same as the chargeable income.
Personal Reliefs Personal Reliefs are granted only to resident individuals.
Earned Income Relief A relief to provide recognition for individuals who receive income from
employment, trade, business, profession or vocation less allowable
expenses.
NSman (Self) Relief “NSman relief” is a relief to recognise the contributions of National Service
men (NSmen) and NS Key Appointment Holders. The relief (self) will be
given when a taxpayer has completed his full-time National Service.
Spouse / Handicapped Spouse “Spouse relief” is an expansion of the wife relief to support family
Relief formation and provide recognition to male and female taxpayers
supporting their spouses or ex-spouses.
Qualifying / Handicapped Child “Qualifying child relief (QCR) / handicapped child relief (HCR)” are reliefs
Relief given in recognition of families’ efforts in supporting their children and
caring for handicapped children.
Working Mother’s Child Relief “Working mother’s child relief (WMCR)” is a relief introduced to serve the
following objectives:
• to reward families with children holding Singapore citizenship;
• to encourage parents to take up citizenship for their children; and
• to encourage married women to remain in the workforce after having
children.
Handicapped Brother / Sister “Handicapped brother / sister relief” is a relief given to provide recognition
Relief for individuals supporting their physically or mentally handicapped
siblings or siblings-in-law who lives in Singapore.
Parent / Handicapped Parent “Parent / handicapped parent relief” is a relief to promote filial piety and
Relief provides recognition to individuals supporting their parents / handicapped
parents in Singapore.
Grandparent Caregiver Relief “Grandparent caregiver relief” (GCR) is a relief given to provide recognition
for grandparents who play the role of a caregiver, and to help working
mothers take care of their children.
Life Insurance Relief “Life insurance relief” is a relief on annual insurance premiums paid on the
taxpayer’s or his wife’s life insurance policies.
Central Provident Fund (CPF) “CPF / Provident fund relief” is a relief given to encourage individuals to
/ Provident Fund Relief For save for their retirement.
Employees

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CPF Cash Top-Up Relief The “CPF cash top-up relief” encourages individuals to save for their
retirement and that of their dependants into the respective CPF Special/
Retirement Account.
Course Fees Relief Course fees relief” is given to encourage an individual to continuously
upgrade himself, so as to enhance his lifelong employability. The relief is
targeted at those who are or have been gainfully employed.
Foreign Maid Levy Relief “Foreign maid levy relief” is a relief given to encourage married women to
remain in the workforce and to also encourage procreation.
Supplementary Retirement SRS is a voluntary scheme introduced by the Government to encourage
Scheme (SRS) Relief individuals to save more for retirement on top of the contributions made
to the CPF.
Parenthood Tax Rebate Parenthood tax rebate is a rebate given to married Singapore resident
individuals, to encourage them to have more children. Rebates are given
only if the child is a Singaporean. The rebate can be used to offset the
income tax payable of the parents, in any proportion as agreed by the
spouses. Any rebate unutilised can be carried forward to offset against
future tax payable of the parents.

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CHAPTER
17 INSURANCE NOMINATION,
WILLS AND TRUSTS

IMPORTANT CONCEPTS DEFINITIONS/EXPLANATIONS

Aims Of Nomination Framework • To provide policy owners with greater choice and flexibility in
determining the manner in which the proceeds from their insurance
policies are to be disbursed.
• To accord adequate financial protection to the named beneficiaries.
• To offer greater clarity and certainty in respect of nominations of
beneficiaries to insurance policy proceeds.
Types Of Nominations Allowed • Policies Under CPF Schemes
Under Various Types Of Policies • Supplementary Retirement Scheme
• Muslim Policy Owners
Group Insurance Group insurance covers a group of people under one master policy.
Typically, a group insurance policy is bought by an organisation such as
an employer for the benefit of its individual employees. The insurer issues
the master policy contract to the organisation. Thus, the organisation
becomes the policy owner.

The individual employee does not have a policy with the insurer, but the
benefits of the master policy will go to him as a form of employee benefit.
As the policy owner (the organisation) is also not the life insured in such a
case, insurance nomination is not allowed for any group insurance policy.
Trust Nomination When the policy owner makes a trust nomination at the time of buying a
policy or at any time after the policy is issued, he will lose all rights to the
ownership of the policy. This means that all proceeds (living benefits and
death benefits) from the policy now belong to the nominees whom he
named. While he is still obliged to pay the premiums for the policy, all the
benefits of the policy belong to the nominees. Only a policy owner who is
at least 18 years old can make a trust nomination.
Revocable Nomination When a policy owner makes a revocable nomination, he will continue to
retain full rights and ownership over the policy. This means that he can
change or revoke a nomination at any time, without needing the written
consent of the nominee or nominees. Only death benefits from the policy
will be payable to the nominees. All living benefits will be paid to the
policy owner. Hence, revocable nominations offer the benefit of maximum
flexibility to the policy owner.
Wills A Will is basically a legal document that is executed by an individual (called
the “testator”), which sets out how his estate should be managed and the
assets distributed when he should pass away. The Will takes effect only
on the death of the testator. He is free to change the Will as and when he
likes, and as many times as he wants, up until the point of death.
Grant Of Probate A grant of probate must be obtained from the Court to enable the
executor to administer the deceased’s estate, according to the directions
as contained in his Will.
Executor An executor is the person nominated to administer the deceased’s estate
according to the Will. If the executor is a female, she is called an executrix.
The executor can be a beneficiary under the Will or some disinterested
party, e.g. a solicitor, a banker or friends, etc.
Trust A trust is in essence an agreement between a settlor, the person who
settles property into the trust, and the trustee, the person to whom the
property is transferred. The trust property would be held by trustees “in
trust for” the beneficiaries. The beneficiaries of the trust are, therefore,
the people who will receive the benefit of the income and / or capital of
the trust fund.
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Express Trust “Express trusts” in a wide sense to cover situations, where there is an
express intention to create a trust over a life policy (which intention is
not required for a statutory trust). In strict law, there would be three
certainties which are required, namely, certainty of words, certainty of
subject matter and certainty of objects. In simple English, the intention
to create a trust should be clear, and the beneficiaries should be
ascertainable.
Implied Or Resulting Trust A trust may be implied or may “result” in certain situations with regard to
life policies.
Constructive Trusts This is an area of the law where we can find no decisions directly relating
to life insurance companies. However, the same principle that has been
applied to banks may be applied i.e. in certain circumstances, a life
company may be a constructive trustee of the moneys in its hands that
belong to a customer or his estate .

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