2. 2
1. BRIEF DESCRIPTION OF AIMS
The objective of this module is to develop the students in:
A knowledge and understanding of the principles and procedures applicable to life and
pension business;
A knowledge and understanding of life assurance products and their features;
A knowledge of the factors of the factors affecting the acceptance and underwriting of
life assurance business;
Aknowledge of the factors affecting the administration of life assurance and pension
business, and the claims environment.
2. Learning out comes
2.1 Knowledge and understanding
Having successfully completed this module, students should be able to demonstrate knowledge
and understanding of:
i. The role of life insurance
ii. Legal principles of life assurance
iii. Life assurance products
iv. Uses of life assurance products
2.2 Cognitive/intellectual skills/ICT/Application of knowledge
At the end of this module students should be able to:
v. Recognize role of life assurance to the individual community, and the nation;
vi. Illustrate the sales cycle.
vii. State the legal principles that govern life assurance policies;
viii. Identify characteristics and scope of the main classes of life assurance;
ix. Explain the meaning and scope of superannuation business;
x. of underwriting retirement products, including annuities;
xi. Describe the general features of procedures for payment of premiums;
xii. Explain the principles of assignments.
xiii. Describe the procedures and documents used in the payment of life claims and
surrenders.
2.3 Communication/ICT/ Analytic Techniques/Practical Skills
Having successfully completed the module, students should be able to:
xiv. Differentiate between the covers provided by life insurers
xv. Classifying life assurance needs;
xvi. Calculate tax relief
2.4 General Transferrable skills
3. 3
Having successfully completed the module, students should be able to:
xvii. Advice prospective insured’s on the most suitable policies for them
xviii. Underwrite life business
xix. Process renewal documents
xx. Process life and pension claims
3.INDICATIVE COURSE CONTENT
The role of life assurance to the individual, community, and the nation;
Classifying life assurance needs;
The importance of the sales cycle;
Legal principles that govern life assurance policies;
Characteristics and scope of the main classes of life assurance;
The applications of the main classes of life assurance, including:
- Protection products,
- Savings products,
- Retirement products.
proposal forms, acceptance letters and policy documents;
Basic principles of underwriting individual life assurance business;
The factors affecting the calculation of premiums;
The methods used to underwrite and rate under-average lives applying for life assurance
products;
General features of procedures for payment of premiums;
Principles of assignments.
The reasons for and implications Usage and contents of
of loan being granted under life policies;
The reasons for amending or converting life policies and explain the procedures used;
Procedures and documents used in the payment of life claims and surrenders.
The meaning and scope of superannuation business;
Usage and contents of the various documents relating to superannuation business;
Basic principles of underwriting retirement products, including annuities;
The requirements for group premium quotation;
Renewal procedure;
Procedures and documentation commonly used in the payment of benefits.
Policy provisions and policy conditions;
Provisions and conditions that apply to life insurance policies;
Effects of tax on buying decisions;
Tax relief available on:
- Life insurance premiums,
- Contributions to retirement benefit schemes,
- Annuity premiums.
Statutory schemes;
Benefits provided under statutory schemes;
Legislation governing statutory schemes.
4. 4
4. LEARNING AND TEACHING STRATEGY
Lectures
Self –directed study
Presentations
Exercises
Supervised exercises
Expert speakers
Industry visits
Lecturers attendance
Prescribed teaching
Revision and examination
Group discussions
5. Assessment strategy
The Assessment can take many forms such as group discussions, Assignments, Quizzes,
objective questions, Continuous Assessment Tests, Practical Exercises, Presentations, to name a
few. The Assessment differs from Module to module and is dependent on the module and its
learning outcomes. The Module team headed by the Module Leader, come together and prepare a
Module Handbook detailing the module, its learning outcomes, indicative content, the type of
Assessments and its weightage, before the start of the module.
15. Assessment pattern
Component Weighting
(%)
Learning objectives covered
In-Course Assessment: 50% Refer the Learning outcomes
from number 1 to 7
Final Assessment:
5. 5
Final exam
(Structured exercises,
problem solving, business
case examples etc., as per
programme sheet available
from module team.)
50%
Refer the Learning outcomes
from the number 8 to 20
7. Strategy for feedback and student support during module
Feedback on Quiz papers, assignments, case study analysis will be given.
The teaching team will be available to students for consultation. Office hours for students’
consultations will appear on the door to each office of the teaching team members.
8. Indicative Resources
a. Core Text
Anthony Steuer (2010), Questions and Answers on Life Insurance: The Life Insurance Toolbook,
Life Insurance Sage Press, ISBN-10: 0984508104;
b. Background Texts
Robert I.Mehr (1987), Life Insurance: Theory and Practice 4th Edition, ISBN-13: 978-
025603707
c. Journals
LIFE INSURANCE JOURNAL IN INDIA-LIFE INSURANCE TODAY, MONTHLY JOURNAL ON LIFE
INSURANCE: JUNE 2011
Associate of the chartered insurance institute (ACII-UK), Monthly insurance journals
The journal of the Insurance institute of India
Insurance journal
Chartered Insurance Institute of Nigeria journals
6. 6
10. Teaching team
Module leader : HAVUGIMANA Dieudonne
Module Team: Visiting Lecturer
CHAPTER ONE
GENERAL THEORY OF LIFE ASSURANCE
A. INTRODUCTION
Life assurance is divided into two main branches – ordinary life and industrial life.
Industrial life assurance is also called “home service insurance” because of the system of
house to house collection of premiums by full time agents.
The sums assured under industrial life policies are usually small and premiums are payable
weekly.
7. 7
Ordinary policies are usually for large amounts with premiums calculated on a yearly, half-
yearly, quarterly or monthly basis.
Ordinary life covers a more extensive field than industrial life although the underlying
principles are same for both classes of business.
B. HISTORICAL ORIGINS OF LIFE ASSURANCE
The principle of life assurance is as old as the early civilization who introduced the idea of
funeral societies.
In England the trade guilds of the Middle Ages also had their funeral clubs and mutual
societies.
In 1583, the first recorded life policy was issued on the life of William Gybbons and from
about that time onwards, life assurance steadily developed.
The early life assurance practices were not based on actuarial principles and premiums varied
from year to year, depending on the claims experience.
In 1693, Dr. Halley compiled a mortality table and by the end of the eighteenth century
several life assurance companies were transacting business according to actuarial principles.
In the early days of life assurance, policies were frequently taken out on the lives of others by
persons who had no financial interest apart from a gamble.
This practice led to crimes being committed in order to obtain the insurance monies.
The life Assurance Act, 1774 was passed to stop such malpractices.
The Act, popularly known as the Gambling Act, introduced the principle of insurable
interest.
Historical Development of life Assurance in East and Central Africa
Modern life assurance was introduced to Africa by the colonial powers towards the end of
19th Century.
Insurance companies from the mother countries extended their activities to the territories
newly acquired by their respective governments.
Initially the companies operated as agency offices, which later on became branch offices.
The branch offices acted more or less like a post office, submitting statistics to their mother
companies abroad.
The local economy did not benefit from insurance since all the premiums were being
remitted abroad.
8. 8
It was not until the 1930’s that local people began involving themselves in insurance
activities by setting up local insurance companies.
Before the coming of the Europeans African communities had always practiced some forms
of traditional life assurance.
A person belonged to the family and by extension to the clan and tribe.
If any calamity befell the breadwinner, their dependants would be taken care of by the family
and clan members.
Funerals were organized by clan members.
Even wife inheritance had its advantages in that the new husband was expected to provide
material support to the wife and the children.
These traditional systems are however dying fast due to rapid economic and social
developments, which have brought about a new economic and social order.
Colonialism and development have broken down traditional ties.
The extended family system has tended to grow weaker and weaker over time.
Urbanization has also weakened the traditional ties.
Today, the responsibility of providing for oneself and family rests squarely on one’s
shoulders.
CHAPTER TWO
PRINCIPLES OF LIFE ASSURANCE
A. THE CONTRACT OF LIFE ASSURANCE
Life assurance is a contract in which one party (assurer) agrees to pay a given sum (sum assured)
upon the happening of a particular event contingent upon the duration of human life, in
consideration of payment of a smaller sum or certain equivalent periodical payments by another
(premiums).
A. 1 Terms Commonly used in Life Assurance
Assurer: The party who agrees to pay money to another party on the happening of a stated
contingency.
Assured: The party entitled to receive money under an assurance contract on the happening
Of a stated contingency.
Life Assured: The person on the duration of whose life the assurance depends
9. 9
Sum Assured: The amount payable on the happening of the contingency assured against..
Assurance Policy: The document which evidences an assurance contract.
Premium: The consideration for the contract. May be a single premium or a periodic
premium payable in advance at stated intervals. Periodic premiums are of two
kinds:
True Premiums: - A loading is added to the annual premium which is then
divided by two, four or twelve as the case may be to obtain the
half-yearly, quarterly or monthly premium.
- If death occurs before the whole of a year’s premiums have been
paid, no further premiums are payable and no deductions are made
on account of the remaining part of the year’s premiums.
Installment Premiums: - The premium is really an annual one payable by
Installments.
- Any unpaid installments in the year of death are deducted
from the sum payable.
B. INSURABLE INTEREST
May be defined as the legal right to insurer arising out of a financial relationship,
recognized at law, between the insured and the subject matter of insurance.
In order to enter into a contract of life assurance, the assured must have an insurable
interest in the subject matter of the assurance (i.e. life assured.)
A life assurance contract without insurable interest is void.
B. 1 Cases in which Insurable Interest Exists
An individual in his/her own life, for an unlimited amount.
An individual in the life of his/her spouse for an unlimited amount.
A creditor in the life of his/her debtor, upto the amount of the loan plus interest.
An employer in the life of his key employee, to the extend of the value of his services for
the period of notice agreed between them.
Business partners in each others lives if there is an obligation on the surviving partners to
purchase a deceased partners share in the business.
N/B
10. 10
Children have no insurable interest in their parent’s lives, nor parents in the lives of their
children. However, in some countries parents are allowed limited insurable interests in lives of
their children and vice versa.
B. 2 Essentials of Insurable Interest
There must be a subject matter of insurance, i.e. a life assured.
The assured or policyholder must have an insurable interest in the subject matter of
insurance.
The insurable interest must be a legal interest, i.e. recognized by the Law.
The insurable interest must be current, not a mere expectation of a financial benefit. An
example of this is the position under a will. As a will can be changed at any time before
death, no current beneficiary can be certain of receiving anything, and so insurable interest is
not allowed.
B. 3 When Insurable Interest Must Exist
In life assurance insurable interest must exist at the time of effecting the policy, i.e. at
inception of the contract.
The existence and amount of the interest is irrelevant when a claim is made, as long as it was
established when the contact was made.
This is because life assurance policies are not contracts of indemnity and so it is not
necessary to establish that the insured had suffered a particular financial loss.
This means that:
The original owner can assign the benefit of the life policy to another person, either
temporarily or absolutely. The new owner of the benefits does not have to have
insurable interest in the life assured.
The original owner can sell the life policy to another person.
A life policy could be effected to repay a loan, but then the loan is repaid before the
end of the contract. The policy is allowed to continue.
A key person policy could be effected by an employer on the life of a key employee,
but the life assured leaves the company. The policy is again allowed to continue.
C . UTMOST GOOD FAITH
11. 11
Contracts of insurance are contracts “uberrima fides”, i.e. contracts of utmost good faith.
Utmost good faith may be defined as a positive duty to voluntarily disclose, accurately and
fully, all facts material to the risk being proposed, whether requested or not.
A material fact is a fact which would influence the life office in deciding whether or not to
accept the life risk and on what terms and premium.
Examples of material facts are:-
Occupation of the proposed life assured.
Current health status of the proposed life assured.
Previous life assurance history, if any,
Family medical history
Habits and leisure pursuits of the proposed life assured.
Some facts though material need not be disclosed. Examples of such facts include:-
Facts of common knowledge
Facts of Law
Facts which the proposer does not know.
Facts which the assurer knows or ought to know
Facts which medical examination and related reports can reveal.
Facts about which the assurer waives information
Facts which lessen the risk
C. 1 Reciprocal Duty
The duty of the disclosure is a reciprocal duty. This means that it applies to the insurer as well.
C. 2 Duration of the Duty of Disclosure
In life assurance, the duty of disclosure starts at commencement of negotiations and
continues right up to the time when the contract is completed.
A life assurance contract is completed when the first premium is paid and accepted by the life
office.
C. 3 Consequences of Breach of Duty
Where the duty of disclosure is not observed, the insurer has the right to treat the contract as
void.
12. 12
D. ACTUARIAL PRINCIPLES
Like all types of insurance, in life assurance the policy holders pay premiums into a common
fund from which claims are paid out.
In order for the insurer to be certain that they will have enough funds to pay out all the
claims, there has to be a relationship between the premiums charged and benefits given under
a policy.
In life assurance it is much easier to predict how many claims will occur and how much they
will cost. This is because mortality tables can be used.
Mortality tables are the results of the study of mortality (i.e. deaths) over the last couple of
hundred years.
A mortality table shows for each age the number of persons living at that age and the number
of persons dying at that age.
By dividing the number of living by the number dying the mortality rate can be calculated.
The mortality rate is the chance of dying at a specified age.
D. 1 Natural Premiums
By using mortality tables, the actuary can find out the mortality for any given age and, by
multiplying this by the sum assured, can work out the pure or net premium for that year. This
is the premium required just to meet claims in respect of those that die during the year.
Next years cover will cost a little more as all lives will be a year older. Each subsequent
years cover will cost more and more and so the natural premium will rise each year,
becoming too prohibitive.
The natural premium system has thus been replaced by the level premium system, where the
premium for a given sum assured is level throughout the term of the policy.
D. 2 Level Premium System
The risk of death increases with age.
If a level premium is charged throughout the duration of a policy the premium in the early
years is higher than is needed to meet the current claims costs
13. 13
Thus there will be money in hand to meet the cost of the greater risk in later years when the
premium will be less than required to cover such risks.
The excess in the early years forms a reserve which can be drawn on to meet the heavier
claims in the later years.
E. 3. Premium Loading
The premium calculated from a mortality table is a net or pure premium, and adjustments or
loadings will have to be made to arrive at the actual premium chargeable.
These loadings would include:
Interest
Commissions
Management expenses.
14. 14
CHAPTER THREE
SPECIAL FEATURES OF LIFE ASSUARANCE
A. INTRODUCTION
Life assurance is fundamentally different from all other forms of insurance in that it is not a
contract of indemnity.
It is concerned with a specific event which must happen some time and a claim must,
therefore, generally speaking, fall upon the insurers.
Under practically all other classes of insurance a claim may never arise. The contact
indemnifies the policy holder against loss only if, and when, the insured event occurs.
The following special features apply to life assurance contracts:
A. 1. Long Term Contracts
Most life assurance contracts are long term
The period of the contract is usually longer than one year
A. 2. Premium Payment
Life assurance premiums are payable by level amounts throughout the term of the policy .
Payment may be made yearly, half yearly, quarterly, or monthly
A. 3. Participation in Profits
With – profit or participating policies benefits from the profits of the company
Owners or holders of such policies shares in the profits of the company.
Life Assurance Company value their assets and liabilities at regular intervals, usually once
every year.
If the value of the assets exceeds that of the liabilities, there is a surplus.
90 – 95 parent of the surplus will be awarded to with-profit policyholders as a bonus.
The bonus so awarded is added to the sum assured and only becomes payable along with the
sum assured in the event of a claim by death or maturity.
A. 4. Surrender Value
When the assured no longer wishes to keep the policy in force by payment of premiums, they
can surrender the policy for cash.
15. 15
The cash surrender value is a proportion of the premiums already paid.
Most life policies acquire surrender value after at least two or three years.
B. 5. Paid–up Policy
This is an alternative to surrender value
The assured stops payment of premiums under the policy, but the policy remains in force for
a reduced sum assured known as the paid up value.
A. 6. Tax Relief
Life assurance premiums and contributions to pension schemes attract tax relief.
The tax relief varies from country to county
A. 7. Investments
Life assurance companies receive huge sums of money, in the form of premiums from their
policy holders.
These huge amounts of premium provide funds for capital investment.
A. 8. Cooling of Period
This is a period following the commencement of the life assurance contract, within which the
assured is allowed to cancel the policy without incurring any penalty.
The period is usually the first thirty days of the life assurance contract.
A full refund of premium will be made.
CHAPTER FOUR
FUNCTIONS AND BENEFITS OF LIFE ASSURANCE
Life assurance performs vital functions and offers a wide range of benefits.
A. FUNCTIONS OF LIFE ASSURANCE
Life assurance performs three main functions:
16. 16
Risk transfer
Creation of a common pool
Equitable premium
A.1. Risk Transfer
This is the main function of insurance.
Risks are transferred by individuals, families and organizations to insurers through the
purchase of insurance policies.
A. 2. Creation of a Common Pool
Life assurance companies receive premiums from many people.
These premiums create a common pool from which the losses of the unfortunate few who die
are paid.
A. 3. Equitable Premiums
The risk of death increases with age.
This is reflected in the premiums which each assured will make to the common pool.
Old members of the pool pay more premium than the young ones as they present higher risks
of death.
B. ROLES AND BENEFITS OF LIFE ASSURANCE
Life assurance plays a fundamental role in the country’s economy, and offers a wide range of
benefits to individuals, the communities and the nation.
C. 1. The Role of Life Assurance to The Individual
Provides family protection.
Encourages saving.
Provides funds for school fees
Assists in house purchase
Provides for retirement
17. 17
Gives peace of mind
B. 2. The Role of Life Assurance to The Community.
Creation of employment opportunities.
Assists people to buy houses.
Provides funds for funeral expenses.
Provides funds for school fees.
C. 3. The Role of Life Assurance To The Nation
Creation of employment opportunities
Creation of funds for capital investment
Encourages people to save
Provides funds for the government through taxation
Foreign exchange earning
Sponsorship of sporting events
Contribution to charitable organizations.
Supplements government efforts to provide retirement benefits
CHAPTER FIVE
LAW OF CONTRACT
A. INTRODUCTION
A contract may be defined as a legally binding agreement made between two or more parties.
Whilst all contracts must include an agreement, not every agreement is a contract
To be a contract the agreement must give rise to legal rights and obligations.
B. ESSENTIALS OF A VALID CONTRACT
For a contract to be valid the following six essentials must be present:
18. 18
Agreement
Consideration
Capacity to contract
Form or formality
Intention to create legal relations
Legality of a contract
B. 1. Agreement
Signified by offer and acceptance
Before a contract can become binding there must have been offer by one party which has
been accepted by the other
An offer is a proposal made by one party to another to enter into a contract, and has the
following features:
May be made orally or in writing or by conduct of the parties.
May be withdrawn at any time before acceptance.
Lapses if not accepted within a stipulated period.
Lapses if either party dies before acceptance
Ends if the person to whom it is made rejects it outright.
Terminates if the other party makes a counter-offer.
Acceptance may be made orally, or in writing, or by conduct of the parties. Acceptance by
conduct occurs when an offer is accepted by being acted upon. Acceptance has the following
features:
Must be strictly in accordance with the terms of the offer;
Should be communicated to the offeror;
May be made by post, when the posting rule applies. The rule is that a contract is
formed when the letter of acceptance is posted even though it strays or is delayed,
provided that the letter:
a) was properly addressed;
b) adequately stamped, and
c) actually posted
B. 2 Consideration
19. 19
May be defined as something of value that passes from one party to the other in return for
which some obligation is undertaken. It is the price paid by one party to support a promise by
other party.
In an insurance contract, consideration is the premium paid by the insured to support the
promise by the insurer to provide cover and pay a claim if it occurs.
Consideration must :
be real or genuine ;
have some value, but need not be adequate;
not relate to the past;
be in a legal form;
move from the promise.
B. 3 Capacity to Contract
Capacity in the law of contract means the right every person has to enter into legally binding
agreements.
The contractual capacity of some persons is limited due to age, status, or health.
As a result the law gives special treatment to the following persons:
a) Minors
These are persons below the age of 18 years.
In some countries, they are persons aged below 21 years.
Contracts that are binding on minors include:
Contracts for purchase of necessaries, i.e. food, clothing and shelter;
Contracts of employment beneficial to the minor;
Articles of apprenticeship.
b) Insane Persons
A person of unsound mind is bound by his contract unless he can prove that:
when he made the contract he was too insane to understand what he was
doing; and
the person with whom he made the contract was aware of his insanity and
incapacity.
A person of unsound mind is always liable to pay a reasonable price for any necessaries
supplied to him/her
20. 20
c) Drunken Persons
The rules governing insane persons equally apply to drunken person.
d) Bankrupts
A bankrupt may not enter into any contract without the consent of his trustee.
e) Corporations
May contract for any purpose connected with their business.
Contracts made beyond the purpose for which the corporation was formed are “ultra vires”,
i.e. beyond the powers of.
Such contracts are not valid.
C. 4 Form or Formality
Contracts must be in a form required by the law.
Some contracts must be in writing, e.g. hire purchase agreements, bills of exchange, transfer
of shares in a registered company, money lending agreements, transfer of interest in land, and
marine insurance contracts.
Other contracts need not be in writing but must be evidenced in writing, e.g. a life assurance
contract.
Still other contracts need not be in writing and need not be evidenced in writing, e.g.
contracts made by conduct of the parties.
B. 5 Intention to Create Legal Relations
The parties to the contract understand that they can sue or be under the contact.
B. 6 Legality of a Contract
A contract is not valid if its object is illegal.
For example, a contract to defraud, or evade the course of justice would not be effective.
Distinctions should be drawn between the following
B.6.1 Illegal contracts: - Those prohibited by law and incur some penalty, e.g. a contract to
21. 21
defraud or murder
B.6. 2 Void contracts: - Those with no legal effect whatsoever, e.g. illegal contracts or a life
assurance where no insurable interest exists.
B.6.3 Voidable Contracts: - Those which can be either enforced or repudiated by one of the
parties at his/her own options e.g. a life assurance effected by
either affirmed or repudiated on his attaining the age majority.
B.6.4 Unenforceable Contracts: - those which cannot be enforced by the courts if one of the
parties refuses to carry out his obligations, e.g. a contract
with a doctor to undertake an operation may not be
enforced if the doctor declines.
C. TYPES OF CONTRACT
C.1 Contracts of Record
Consist of court judgment involving debts to be paid.
C.2 Specialty Contracts
Also known as contracts under seal or Deeds.
Must be signed, sealed and witnessed.
C. 3 Simple Contracts
Do not require much formality
May be made orally, in writing or by conduct of the parties
Must be supported by consideration
D. DISCHARGE OF A CONTRACT
A contract may be discharged in any one of the following ways:
D. 1 By Performance
A contract is normally discharged by the performance of the obligations expressed in it.
Thus, a life assurance is discharged by payment of the sum assured at death or maturity.
D. 2 By Breach
A breach of the contract occurs when one of the parties either fails to perform or performs
poorly.
Breach renders the contract voidable.
If the breach is sufficiently serious the injured party has the right to sue for damages.
D. 3 By Agreement
A contract may be discharged by mutual agreement between the parties.
22. 22
For example, a life assurance policy will normally contain a condition that the contract will
terminate if the assured ceases to pay premiums, the assured being granted a surrender value,
if a certain minimum number of premiums have been paid.
D. 4 By Novation
This is the substitution of a new contract for the old one.
For example, the cancellation of a whole life policy and the issue of an endowment policy on
the same life, the reserve value or the surrender value of the old policy being applied to
reduce the premium under the new one.
D. 5 By Frustration
This occurs when an event makes it impossible to perform.
For example, destruction of the subject matter of the contract, illness, accident, outbreak of
war.
D. 6 By Bankruptcy, Insanity or Death
A contract can be discharged by the bankruptcy, insanity or death of either party.
E. REMEDIES FOR BREACH OF CONTRACT
A breach of contract by one party gives the injured party certain remedies which depend on
the extend and importance of the breach.
The main remedies available to the injured party include:
Recession, i.e. cancellation of the contract.
Sue for damages
Obtain a court order for specific performance
Obtain a court order for an injunction.
23. 23
CHAPTER SIX
LAW OF AGENCY
A. INTRODUCTION
Agency is a special relationship whereby one person, known as the agent, agrees on behalf of
another, known as the principal, to arrange a contract between the principal and a third party.
An agent need not necessarily be in the permanent employment of his principal. Similarly, he
may have authority to bind his principal in connection with only one specified transaction or
with a series of transactions of a particular kind or with all his principal’s affairs. The scope
of his authority must be clear, definite and determined.
Agency is constituted by an agreement whereby the principal agrees to entrust a particular
business to the agent who undertakes the duties in connection with the performance thereof.
There is a definite understanding that all the rights and duties resulting from the business will
be conferred and imposed upon the principal.
B. CREATION OF AGENCY
The relationship between the principal and the agent may rise in one of several ways:-
B. 1 Consent
The principal gives express instructions to the agent to act for him. This may be done orally or in
writing.
B. 2 By Necessity
Agency by necessity arises when a person is entrusted with goods belonging to another
person and takes necessary measures in an emergency to save the goods.
For example, should a live animal be conveyed to a wayside station where no one is waiting
to take charge of it, the railway officials may have to tend it and feed it in order to preserve
its life.
In such circumstances the railway company becomes an agent of necessity and the owner of
the animal becomes liable to recompense the company.
24. 24
B. 3 By Ratification
Agency by ratification arises when an agent acts outside his formal authority and the principal
accepts the act as having been done on his behalf.
B. 4 By Apparent Authority
This is authority which third parties are entitled to assume that an agent possesses. The agent
may or may not posses the authority.
The principal is, therefore, bound not only by what are within the express authority of the
agent but also by acts that are within the agent’s apparent authority.
B. 5 By the Doctrine of Undisclosed Principal
The Law allows an agent to act for a principal whose name is not disclosed.
The undisclosed principal is responsible for the agent’s actions provided those actions are
lawful.
C. TYPES OF AGENT
C. 1 Universal Agent: - One who has full powers to perform any act on behalf of the
principal, e.g. manager of an overseas branch of a company.
C. 2 General Agent: - One who is empowered to act for his principal in certain specified
capacities only, e.g. a shop manager or company official.
C. 3 Special Agent: - One with authority to act on a particular occasion or for a specified
purpose: e.g. to buy a particular article for the principal.
C. 4 Del Credere Agent: - One who undertakes responsibility for the due performance of
contracts by people whom they introduce to their principal.
C. 5 Mercantile Agent: - One who has authority to sell goods, consign goods for sale, buy
goods or raise money on the security of goods.
Has actual possession of goods which have been entrusted to
him for sale;
Has authority to sell the goods in his own name.
Possesses a lien upon his principal’s goods for his
commission.
Possesses insurable interest in the goods
C. 6 Broker: - One who negotiates for both purchase and sale of goods, e.g. stock broker.
25. 25
Acts for both buyers and sellers
Has no actual possession of goods.
D. DUTIES OWED BY AGENT TO PRINCIPAL
To be obedient
To carryout personal performance
To exercise due care and skill
To act in good faith
To exercise accountability
E. DUTIES OWED BY PRINCIPAL TO AGENT
To pay commissions due
To reimburse expenses
F. AUTHORITY OF AN AGENT
Agents have four types of authority:
Express authority: - One which principal gives either orally or in writing.
- if in writing, it may or may not be under seal.
Implied Authority: - One which an agent has to do anything which is necessary for, or
incidental to the carrying out of his express authority.
Usual Authority: - One which is usual or ordinarily acceptable in a particular trade or
profession.
Apparent Authority: - One which the public believes an agent has while he does not
actually have it.
G. TERMINATION OF AGENCY
An agency may be terminated in any of the following ways:
On the completion of the purpose for which the agency was formed.
On the expiration of the period fixed for the duration of the agency.
On the death on insanity of either the principal or the agent or by the solvency of the
principal.
By the principal revoking the contract.
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By the action of the agent in renouncing the agreement.
By mutual consent of the parties.
On bankruptcy of the agent
By frustration;
If the object of the agency becomes illegal.
Not all consequences flowing from principal/agent relationship cease on termination of
agency.
For example;
Where, at the termination of agency, the principal is owed money by the agent, payment is
still due;
Where, at the termination of agency, the agent is owed money by the principal, the money is
still due;
If the agent has committed an offence, such as a breach of his duty, the principal may still sue
him.
CHAPTER SEVEN
LIFE ASSURANCE PRODUCTS
Introduction
Life policies are based on the life of a particular person, the LIFE ASSURED, and
benefits become payable on the death of that person.
The ASSURED (sometimes referred to as the person assured or the policy holder) is the
name given to the person who effects or takes out the policy and is the original owner of
the policy.
A. Categories of life policies
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Own Life Policy: the assured and the life assured is one and the same person. The
majority of policies are of this type.
Life-of-another policy: a policy taken out by an individual on the life of another named
individual. The assured and the life assured are two different persons.
Joint Life Policy: a policy taken out to cover two and possibly more lives jointly. It is
commonly effected by married couples and business partners on their joint lives.
B. Basic Life Policies
Life assurance policies fall broadly into three different types:
Term or temporary assurance
Whole life assurance
Endowment assurance
B1. Term or Temporary Assurance
The oldest, simplest and cheapest type of policy, Provides life cover over a specified
period or term
Pays the sum assured on the death of the life assured provided the death occurs within a
specified period or term.
If the life assured survives the term, nothing is payable and the premium is not refunded.
Does not acquire surrender value
Issued without participation in profits.
B1.A. Types of term assurance
Level term assurance: The sum assured and the premium remain
constant throughout the term of the policy
Renewable term assurance: The assured has the option to renew the policy at its
expiry without medical evidence.
Convertible term assurance: The assured has the option to covert the policy to an
endowment or whole life contract at any time during the currency of the policy, without
further evidence of health.
Decreasing term assurance: The level of cover decreases by a stated amount each
year, so that at the end of the final year, it is nil.
Increasing term assurance: The assured has the option to increase the sum assured
periodically to counter the effect of inflation.
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Family income benefit: Provides an income for a family in the event of death of the
provider.
B1.B. Uses of term assurance
Family protection
Provision of cover while on business trip abroad
Mortgage protection
Key person assurance
B.2. Whole Life Assurance
Basic purpose is to pay benefits whenever death occurs.
Provides payment of a capital sum on the death of the life assured whenever that shall
occur
Issued with or without participation in profits;
Premiums are paid throughout life or may be limited to a specified number of payments.
The cheapest form of policy to provide permanent protection for dependants.
B.2.A. Types of Whole life Assurance
With-profit whole life: Provides payment of the basic sum assured plus bonuses.
Non-profit whole life: Provides payment of the basic sum assured only.
B.2.B. Uses of whole Life Assurance
Family protection
Provision for inheritance tax liability
B.3. Endowment Assurance
Basic purpose is to provide a good investment return on premiums invested plus life
cover over a specified period
Provides payment of a capital sum at the expiry of a specified period or on the death of
the life assured if earlier,
May be effected either with or without profits
Premiums are normally payable throughout the whole term of the assurance, although
they may be limited to a shorter period.
B.3.A. Types of endowment assurance
Non-profit Endowment: Pays out only a fixed guaranteed sum assured at maturity or on
early death
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With-profit Endowment: Pays out a guaranteed sum assured, at maturity or on earlier
death, plus any accrued bonuses and a terminal bonus.
Flex-Endowment: Can be surrendered for cash, without the normal surrender penalty, at
any time after a specified period- usually ten years
The surrender value is usually guaranteed or part-guaranteed.
Unit Linked Endowment: Part of the premium is used to buy units on a regular basis.
Value of the policy goes up and down with the value of the units.
Pure Endowment: -Provides no life cover
-Pays out the maturity value at the date specified
if the life assured is alive
-No pay out if the life assured dies before maturity date
B.3.B.Uses of Endowment Assurance
Family protection
Savings
Mortgage protection
Provision for retirement
C. With-Profit policies
A with-profit policy is one which benefits from the profits of the company because the
premium payable includes a special loading.
This type of policy enables the assured to share in the profits of the life office. Each year
the life office will carry out a valuation of its assets and liabilities and from any profit it
will award a BONUS or PROFIT to with profit policyholders in the form of an additional
to the sum assured.
This additional payment does not become payable until the maturity date or death of the
life assured.
Bonuses are usually allocated annually as a declared percentage of the sum assured. This
bonus may be calculated simply on the sum assured or on the total of the sum assured and
bonuses previously allocated.
Additionally, the life office may award a TERMINAL BONUS which only becomes
payable at the termination of the policy by claim or maturity.
D. Unit-Linked Policies
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These are policies which are directly linked to the investment performance of the
company
Part of the premium is applied to purchase units in a special fund operated by the
company
The remaining part of the premium is used to purchase life cover
E. Childrens' Policies
A number of life policies are available for children. These include:
E1. Childrens' Deferred Assurance
Taken out by a parent or guardian while the child is in infancy, to enable the child at age
18 or 21 to obtain life assurance benefits irrespective of health at that time
When the child reaches age 18 or 21(the option date), two options are available: either to
take the cash value of premium s paid with interest or continue the policy in his/her own
name, as an endowment or whole life, without the need for medical evidence.
Should the parent/guardian die before the option date, payment of premiums is waived
but the policy continues to run until the option date.
If the child dies before the option date, the premiums are returned to the parent/guardian,
with or without interest, and the contract ceases.
E2. School Fees Policies
Designed to provide funds for children school fees
Usually effected as endowment assurance policies by the parent or guardian on their own
lives.
F. Supplementary Benefits or Riders
These are optional benefits which can be added to the basic life policies
Usually available on endowment and whole life policies only.
Usually involve an additional premium, and their acceptance would depend on the rating
given by the life office.
The most common options are:
F.1. Waiver of Premium
Payment of future premiums would be waived if the life assured is unable to
follow his normal occupation due to injury of illness.
F.2. Disability benefit
The policy pays the sum assured if the assured becomes totally and permanently
disabled.
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F.3. Double accident benefit (Accidental Death Benefit)
The policy pays double the sum assured if the life assured dies as the result of an
accident.
F.4. Increasing Cover option
The assured has the option to increase the sum assured under the policy
periodically to counter the effect of inflation.
F.5.Dread Disease Cover or Critical Illness Cover
The policy pays the sum assured immediately the life assured is diagnosed with
any of the following diseases/medical conditions:
Heart attack
Stroke
Cancer
Kidney failure
Coronary artery disease
Major organ transplant
Paralysis
Blindness
Major Burns and Loss of limbs
F.6. Funeral benefit Cover
Designed to provide for funeral expenses.
The policy pays out the sum assured as soon as the life assured dies, usually within
48hours.
G. Personal Accident Insurance
This policy pays the insured or their legal personal representatives a sum of money in the
event of the insured's disablement or death by accident
The policy can be offered as a rider on life assurance plans but is also available on a
"Stand-alone" basis.
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The policy can be extended to cover certain specified diseases, when it becomes known
as personal accident and sickness policy
G1. The Insured Event
Bodily injury caused by violent, accidental, external, and visible means, which shall be
solely and independently of any other cause resulting in death or disablement.
G2. Benefits Payable Under the Policy.
Death Benefit
Total Permanent Disability Benefit
Total Temporary Disability Benefit
Medical Expenses
G3. Policy Exclusions
War, invasion, acts of foreign enemy, hostility, civil war, rebellion, revolution,
insurrection, mutiny, or usurped power, and provoked assault.
Suicide or attempted suicide
The insured taking part in strike or riot
Big game hunting, mountaineering, winter sports and racing.
Pregnancy, child birth or any complication arising there from
Engaging in aviation other than a fare paying passenger on a recognized airline operating
on a regular scheduled route
Self inflicted injuries
Indulgence in alcohol, narcotics or drugs not prescribed by a qualified doctor
H. Permanent Health Insurance
Provides a regular income to replace that which the insured losses when he/she is unable
to work due to injury or illness
The benefit only becomes payable while the insured is disabled as defined in the policy.
Under the policy, disability means that the insured is totally unable by reason of sickness
or injury to follow his/her normal occupation or any other occupation
Classified as long term insurance because as long as the insured keeps paying premiums
and complies with policy conditions, the insurer cannot cancel the policy or increase the
premium no matter how many claims are made.
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The policy is also known as non-cancellable insurance or income protection policy.
The policy contains a "Waiting Period". This is the period for which a benefit is not
payable. The benefit only becomes payable once the insured has been disabled for the
waiting period
The standard waiting period are four weeks, thirteen weeks, twenty six weeks or fifty two
weeks. The longer the waiting period, the cheaper will be the premium since the duration
and frequency of claims is thereby reduced.
H1. Policy exclusions
Permanent health insurance policy will not pay any benefit for disability arising from:
War, invasion, acts of foreign enemies, military or usurped power
Self inflicted injury
Participating in any criminal act
Taking alcohol or drugs other than under the direction of a registered medical doctor
Pregnancy, child birth, or any complication arising there from
Aviation other than as a fare paying passenger on a normal flight
HIV/Aids
I. Annuities
An annuity is a contact to pay a regular income to an annuitant, ie. the person on whose
life the contact depends
The regular income is usually payable for life or a guaranteed period
This income is bought by an individual with a single premium or a series of premiums
An annuity can be arranged on a joint life basis
I1. Types of Annuity.
I.1. A. Immediate Annuity
The annuity is bought by a single premium
Payment of the annuity commences immediately
Suitable for people who have retired or are about to retire
I.1.B. Deferred Annuity
The annuity is bought by either a single premium or a series of premiums
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Payment of the annuity commences at a future date, eg. at age 60 or 65
Premiums are usually refunded should the annuitant die during the deferred period
Suitable for people who are still in active employment
I.1.C. Annuity Certain
Provides payment of an annuity for a specified period regardless of whether the annuitant
survives
Should the annuitant die during the period of payment, the annuity continues to the end of
that period
I.1.D. Guaranteed Annuity
Provides payment of an annuity for a guaranteed period, say ten years, and for life
thereafter.
I.1.E. Reversionary Annuity
Provides for the payment of an annuity if the annuitant is living at the death of another
life
Often purchased by a husband who wishes to make provision for his wife
I.1.F. Joint Life and Last Survivor Annuity
Payable while two people, husband and wife, are alive.
On the death of one, payment continues t the same or smaller rate on the life of the
survivor
I.1.G. Temporary Annuity
Payable for a specified number of years
Payment ceases if the annuitant dies during the specified number of years
I.1.H. Escalating Annuity
Annuity payment increases by a certain amount each year in order to counter the effect of
inflation.
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CHAPTER EIGHT
GROUP LIFE ASSURANCE AND PENSION SCHEMES
A.Group Life Assurance
Provides cover for a group of lives, usually employees of a firm;
Mostly effected by employers to provide death benefits for dependents of those
employees who die while in service but before reaching normal retirement age;
Usually tied to a retirement benefit scheme but may be effected on its own.
The employer usually meets the whole cost of the assurance.
A group or master policy is isued to the employer, but the insured employees get a
membership certificate which indicates the level of benift.
The employer decides the level of benefit, which is either a flat rate for all the members
or a multiple a member’s salary, e.g four times a member’s annual salary.
In most cases, cover cannot continue beyond age 65.
A.1. Group life underwriting
Insurers underwrite group life assurance on a more lenient basis than for individual
policies because a group of people is being insured.
The majority of insurance companies are prepared to offer a substantial amount of group
life cover without evidence of health provided the following conditions are fulfilled:
a stated minimum percentage of those eligible join the scheme at its inception,
e.g a minimum of 75% if there are more than 100 employees;
individual employees are actually at work on the day when they become eligible
for membership;
the group of lives to be assured must exist for some purpose other than assurance,
e.g clerical workers in an office or employees in a factory.
Evidence of health will be required in the following cases:
Groups of advanced age;
Groups engaged in hazardous occupations;
Lives who were ill when the scheme started;
All lives where the group is small, say, less than 20.
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Lives for whom exceptionally high sums assured is required, i.e lives with
sums assured above the Free cover limit.
A.2. PENSION SCHEMES
A Pension scheme is an arrangement whereby an employee receives a regular income
(pension) upon retirement at the normal retirement age.
The scheme is usually arranged by an employer for the benefit of employees.
A pension scheme may be contributory or non-contributory
Under a contributory scheme, both employer and the employees contribute to the funding
of the scheme. In a non-contributory scheme, only the employer contributes.
A pension scheme may either a money purchase scheme or a final salary scheme.
A money purchase scheme is one under which both the employer's and the employees
contributions are known. eg. 5% of each employee's salary. The benefit payable at the
normal retirement date is the accumulated contributions plus interest.
A final salary scheme is one under which the benefit payable at retirement is expressed as
a percentage of the employee's final salary, multiplied by the total number of years
service with the employer
A.2.1 BENEFITS PAYABLE UNDER A PENSION SCHEME
Withdrawal Benefit
Death Benefit
Early Retirement Benefit
Normal Retirement Benefit
Late Retirement Benefit
Invalidity Benefit
Dependant's Benefit
Immigration Benefit
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PROPOSAL FORMS, ACCEPTANCE LETTERS AND POLICY DOCUMENTS
A proposal form is a document where the party intending to take out insurance from the insurer
details the particulars of the risk for the information of the insurer and his subsequent
underwriting considerations.
An acceptance letter is a letter issued by the insurer stating that it will issue the policy provided
the first premium has been paid and the state of health has remained the same.
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On the policy document the insurer details the scope and nature of the insurance cover he
ordinarily grants to the majority of his clients wishing to take out standard insurance cover in that
particular class or type of insurance.
One common feature about proposal forms and policy documents is that both documents are
designed by the insurer. The proposer is only requested to complete the proposal form and not to
word it. Therefore, in cases of dispute between the insurer and the insured, the courts of law and
in fact the ordinary person other than the insured are more inclined to support the interpretation
of the insured rather than that of the insurer who happens to be the architect of the two contract
documents; the proposal form and the policy document.
The proposal form and the policy document once completed become the basis and evidence of
the insurance contract. By signing the proposal form, the insured warrants the truth of the
statements he has made on the form and if they should subsequently be proved false, the contract
can be made voidable at the option of the insurer.
In the same way, the insured can make the insurance contract voidable at his option should the
policy of insurance issued by the insurer contain false particulars and conditions which are
deliberately intended to cheat or prejudice the financial interests of the insured. The information
given on the two forms by the proposer and insurer should be made in light of utmost good faith
which is a characteristic of all insurance contracts.
The proposal form has the following main parts:
The part dealing with the personal particulars of the proposer such as his full name, occupation,
contact address and date of birth. These are important particulars that should not be untrue in
any material way. They are subsequently used by the insurer to identify one insured from the
other and to identify the correct beneficiary of the policy monies in the event of a claim under the
policy.
The part dealing with particulars of the risk which the proposer regard as material to the risk in
which case he must reveal them to the insurer to assist him to assess the extent of the risk
involved. In this part of the proposal form, the insurer solicits all material facts and details about
the risk he is going to cover. This is done by asking several questions aimed at revealing all what
he wants to know about the risk and he expects factual replies to these questions from the
proposer.
The part that specifies details of the contract required.
The part dealing with signature and declaration of the proposer about the information he has
given on the proposal form. The insured’s signature on the proposal form and his declaration of
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the truth of the statements on the proposal form have very serious legal consequences in all
insurance contracts.
The policy document is also divided into several important parts/sections:
1. Heading
2. Preamble/Introduction;
3. Operative Clause;
4. The Schedule/Particular Conditions.
5. Terms/Conditions
6. Exclusions
The Heading – The Heading will describe what type of policy it is, and may give very brief
details e.g name and policy number.
The Preamble – The Preamble may explain that this is a policy document which should be kept
in a safe place as it will be needed if a claim arises. It often says that the policy consists of
various parts such as the schedule, conditions and definitions, which together constitute the
whole contract. It will also explain whether there is one policy or a number of individual policies
in one document.
The Operative Clause – The operative clause will state that the benefit will be payable by the
life office subject to payment of premiums, proof of claim and proof of ownership. It may also
state where the benefit is payable and currency.
The Schedule – The schedule will contain all the individual details for that contract. These
include:
The policy number;
The life assured;
Date of Birth;
Assured/Insured;
Type of Policy;
Effective Date;
Maturity/Expiry Date;
Premium Amount;
Premium Frequency;
Sum Assured and when payable;
Fund Selected (for unit-linked polcies);
Allocation Percentage (for unit linked-policies)
The Conditions – The conditions will explain the detailed terms relating to the type of policy.
These will include:
40. 40
Lapse of policy- consequences of non-payment of premiums;
Explanation of bonus system;
Surrender provisions;
Paid up value;
Claims procedure;
Procedure for notice of assignment;
Dispute resolution;
Applicable Law;
Unit valuation procedure;
Cancellation procedure;
Time limit in which a claim may be reported.
Exclusions:
There might be standard exclusions such as:
Suicide;
Intentional self-inflicted injury;
AIDS and HIV;
War;
Participation in a criminal act;
Pregnancy and child-birth;
Definitions – The definitions section will contain meanings of words or expressions used in the
policy document that are not in general everyday use. Examples might be:
Life Assured
Assured;
Bid Price;
Offer Price;
Valuation Date;
Policy year;
Policy Anniversary;
Free Cover Limit;
Total and Permanent Disability.
The policy will bear a signature of one of the directors or managers of the life office/Insurance
company.
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Special Conditions – A policy may have special/specific conditions or exclusions included
because of the circumstances of that particular life assured. Example might be an exclusion for
death resulting from motor cycle racing for someone who takes part in that sport.
Benefits – This will describe the benefits payable and when. As large sums of money could be
involved, there should be no ambiguity. For income protection insurance claims, there has to be a
definition of disability. For critical illness policies, there has to be a list of diseases, the diagnosis
of which produces a benefit.
Additional Benefits
If any additional benefit is being added to the basic policy, the appropriate wording will have to
be added. This might be by endorsement or as an extra page or pages. The additional benefits
include:
Waiver of Premium;
Disability benefit;
Double Accident Benefit;
Increasing Cover Option;
Critical Illness Cover Option;
Endorsement
An endorsement is an addition to the standard policy document. It might be added at outset to set
out the terms of an additional benefit. Insurance clauses, endorsements and warranties are not to
be regarded as falling under policy conditions of an insurance policy. These are separate small
documents which get typed or attached to the insurance policy to modify the policy coverage as
may be given on the printed standard policy form.
It would be very difficult and costly in practice if the insurance company had to print the entire
policy document in event of an amendment. As an economy measure, insurance companies
attach endorsements as circumstances may warrant.
Legal Interpretation of An insurance Policy
If there are no attached, typed or handwritten clauses, endorsements or warranties to the
printed policy document, the wording or provisions of the printed policy form are
interpreted as they are and there should be no contradiction in the policy wording;
Where printed clauses, typed or handwritten endorsements are attached on the policy
form, the provisions of the attached clauses, endorsements or warranties override those
provisions on the printed policy form inconsistent therewith by the cover given by the
attached typed clauses/endorsements/warranties.
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The cover/statements given by the typewritten clause/endorsement/warranty override
that given on the printed clause/endorsement/warranty should the two be attached to and
form part of the same insurance policy.
All handwritten clauses/endorsements/warranties and other statements attached on the
policy form override the provisions of any other printed provisions on the policy form
printed clause or typewritten clause/endorsements/warranties attached to the same
policy form where they are inconsistent with each other.
It should be noted that the interpretation of an insurance document is based on the latest
intentions of the insurer when issuing the policy document. The handwritten details or
statements on the policy document is regarded as the latest wishes of the insurer as opposed
to the printed and typewritten statements on the policy document.
Acceptance Letter
In Looker V. Law Union and Rock Insurance Co. (1928), Looker proposed for a life policy
and received an acceptance letter stating that the policy would be issued on payment of the first
premium, on condition that his health remained unaltered. Before the premium was paid, he fell
ill. A friend paid the premium but Looker subsequently died from the illness.
It was held: That his estate could not recover as there was a continuing duty to inform the
insurers of any material change in the risk up until completion of the contract.
Basic Principles of Underwriting Life Insurance Business
The proposal form described above is the main form used to process an application for life
insurance.
Proposal Procedure
When an application is received for life assurance, it must be processed. The first task is to check
the life office index of proposers to see whether any earlier proposals have been made for that
life. The proposal must be checked to make sure that all questions have been answered and the
relevant declaration signed.
The underwriter can then decide if the proposal can be accepted at standard rates without further
investigation.
Most companies have a non-medical limit/free cover limit, the amount above which medical
examination will be requested.
One of the basic principles of underwriting is that the premiums paid by each insured is
sufficient to cover the risk which they bring to the life assurance fund. In order to implement
this, a mortality table is used to calculate standard premium rates applicable to average lives,
that is, where the potential mortality rate is unlikely to be heavier than that in the mortality table.
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When the life proposed for assurance is a heavier mortality risk, it is described as under average
or substandard. In these circumstances, standard premium rates cannot be used. Therefore, the
proposal is accepted on special terms, declined or deferred.
The following factors influence the assessment of the risk:
The proposer’s physical and mental condition;
The proposer’s medical history;
The proposer’s family medical history;
Occupation;
Life Style, Hobbies and leisure activities;
Financial factors;
Residential factors.
Proposer’s physical and Mental Condition –
The proposer’s physical and mental condition is important is risk assessment. Body weight has
important implications in underwriting. Both underweight and overweight may be indicators of
disease. Overweight may be a sign of disease such as diabetes whereas underweight may be a
sign of AIDS. As a rough guide, the normal weight in Kilos for a man in indoor clothing and
shoes can be obtained by subtracting 100 from the height in centimeters.
Another way in which obesity can be assessed is by the Body Mass Index (BMI). This is
obtained by dividing the weight in kilograms (in indoor clothes) by the square of the height in
metres. The BMI can be estimated quickly by using a nomogram in which two lines are specially
calibrated to represent the various heights and weights respectively. A straight line is drawn
between the points on the respective height and weight lines which apply to the applicant. This
crosses another line which has been specially calibrated to show the range of body mass indexes,
the figure at the point of crossing indicating the applicant’s BMI.
Regarding underweight, provided the underwriter is satisfied that there is no underlying disorder,
the applicant’s diet is adequate and that there has not been any recent weight loss, it is reasonable
to grant standard rates. For young women, however, possibilities of anorexia nervosa and
bulimia, both of which have significant mortality and morbidity, may need to be examined.
Mental conditions such as schizophrenia may carry the risk of suicide.
The proposer’s medical history
The underwriter will look for medical factors affecting longevity. Little importance will be
attached to colds, flu and any other usual illness. The following disclosures will normally be
investigated:
Heart Disease;
Overweight;
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Cancer;
Liver Disease;
Mental Disorders;
Diabetes;
HIV/AIDS.
The proposer’s family medical history
Some conditions tend to be hereditary, for instance, cancer and disbetes. It is possible to include
a question on the proposal form concerning early death in near relatives (father, mother, brother
and sister).
Occupation
The occupation of the proposer may be material for underwriting. The underwriter should look at
the occupation to see whether it presents a greater than average risk of death. Some occupations
may result into a higher than average risk of death by accident. Others may predispose a person
to a higher risk of disease.
Some examples of occupations with a higher than average risk of death by accident are:
Scaffolders;
Steel erectors;
Underground miners;
Oil rig workers;
Divers;
Professional Boxers;
Handlers of radioactive materials.
Some examples of occupations with a higher than average risk of a particular disease are:
Divers – the Bends;
Miners – Pneumoconiosis;
Chemical Workers – Various types of poisoning;
Asbestos Workers – Asbestosis.
Life Style, Hobbies and leisure activities
Smoking, alcohol consumption, drug taking and promiscuity can affect health and longevity.
Smoking plays a role in heart disease, peptic ulcers, chronic bronchitis and carcinoma of the
bladder. The ingredients in tobacco are carcinogenic and encourage malignant change in cells
with which they come into contact over prolonged periods of time.
45. 45
Many death in alcoholics are as a result of violence, accident or suicide. Alcohol excess can
cause many organic disorders such as cirrhosis of the liver, chronic gastritis and CNS
disturbances.
Examples of hobbies/pastimes that might be investigated by the underwriter include boxing,
diving, motor racing, motorcycle racing, mountaineering and parachuting.
Promiscuity will favour spread of diseases such as syphilis and AIDS.
Financial factors
Cases where the sum assured looks very big for the circumstances of the life assured should be
looked at carefully. If a policy is sold for a sum assured and/or premium that does not match the
life assured circumstances, then it may be a sign of overselling.
Residential Factors.
These risks may arise from political instability or warfare. This has been evident in recent parts
of Africa, Middle East and Southeast Asia.
Tropical countries may produce extra health risks because of the prevalence of tropical diseases,
poor sanitation and less sophisticated medical facilities.
