INSURANCE

1. LIFE INSURANCE
Lecturer: Phi Thi Minh Nguyet
Email: minhnguyetphi.aof@gmail.com

2. 1
2
5
4
Introduction to Life insurance
Types of Life insurance
Individual Life Insurance Policy Provisions
Group Life Insurance
CONTENT 3
Underwriting
6 Financial investment

3. 01
Introduction to Life
insurance
1.2
Definition of life insurance
1.1
Basic properties of Life Insurance
1.3
Determinants of Life Insurance Premium
Principles of Life Insurance
1.4
1.5 Life Insurance Key statistics

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What pop up in your mind
when you hear about “LIFE
INSURANCE”?

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Definition of Life insurance
Insurance
Life
Insurance
Non-life
Insurance
Health
Insurance
Traditional
Life
Insurance
Non-traditional
Life Insurance
Life insurance contract is a
binding agreement between the
policy owner and the insurer,
where the insurer agrees to pay a
sum of money upon the
occurrence of the insured
individual's death or other
events, such as terminal illness or
critical illness, and in return, the
policy owner agrees to pay a
stipulated amount of premium
at regular intervals or in lump
sums.

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Why Life insurance is important?
Life insurance is primary used to function in
personal and family situations as a way of financial
protection against potential risks
As a rule, a person’s death creates an immediate
need for money. The following is a list of some
needs that might be created from a person’s death:
Expenses created by final illness
Burial and funeral expenses
Debts that are due at time of death
Costs to administer the estates
Related taxes

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Why Life insurance is important?
A business – or the owner who owns the business-
generally purchases life insurance and annuity
products for one of two reasons:
 An individual life insurance policy can provide
funds to ensure that the business continues in
the event of the death of an owner, partner or
key person
 A business can purchase life insurance to
provide benefits for its employees

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Basic properties of Life insurance
Life
Insurance
The coverage period for
life insurance is usually
more than a year  it
requires periodic payment
A long-term
contract
Not a
contract of
indemnity
Policyholder, the
insured and
beneficiary are
often different
people
Provides
monetary
benefit
Incurs financial
profit from the
premium
The payment
obligations of different
life insurance
companies and/or third
parties (if any) are
independent with each
other
The policy owner is the guaranteed
and he or she will be the person
who will pay for the policy. The
beneficiary is a participant in the
contract, but not necessarily a party
to it
Life insurance
provides a monetary
benefit to the
designated
beneficiary in terms
of income to an
insured person's
family, burial, funeral
and other final
expenses
When the life
insurance contract is
due to terminate, the
insurance company
has to pay all
premium amounts
accumulated plus
interest on them

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Classifications of Life insurance
Life
Insurance
Based on purpose
Protection
policy
Investment
policy
Bundled
products
Lump sum
payment
Term life
insurance
Based on
components
Based on basis of
payment
Based on
duration
Unbundled
products
Installment
payment
Permanent
life
insurance

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Classifications of Life insurance
 Protection policies are policies which are designed to provide a benefit in the event of specified event,
typically a lump sum payment.
 Investment policies are policies in which the main objective is to facilitate the growth of capital by
regular or single premiums.
 Bundled products include various components including a life risk insurance component, savings and
or investment component
 Unbundled life insurance investment products separately identify life insurance cover and investments
or savings
 Lump sum payment policy: under this policy, the insured receives the total insured amount. Even all
premiums have not been paid, total insured amount is received by the nominee of the insured person.
 Installment payment policy: under this policy, the insured person and nominee receive the insured
amount in installment basis.
 Term life insurance policy: is a type of life insurance that guarantees payment of a stated death benefit
if the covered person dies during a specified term
 Permanent life insurance policy: is an umbrella term for life insurance policies that do not expire.
Typically, permanent life insurance combines a death benefit with a savings portion

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01
02 03
04
Insurable
interest
Utmost good
faith
.
Proximate
Cause
Indemnity
principle not
applicable
Principles of Life insurance

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Insurable
Interest
Principles of Life Insurance
01
In simple terms, insurable interest principle states that the insurance buyer
must have a relationship with the subject matter (a person, in the case of life
insurance) which is recognized at law and gives rise to a legal right to insure
that person
At the point of contract signing, the insurance buyer must hold this
relationship with the subject matter, otherwise the insurance contract will
become null and void
At any point of time within the validity of the life insurance contract, the
insurable interest relationship between the policyholder and the subject
matter no longer exists, the life insurance contract will be terminated prior to
the due date specified in the contract.

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Insurable
Interest
Principles of Life Insurance
01
The existence of insurable interest in life insurance contracts:
 Insurable interest of one person on his own life and his siblings
 A parent or guardian of a minor (person aged under 18) is given insurable
interest in that young person and vice versa
 Wives have an insurable interest in the life of husband and vice versa
 Debtors have a insurable interest of the life of creditor(s) and vice versa
 Masters have an insurable interest in the life of servants and vice versa
 A company has an insurable interest in the life of manager or director or
partners or other employees and vice versa
 Husband or wife has an insurable interest in the life of father-in-law or
mother-in-law and vice versa
 Insurable interest in the life of grandparents and vice versa

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Insurable
Interest
Principles of Life Insurance
01
Beneficiary designation
 Insurable interest of one person on his own life
 A parent or guardian of a minor (person aged under 18) is give insurable
interest in that young person and vice versa
 In most cases the beneficiary, as one nominated by the policy owner to receive
the benefit under the policy, does not need an insurable interest;
 If the applicant is the proposed life insured, he may nominate anybody as
beneficiary;
 If the applicant is not the proposed life insured (such a policy is called a third
party policy), the proposed beneficiary must have an insurable interest;

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On 01/01/2017, Ms. Lorry signed a 10-year life insurance
contract for her husband, Mr. Gordon. Unfortunately, they
are having some conflicts and going to divorce soon.
A. How can the life insurance contract be tackled after
they divorce?
B. Ms. Lorry is having an affair with Mr. Andrew, is she
entitled to buy a life insurance for Mr. Andrew

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Utmost Good
Faith
Principles of Life Insurance
02
Simply expressed, utmost good faith requires the disclosure of all
material facts, whether they are requested by the insurer or not
Non-medical application: if the insurance is arranged without a
physical examination of the applicant, the insurer will normally have
great difficulty in alleging that anything not covered by questions on
the application or personal physician's form is material.
Medical application: if the insurance is arranged with a physical
examination of the applicant, the insurer cannot hold against the
applicant any omissions or miss-diagnosing by the medically
qualified person concerned.

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Indemnity
principle not
applicable
Principles of Life Insurance
01
 In life insurance, the policies do not represent indemnities, so it is quite normal
for a person to have more than one life policy and each must pay in full upon
the insured event happening.
 The principle of subrogation does not apply to life insurance
 The principle of contribution does not apply to life insurance

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Always caring about her life, Ms. Lorry has signed 2 life
insurance contracts at the same time at Manulife and
Prudential with the sum insured being 300.000GBP and
500.000GBP respectively. Accordingly, if she dies within
the validity of both contracts, the insurance companies
with pay the sum insured in full. Unfortunately, on the
way back home from work, she was negligently
smashed by a truck driver, causing her death.
A. How much Lorry’s family gets from insurance
companies?
B. Total amount that Lorry’s family gets from related
parties if the truck drive has to indemnify 200.000
GBP according to the court’s decision

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Ms. Moonie is holding a 5-year life insurance contract
with Manulife. However, due to her financial difficulties,
she can no longer pay the periodic premium to
Manulife and wants to terminate her contract before
due.
A. Is she entitled to unilaterally terminate the
insurance contract before the due date?
B. What if she terminates the contract after 2 years?
C. What if she terminates the contract before 2 years?

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Determinants of Life insurance premium
The classic criteria usually applied to life insurance premium is that they should be:
 Adequate: so that the insured will be able to pay the benefit and meet other obligation
under the contract
 Equitable (fair): so that each policy owner is paying an amount in line with the risk and
contracted benefit involved

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Determinants of Life insurance premium
Determinants of life insurance premium
 Mortality: this indicates the rate at which insured lives are expected to die. To know, on
average, when an insured may be expected to die is a crucial factor in determining the
correct premium to charge
 Interest: in very simple term life insurance involve collecting money now and at
specified intervals, to provide for a benefit at some time or upon some event in the
future. This means insurance companies have some time – have an opportunity for
investment
 The interest earned on investment premium and previous interest earnings is
another crucial factor in determining premium rates.
 If the anticipated returns of investment are good, an insurer can charge lower
premium rates than its competitors, and/or make more profit for its shareholders.
Note: The above two factors combined will produce what is called net premium (pure
premium)

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Determinants of Life insurance premium
Determinants of life insurance premium
 Expenses: the net premium has to be subject to a loading (surcharge or additional sum)
to take care of all expected and possible expenses
 These will include all internal operating costs, commission, tax and overheads to
which any business is subject
Note: the loading added to the net premium produces the gross premium

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Determinants of Life insurance premium
Other factors affecting life premium rating
 Par or Non-Par: one unique feature of life insurance is that the insured has the choice to
select whether to effect a “Participating of non-participating” (Par or non-Par) policy
 Policies which are participating are entitled to receive a share of the divisible
surplus (profit) of the insurer. These are in the form of dividends
 Participating policies, naturally, are subject to higher premium rates than Non –
Participating policies
Note: not all insurance policies can be par or non-par. Term insurance are normally not on a
participating basis.

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Determinants of Life insurance premium
Other factors affecting life premium rating
 Competition: no insurer enjoys a monopoly position. What the market is charging can
not be ignore
 Economic changes: extended times of affluence or recession will doubtless have an
impact on all product prices, including insurance
 Fiscal change: a lasting increase in tax levels must be reflected in higher premium rates
 Company objectives: if a company is determined to increase its market share, premium
rating is an obvious area of concentration

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Life insurance statistics
Industry results (2018)
Revenue continues to grow with gross policy
revenue increasing by 6.3% over the year to $24.7
billion
(Source: https://home.kpmg/content/dam/kpmg/au/pdf/2018/life-insurance-insights-
2018.pdf)
Benefit payments increased by $0.9 billion to $12.9
billion or from 56.7% to 57.2% of premiums.
(Source: https://home.kpmg/content/dam/kpmg/au/pdf/2018/life-insurance-insights-
2018.pdf)

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Life insurance statistics
Industry results (2018)
Net profit after tax from risk products increased by $627 million to $1,307 million
(Source: https://home.kpmg/content/dam/kpmg/au/pdf/2018/life-insurance-insights-2018.pdf)

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Life insurance statistics
Leading life and non-life direct premium writing countries globally in 2018, by premiums (in billion U.S.
dollars)
(Source: https://www.statista.com/statistics/217257/leading-countries-by-life-and-nonlife-premiums-written/)

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Life insurance statistics
Largest life insurance companies worldwide in 2019, by market capitalization (in billion U.S. dollars)
(Source: https://www.statista.com/statistics/376359/largest-life-insurance-companies-by-market-cap/)

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Life insurance statistics
Life Insurance in Vietnam
In 2018, life insurance premiums came at
VND87.96 trillion (US$3.78 billion), up
33% year-on-year
Great potential for further development:
The proportion of Vietnamese that have a life insurance is still low
compared to many countries in the region and the world

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Life insurance statistics
Life Insurance in Vietnam - Market share in fiscal year 2017
(Source: https://www.statista.com/statistics/376359/largest-life-insurance-companies-by-market-cap/)