Financial Service Products

• The main financial service sectors

  The life insurance sector; the short-term insurance sector; the retirement sector; the health care sector; investment sector; and the banking sector.
• The intangible benefit of a financial services product

  you enjoy peace of mind, knowing that you won’t have the carry the full costs when the risk event happen
• Tangible benefit of a financial service product

  a monetary payment made by the insurer will of course be received whenthe risk event does happen
• Life insurance pays benefits on

  Death, disability, diagnosis of critical illness
• What needs does life insurance address

  If a breadwinner passes away, there are financial implications for those who were dependent on that person to provide for them financially. Individuals who have retired and who do not work anymore face the risk that they can live longer than they planned for and thereby outlive their savings.
• In exchange for paying regular premiums to a life insurer


  the life insurer will pay out a certain amount of money on an individual’s death to their dependants. This pay-out can be used to protect a person’s dependants from hardship arising from his/her untimely death by providing funds which can be used in a variety of ways
• What can money that is paid out upon death be used for

  funds for the children’s school fees, to cover living expenses previously covered by the breadwinner or even to pay off any outstanding amount on a home loan
• In exchange for paying a lump sum to a life insurer when an individual retires, the insurer will guarantee

  to pay them a regular income for as long as they are alive, thereby providing financial protection from living longer than anticipated.
• Insurance policy


  When a person buys an insurance product, they enter into a contract with the insurance company.
• Policyholder


  The person who enters into this contract, with the insurance company
• Benefit payments

  Under the insurance policy, the insurer promises to make certain payments to the policyholder, contingent or dependent on a specified risk event (or events)happening (or not happening).
• Beneficiaries

  If benefits on a policy are paid to individuals other than the policyholder (e.g. on a life insurance policy), these individuals are referred to as the beneficiaries
• Premiums

  The policyholder in turn promises to pay certain amounts to the insurer to receivethis protection
• When are premiums paid?

  A premium can be payableonce-off in the form of a single amount (normally at the start of the contract), or as aregular series of payments, payable at varying frequencies
• In force


  While a policyholder continues to pay premiums and the risk event has not yet happened, the policy is said to be in force.
• Lapsed or surrendered


  If a policyholder decides to stop paying premiums, the insurer will no longer be obliged to pay benefits when the risk event happens and the contract will come to an end.
• Lapsed


  The benefit is not paid out
• Surrendered


  The benefit is paid off, usually savings policies
• Surrender value


  the payment made when a benefit is paid out
• Risk products


  These products provide a benefit when a risk event such a death occurs or on the diagnosis of a critical illness
• Sum assured


  The benefit payable under a risk policy that provides cover on death is called the sum assured and it is paid to the beneficiaries that the policyholder nominated.
• The types of products offered by a life insurance provider

  Risk products, saving products, annuities
• Savings products


  These products are normally used to save for a specific purpose e.g. to provide an income during retirement or for your child’s future education.
• Annuities 


  These products provide regular benefit payments to a policyholder. If it is payable for as long as the policyholder is alive, it provides protection from the policyholder “living too long”
• Whole life assurance

  A whole life assurance policy provides cover until the death of the policyholder (provided that premiums are paid of course!).Premiums are normally payable for as long as the policyholder is alive, unless the contract specifies a shorter premium paying term, which can be agreed at the start of the policy.
• Term assurance


  A term assurance provides cover for a specified period of time. If the policyholder passes away during the term, the sum assured will be payable to his/her beneficiaries. If the policyholder survives to the end of the contract, no benefit is payable and the contract will terminate
• Deferred assurance

  A deferred assurance pays a benefit on death, only if death occurs after a specified time period has expired. No benefit is paid on death during the deferred period
• Endowment assurance


  This policy has both a risk and a savings element. It has a fixed term and the date at the end of the term is called the maturity date. It pays a benefit on the death of the policyholder within the term i.e. it operates like a term assurance contract. However, if the policyholder survives to the end of the term (i.e. maturity date), a benefit is payable at the maturity date. The benefit amounts to be paid on death or survival do not have to be the same, but they often are
• Endowment assurance as a savings product

  An endowment assurance (also discussed under risk policies) has a risk element, but it can also be seen as a savings policy since it pays a benefit at maturity if the policyholder survives to the maturity date.
• Pure endowment

  A pure endowment also has a fixed term. A benefit amount is paid to the policyholder if he/she survives to the maturity date
• Annuities


  An annuity contract pays a regular stream of benefit payments to the policyholder. This product is typically used to provide an income during retirement to replace the income a policyholder used to receive while s/he was working. This income stream is purchased by a large single premium which the policyholder commonly saves up during his working life
• Life annuity


  An annuity contract where the payment is made for as long as the policyholder is alive
• Whole life annuities

  An annuity payable as long as the policyholder is alive
• Temporary annuities

  An annuity payable as long as the policyholder is alive,but which is payable for a maximum term
• Deferred annuities


  An annuity payable for as long as the policyholder is alive, but it only starts paying after a set period, called the deferred period.
• Guaranteed annuities


  A guaranteed annuity is similar to a whole life annuity, but it has a minimum payment period during which a benefit will continue to be paid regardless of whether the policyholder is alive or not.
• Annuity paid in advance


  If a payment at time 0 is included
• Annuity in arrears


  If a payment at time 0 is not included
• The cash flow of an insurance company

  Premiums, benefit payments, expense
• Premiums


  Paid by the policyholder to the insurance company as per the policy document.