Study guide: Life Insurance and Risk Management

📋 Course Outline

1. Risk Concepts and Classification
2. Risk Management Process
3. Life Insurance History and Life Tables
4. Premiums, Reserves, and Dividends
5. Insurance Meaning and Life Policies
6. Annuity Insurance
7. Health and Accident Insurance
8. Other Personal Insurance
9. Social Insurance
10. Insurance Sales and Contract Rules

📖 1. Risk Concepts and Classification

★ Must-know

• Risk has three elements:
  • uncertainty
  • the possibility of loss
  • futurity

📌 Physical hazards are visible conditions of the subject matter or environment that can cause or increase loss, while moral hazards involve intentional dishonesty and morale hazards involve carelessness or lack of attention.

📌 Speculative risk can result in either loss or gain, whereas pure risk offers the possibility of loss but not gain.

Further detail

📌 Static risk arises from random natural events or human actions, whereas dynamic risk arises from social change, such as changing consumer preferences or new products.

📖 2. Risk Management Process

★ Must-know

• Risk management aims to obtain the greatest security at the lowest cost.

• 🔄 Risk management proceeds through these stages:

  1. risk identification
  2. risk measurement
  3. risk management
  4. implementation and evaluation

📐 Formula - Expected loss cost equals expected loss frequency multiplied by expected loss severity: $\text{Expected loss cost}=\text{expected loss frequency}\times\text{expected loss severity}$.

Further detail

• Risk treatment includes avoiding risk or preventing it before a loss, reducing loss severity during an event, transferring risk through insurance, and retaining risk after the event or when retention is chosen.

💡 Memory Hook

Identify → measure → manage → evaluate

📖 3. Life Insurance History and Life Tables

🔑 Key Concepts & Definitions

• Life table: A life table, also called a mortality table, uses the law of large numbers—typically observations of 100,000 people—to estimate mortality.

★ Must-know

📐 Formula - Mortality rate equals deaths during the year divided by the number alive at the beginning of the year: $\text{Mortality rate}=\frac{\text{deaths during the year}}{\text{people alive at the beginning of the year}}$.

Further detail

• The earliest forms of life insurance included Roman religious groups and British friendly societies, while the Equitable Life Assurance Society in Britain first calculated premiums using a life table in the eighteenth century.

• Taiwan’s average life expectancy was 77.5 years for men and 84.0 years for women in ROC year 107, and 77.7 years for men and 84.2 years for women in ROC year 108.

📌 Mortality is highest in the national life table, lower in the life-insurance experience table, and lowest in the annuity life table.

💡 Memory Hook

A life table replaces early insurance’s lack of scientific premium calculations.

📖 4. Premiums, Reserves, and Dividends

🔑 Key Concepts & Definitions

• Liability reserve: Money set aside so the insurer can meet its contractual obligations and pay benefits when insured events occur.

★ Must-know

📌 A premium consists of a pure premium, which funds future insurance benefits, and a loading premium, which covers operating expenses.

📌 For ordinary life insurance, a higher assumed mortality rate raises premiums, a higher assumed interest rate lowers premiums, and a higher assumed expense rate raises premiums; for annuities, higher mortality lowers premiums.

• Policy dividends may arise from: mortality gains when actual mortality is below assumed mortality, interest gains when actual interest exceeds assumed interest, expense gains when actual expenses are below assumed expenses

Further detail

• An insurer must pay surrender value within one month after notice when the policyholder has paid premiums for at least one year or the policy has accumulated cash value.

📖 5. Insurance Meaning and Life Policies

🔑 Key Concepts & Definitions

• Life insurance: A risk-transfer and mutual-aid arrangement in which many people share and absorb losses.

★ Must-know

• The four classes of personal insurance are:
  • life insurance
  • annuity insurance
  • accident insurance
  • health insurance

📌 Term life insurance pays for death or total disability during the insurance term but pays no benefit if the insured survives to the end; whole life insurance remains in force for life unless it lapses or is surrendered.

📌 Pure endowment insurance pays only if the insured survives to the end of the term, whereas endowment insurance pays on death during the term or survival to its end.

Further detail

• An insured diagnosed by a physician as having no more than six months to live because of illness or injury may apply for an accelerated death benefit.

💡 Memory Hook

Term insurance pays for covered death during the term; endowment insurance also pays on survival.

📖 6. Annuity Insurance

🔑 Key Concepts & Definitions

• Annuity insurance: A contract that periodically pays an agreed amount while the insured is alive or during a specified period.

★ Must-know

• An immediate annuity begins payments after the contract is concluded, whereas a deferred annuity begins after an agreed interval or when the insured reaches an agreed age while still alive.

• A certain annuity does not make payment conditional on the recipient’s survival, whereas an uncertain annuity does.

• A joint-and-survivor annuity continues while at least one recipient survives, whereas a joint-life annuity pays only while all named recipients are alive.

Further detail

• For a variable annuity, Type A provides a fixed annuity amount based on age, the annuity life table, and the assumed interest rate, while Type B adjusts annual payments using the declared and assumed interest rates after the first year.

💡 Memory Hook

Certain annuities do not depend on survival; uncertain annuities do.

📖 7. Health and Accident Insurance

🔑 Key Concepts & Definitions

• Health insurance: Can compensate for income losses and medical expenses caused by illness or injury.

★ Must-know

📌 Hospitalization reimbursement requires a physician’s diagnosis that hospitalization is necessary, formal admission, and actual treatment in a hospital.

📌 Accident insurance benefits for disability and death from the same accident combined may not exceed the insured amount.

Further detail

• Covered expenses may include: prescribed medicines, blood other than transfusions required for emergency illness or injury, registration and document fees, ambulance transport, covered excess hospital expenses, room-rate differences, meals other than tube feeding, nursing care other than special-nurse care

• The coverage period for hospitalization medical-expense insurance is one year, and an individual may hold at most three reimbursement medical policies across different insurers; medical and accident policies are counted separately.

📐 Formula - Daily hospital benefit equals the insured daily amount multiplied by the actual number of hospitalization days: $\text{benefit}=\text{daily insured amount}\times\text{actual hospitalization days}$.

📖 8. Other Personal Insurance

🔑 Key Concepts & Definitions

• Long-term care status: Long-term care status includes qualifying physical or cognitive impairment diagnosed by a specialist; physical impairment requires at least three of six daily-living activities to remain impaired for a prescribed period not exceeding six months.

★ Must-know

• Investment-linked insurance separates investment and insurance accounts, lets policyholders choose investments, and places investment gains and losses on the policyholder; its surrender value may not be below 75% of the policy reserve.

• Group insurance has an enterprise as policyholder and employees as insured persons, sets coverage by salary, position, seniority, or a group amount, and requires at least five members with at least 75% of employees participating.

Further detail

• The seven listed major illnesses are:

  • coronary artery bypass surgery
  • acute myocardial infarction
  • major organ or hematopoietic stem-cell transplantation
  • disability after stroke
  • end-stage renal disease
  • cancer
  • paralysis

• Microinsurance targets economically disadvantaged groups, has low coverage and premiums with short coverage periods, and may not include survival or maturity benefits; the additional expense-rate cap is 15% of total premiums and individual life or accident coverage may not exceed NT$500,000 for each type.

📖 9. Social Insurance

★ Must-know

• Labor insurance covers ordinary benefits for maternity, sickness or injury, disability, old age, and death; ordinary premiums are shared 20% by the individual, 10% by government, and 70% by the employer.

• National Health Insurance covers illness, injury, and maternity, is generally compulsory, and allocates premiums 30% to individuals, 10% to government, and 60% to employers.

Further detail

• National Pension covers old-age, disability, and survivor annuities, maternity, and funeral benefits, with premiums shared 60% by individuals and 40% by government.

• For labor retirement contributions, employers must contribute at least 6% of monthly wages, while employees may voluntarily contribute from 0% to 6%.

📖 10. Insurance Sales and Contract Rules

★ Must-know

• An insurance salesperson must proactively present their personal-insurance salesperson registration certificate when soliciting insurance unless the regulator provides otherwise.

• For insurance age, a fraction of six months or less is disregarded, while a fraction exceeding six months adds one year.

• An authorized premium collector must provide a payment receipt or equivalent record and state the collection time; cash payment for one policy installment is capped at NT$50,000, and insurance brokers may not collect premiums.

• The stated deadlines include a 10-day policy cancellation period, a 15-day claim-payment deadline, a 30-day grace period, a two-year claim limitation period, and a five-year registration-certificate validity period.

Further detail

📌 A person under legal age needs a legal representative’s consent to apply, and when an applicant or insured cannot complete the form personally, a family member may write it but the applicant and insured must still sign personally.

📊 Synthesis Tables

Premium assumptions and effects