Life Insurance Products and Policy Features
What this domain tests
This domain tests whether you can match a client need to the right life insurance structure and then explain the policy mechanics that determine payout, cash value and flexibility. Paper 3 questions often disguise product choice inside a servicing scenario, so you need both labels and consequences.
Product families
- Term insurance provides pure death cover for a fixed period, normally with no cash value; renewable and convertible options preserve insurability.
- Whole life covers to an assumed age or lifetime and builds cash value; participating versions pay non-guaranteed dividends, non-participating versions do not.
- Endowment pays the sum assured at maturity or earlier death, combining savings with protection.
- Universal life unbundles mortality and expense charges from a credited account; premiums are flexible but charges and crediting rates are not guaranteed.
- Investment-linked assurance schemes (ILAS) hold units in underlying funds, so investment risk sits with the policyholder.
- Annuities convert capital into income, either immediately or after an accumulation period.
Features that change the answer
Death benefit, surrender value, policy loan availability, dividend options, non-forfeiture options and premium paying term are the levers examiners use. A policy with a high illustrated cash value may still be unsuitable if the client cannot sustain premiums after retirement. Riders such as waiver of premium, accidental death and critical illness add cover but also cost and exclusions.
Worked example
A 40-year-old needs HKD 5 million of cover for 20 years to match a mortgage, has limited surplus income and wants the lowest reliable cost. Term to 20 years is the fit: it delivers the death benefit when the need exists, has no cash value and therefore the lowest premium. Whole life would provide lifetime cover and cash value, but the premium for the same HKD 5 million death benefit would be far higher; endowment would compress protection further. A convertible term rider keeps the option to convert if insurability changes.
Traps that cost marks
- Treating an illustrated dividend or universal-life crediting rate as guaranteed.
- Assuming term insurance accumulates a surrender value.
- Forgetting that an endowment maturity payout is the sum assured plus any declared bonuses, not the premiums paid.
- Ignoring premium paying term: cover may continue after premiums stop, but only if the contract says so.
- Describing ILAS as a deposit; its value can fall.