hk-iiqe-paper-5 key terms

A long term insurance contract whose benefits are not guaranteed and are determined by the value of underlying investments chosen by the policyholder. The policyholder bears the investment risk, while the insurer provides the insurance wrapper and death benefit.

The risk that the value of units may fall, reducing policy value and benefits. In investment-linked business this risk sits with the policyholder, not the insurer, and the policy may be worth less than premiums paid.

A collective investment scheme or portfolio in which premiums are invested and to which the policy value is linked. Its units are bought and sold to determine the policy's account value, and its objectives and risks must be disclosed.

The split of a portfolio among asset classes such as equities, bonds, cash and property. It drives the fund's expected return and volatility and should match the policyholder's risk profile and investment horizon.

Spreading investments across funds, asset classes, sectors or regions so that any single loss has a smaller effect on the whole portfolio. It reduces specific risk but cannot remove market risk.

The risk that prices of the fund's underlying investments fall because of broad market movements such as interest rate, economic or sentiment changes. It affects all investors and cannot be diversified away.

The risk that exchange rate movements reduce the value of a fund or policy denominated in a currency different from the policyholder's own. It matters for funds investing overseas or for policies with foreign currency denomination.

The price at which a unit in an underlying fund is bought or sold, usually calculated from the fund's net asset value divided by units outstanding. Policy values are found by multiplying units held by the applicable price.

The difference between the price at which units are sold to policyholders (offer price) and the price at which they are bought back (bid price). It represents a dealing cost that reduces the value of an investment.

The value of the policyholder's units in the chosen funds at a given time, before deduction of surrender charges or other exit adjustments. It changes with unit prices and with charges deducted by cancellation of units.

The process of applying premiums to buy units in chosen funds, after any deductions such as premium charges or initial charges. The allocation rate and timing must be disclosed in the policy documents.

A charge taken from premiums at the start, reducing the amount actually invested in units. It is disclosed as a percentage and is distinct from ongoing fund management and policy administration charges.

An ongoing charge for running the policy, commonly taken by cancelling units periodically. The rate, basis and frequency must be set out in the policy documents and illustrated in disclosure materials.

A charge levied by the manager of an underlying fund for managing its portfolio, usually reflected in the fund's net asset value rather than billed separately. It reduces the return earned by the policyholder.

A charge deducted when a policy is surrendered or partially withdrawn within a set period, often expressed as a percentage that declines over the years. It is intended to recover acquisition costs.

The amount payable to the policyholder on termination of the policy, being the account value less any surrender charge and outstanding fees. It may be significantly less than premiums paid, especially in early years.

A period after delivery of the policy during which the policyholder may cancel and obtain a refund of premiums, subject to market value adjustment. Its length and any deductions must be explained at point of sale.

An adjustment applied on cancellation or surrender during the free look period to reflect falls in the value of the underlying investments. It means the refund may be less than premiums paid.

Moving units from one underlying fund to another within the same policy. Insurers may allow a number of free switches per year and charge for additional ones, and switching does not remove investment risk.

A charge imposed when the policyholder moves units between underlying funds, sometimes waived for a set number of switches each year. The current fee schedule must be disclosed in policy documentation.

Taking part of the policy value out by cancelling units, which reduces the remaining account value and may trigger charges or affect the death benefit. Conditions and limits are set in the policy provisions.

The sum payable on the death of the life insured, typically the greater of a stated percentage of premiums paid and the account value, subject to minimums. The exact formula is set out in the policy.

The amount of insurance cover specified in the policy, which for investment-linked policies may be a fixed amount or a percentage of premiums. It determines the protection element separate from investment value.

The part of the policy document showing policy-specific details such as the life insured, sum assured, premium, allocation rates, charges and fund choices. It should be checked against what was explained at sale.

A short, standardised disclosure document summarising a product's nature, risks, charges and features so that customers can compare products. It must be provided before sale and does not replace the full policy terms.

A projection showing how policy values and benefits might develop under stated assumed returns, with charges deducted. It must show that returns are not guaranteed and include a low and high scenario.

An assessment of a client's willingness and ability to bear investment risk, based on financial situation, knowledge, experience and objectives. It guides fund recommendations and must be documented.

A structured set of questions used to gauge a client's attitude to risk and capacity for loss. Its results support the risk profile and the suitability of any product or fund recommended.

The process of matching a recommended product or fund to the client's risk profile, investment horizon, objectives and financial capacity. The rationale should be recorded and explained to the client.

Collecting and verifying information about a client's identity, finances, investment experience and objectives. It underpins suitability advice and anti-money-laundering obligations throughout the relationship.

A structured review of a client's financial position, needs and goals used to justify a recommendation. For investment-linked products it should address protection needs, affordability and investment horizon.

A written notice given to the policyholder explaining the right to cancel the policy within the free look period and how to exercise it. Delivery and acknowledgement should be recorded by the insurer or intermediary.

A licensed insurance broker or agent who arranges or advises on insurance contracts. Their permitted activities, conduct and disclosure duties are set by the Insurance Authority under the Insurance Ordinance.

The statutory system under which insurance intermediaries must be licensed by the Insurance Authority, with categories for brokers and agents and requirements on qualifications, training and conduct.

The statutory regulator of the Hong Kong insurance industry, responsible for licensing insurers and intermediaries, supervising market conduct and enforcing the Insurance Ordinance and associated guidelines.

Rules on how intermediaries must treat customers, including fair dealing, adequate disclosure, avoiding misrepresentation and managing conflicts of interest. Breach can lead to disciplinary action and licence conditions.

The duty to explain clearly, before sale, all fees, charges, surrender penalties and the nature of investment risk, including that benefits are not guaranteed. Explanations must be timely, accurate and not misleading.

Continuing duties after the sale, such as providing policy documents and statements, handling switching and withdrawal requests, processing claims promptly and keeping clients informed of material changes.

Administrative actions during the life of a policy, including changes of beneficiary, address or fund allocation, premium reminders, statements and responses to client enquiries. Accuracy and timeliness are key.