Legal aspects of pension product review of the clients rights and tax incentives related to voluntary pension insurance busin

1 CHAPTER2 OVERVIEWINSURANCEBUSINESS:THEPOLICY ANDPENSION...11 2.1 POLICYANDITSFEATURES...11 2.1.1 What’slifeinsurancecontract...11 2.1.2 Featuresoflifeinsurancecontract...12 2.1.2.1 Ins

HoChiMinhCity,May2017

Major:EconomicLaw Code:60380107

MASTERTHESISINLAWSUPERVISO

R:ASSOC.PROF.PHAMDUYNGHIA

HoChiMinhCity,May2017

DECLARATION III PREFACE IV ABSTRACT V LISTOFDEFINITIONANDABBREVIATIONS VI CONTENTS IX LEGALASPECTSOFPENSIONPRODUCT–

REVIEWOFTHECLIENT’SRIGHTSANDTAXI N C E N T I V E S TOENCOURAGEVOLUNTARYPENSIONINSURANCE BUSINESS IX

CHAPTER1 INTRODUCTION 1

CHAPTER2 OVERVIEWINSURANCEBUSINESS:THEPOLICY ANDPENSION 11

2.1 POLICYANDITSFEATURES 11

2.1.1 What’slifeinsurancecontract 11

2.1.2 Featuresoflifeinsurancecontract 12

2.1.2.1 Insurableinterest 13

2.1.2.2 Utmost good faith 16

2.1.2.3 Warranties 16

2.1.2.4 Assignment andnomination 16

2.1.2.5 Returnofpremium 16

2.2 PENSIONPOLICYANDITSFEATURES 17

2.2.1 Pension policy 17

2.2.2 Legalcharacteristicsofpensioncontract 18

2.3 PROCEDUREOFLAUNCHINGPRODUCT 20

2.4 RIGHTSOFPOLICY OWNER(CLIENT)TOWARDPOLICY 20

2.4.1 Free-LookProvision 21

2.4.2 EntireContractProvision 21

2.4.3 GracePeriodProvision 21

2.4.4 ReinstatementProvision 22

2.4.5 PolicyWithdrawals 22

2.4.6 NonforfeitureProvision 23

CHPATER3 REVIEWTHECLIENT’SRIGHTOFTERMINATION/CANCELLATIONANDW I T H D R A W A L 24

3.1 REVIEWOFTERMINATION/CANCELLATION RIGHTS 24

3.1.1 Analysisofthecurrent unsoundregulations 24

3.1.2 Otherpoliciesreference 28

3.1.3 Internationalreference 30

3.2 REVIEWOFTHERIGHTTOWITHDRAWMONEYINADVANCE 34

3.2.1 Analysisofthecurrent unsoundregulations 34

3.2.2 Otherpoliciesreference 35

CHAPTER4 REVIEWTAXINCENTIVEREGULATIONSAPPLIEDFORCORPORATEANDE M P L O Y E E CLIENTSBUYINGPE NSIONPRODUCT 37 4.1 A NALYSISOFTHECURRENTUNSOUND REGULATIONS –T HENEEDTO ENCOURAGEVOLUNTARY PENSION PRODUCT 37

4.1.1 CorporateIncomeTax(CIT) 37

4.1.2 PersonalIncomeTax(PIT) 40

4.2 OTHERPOLICIESREFERENCE 43

i 4.2.1 CorporateIncomeTax(CIT) 43

4.2.2 PersonalIncomeTax(PIT) 44

4.3 INTERNATIONALREFERENCE 46

CHAPTER5 PROPOSALONLEGALREFORMTOENHANCECLIENTRIGHTSANDTAXI N C E N T I V E S FOR PENSION BUSINESS 50 5.1 TERMINATION/CANCELLATIONRIGHTS 50

5.2 RIGHTSOFWITHDRAWMONEYINADVANCE 51

5.3 T AXINCENTIVE 52

5.3.1 CorporateIncomeTax(CIT) 52

5.3.2 PersonalIncomeTax(PIT): 53

ANNEX01 54

PENSIONCONTRACTINHONGKONG–PRUMYRETIREMENTRMBANNUITYINCOME– G E N E R A L PROVISIONS 54

ANNEX02 57

PENSIONCONTRACTINSINGAPORE- PRUGOLDEN INCOME 57

ANNEX03 59

PROCEDUREOF APPROVEDPRODUCT 59

REFERENCES 61

Iherebydeclarethatallcontentpresentedinthisthesisistheresulto f personallyindependentresearchundertheguidanceoftheMentor.Inthethesisthereareused,quotedsomeideas,scientificviewo f someauthors.Theseinformationsourcesarecitedspecific,accurateandverifiable.Thedataandinformationusedinthethesisiscompletelyobjective andhonest.

Author

HOANGTHIHONGHA

PREFACE

Inthefirstplace,I wouldliketoexpressmygenuineappreciationtomyMentor,ProfessorPhamDuyNghia,forhisvaluablecommentaries,constantlyguidingandencouragingmethroughthewholeprocessofworkingonthisthesis.IwouldalsoliketothankthePrudentialLifeVietnamCompanyandCathayLifeVietnamCompanyfortheiridealworkingenvironment,forapracticalrepertory,forgivingmealotofpracticalexperience,whichisa n importantp a r t o f thesuccessofthisthesis.Inaddition,I a m alsogratefultomyesteemedchief,Mr.Robin,Directoro f PolicyAdministrative/Finance&Accounting/

LegalDepartmentofCathayLifeVietnam,forhisstrongassistanceinprovidingmethevaluabledataanddocumentsinTaiwan.DearMr.NguyenVietHai,a formerSecretaryDeputyGenera

lo f InsuranceAssociationofVietnam,itwasagreatexperienceandagreatpleasuretoworkwithyou,foryourworthsharingonlifeinsurancemarketinVietnam,particularlyforthestatepoliciesundertheregulatorperspective.Last,butnotleast,Iwouldliketooffermywarmthankstomycolleagues,myfriendsandmyfamilyforbeingwithme

HoChiMinhCity,May2017

Since2013,Vietnamh a d adoptedregulationtopromotevoluntarypensionpolicy.Despitethehighexpectation,aftermorethanthreeyearsofdeployment,themarketforpensioninsuranceremainsverylimited.Thisthesisaimst o explainthelegalcontractswhichimpedethedevelopmentofpensioninsurance.Thethesisalsoanalysestherightofclientstoterminatethepensioncontractandtowithdrawmoneyinadvanceofpensioncontract

Finally,thethesisreviewstaximplicationsoncurrentpoliciesofcorporateincometaxandpersonalincometaxappliedforcorporateandemployeeclients

Asaresult,thisthesisproposesthatpensionregulationshouldadmittheclientrightofterminationo f pensioncontract;extendtheclientrighto f withdrawalo f moneyinadvance

inanycircumstances.Andlastbut

notleast,taxpoliciesshouldbeadjustedtoensurethefairtaxtreatmentbetweenvoluntarypensionandsocialpension

Inthisthesis,researchinstrumentsareusedincludingsurvey,statistics,comparisonandanalysistosupportforthe persuasion

LISTOFDEFINITION ANDABBREVIATIONS

PolicyOwner/

PolicyHolderareorganizationsorindividualsthatenterintoinsurancecontractswithinsuranceenterprisesandpaypremium.Aninsurancebuyermayalsob e concurrentlytheinsuredorthebeneficiary

TheInsured/

LifeAssuredmeansorganizationsorindividualsthathaveproperty,civilliabilitiesand/

orlifeareinsuredunderinsurancecontracts.Theinsuredmayalsob e concurrentlythebeneficiary

TheBeneficiariesmeanorganizationsorindividualsdesignatedbytheinsurancebuyerstoreceive insurancemoneyunderpersoninsurancecontracts

Insurableinterestsmeantherightstoownership,therightstopossession,therighttou s e , thepropertyrights;therightsandobligationstofosterandprovidefinancialsupport

forinsuredobjects

Insuredeventsmeanobjectiveeventsmutuallyagreeduponb y thepartiesorprescribedbylawuponthe occurrenceofwhichtheinsuranceenterprisesshall havetopaytheinsurancemoneytothebeneficiariesorpayindemnitiestotheinsured

Premiummeansa sumo f moneytobepaidbytheinsurancebuyerstoinsuranceenterprisesaccordingtotimelimitsandbymodesmutuallyagreeduponbythepartiesintheinsurancecontracts

Pensioninsurancemeansaclassofinsuranceincasewheretheinsuredpersonreachesa determinedageshallbepaidinsurancemoneybyinsuranceenterpriseasagreedinthe

insurancecontract

SurrenderValuemeansanamounto f moneythePolicyOwnerwillreceiveifthePolicyOwnerterminatesthe PolicywhilethePolicyisoneffectiveperiod

Free-lookperiod/Cooling-

offperiodmeansanindividuallifeinsurancepolicytypicallyincludesafree-offprovision,whichgivesthepolicyownerastatedperiodof

lookprovision,some-timesreferredtoasafree-examinationprovisionoracooling-time—usuallya t least10days—

afterthepolicyisdeliveredwithinwhichtocancelthepolicyandreceivearefund.Inmostjurisdictions,thisperiodoftimerangesfrom1 0 to30days.Thefree-

lookperiodbeginsonthedatethepolicyisdeliveredtothepolicyowner,notonthedateofissue.Insurancecoverageisineffectthroughoutthefree-lookperiodoruntilthepolicyowner

rejectsthe policy,whicheveroccursfirst

Graceperiodmeansalengthoftimefollowingeachrenewalpremiumduedatewithinwhichthepremiummaybepaidwithoutlossofcoverage.Thespecifiedtime(often31days)followingeachpremium duedateduringwhichthecontractremainsineffectregardlessofwhetherthepremiumispaid

Reinstatementmeanstheconditionsthatthepolicyownermustmeetfortheinsurertoreinstateapolicy

Defined-benefitplanmeansapensionplanwithaguaranteebytheinsurerorpensionagencythatabenefitbasedonaprescribedformulawillbepaid.Suchplanscanbefullyfundedorunfunded

Defined-contributionmeansthecontributionsthattheplansponsoragreestomaketotheplan.Thebenefitthataparticipantwillreceiveisnotdeterminedinadvanceoftheparticipant’sretirementbutdependsontheinvestmentperformanceofthefundsintheplan

PAYG(Paya s yougo)meansa withholdingtaxwhichrequiresyoutopayincrementalamountswhichaccumulatetowardsyourexpectedendofyearincometaxliability

PIT:PersonalincometaxULP:

UniversallifeproductILP: Uni

tlinklifeproduct

CONTENTS

LEGALASPECTSOFPENSIONPRODUCT–

REVIEWOFTHECLIENT’SRIGHTSANDTAXINCENTIVESTOENCOURAGE VOLUNTARYPENSIONINSURANCEBUSINESS

4.1 Analysisofthecurrentunsoundregulations–

theneedtoencouragevoluntarypensionpolicy

0

4.2 Otherpoliciesreference4.3 Internationalreference

PROPOSALONLEGALREFORMTOENHANCECLIENTRIGHTSANDTAXINCENTIVESFORPENSIONBUSINESS

5.1 Terminationrights

5.2 Rightsofwithdrawalmoneyinadvance

5.3 Taxincentivepolicy

Vietnam’sremarkableeconomicgrowthwhichhasbeenachievedinthepasttwodecadeshascontributedvastlytotheenhancementofcitizens’livingstandardswhichcreateshealthierlifestyles.Thishasledtotheincreaseinlifeexpectancyfrom69.2yearsin2001to73.2yearsin2014.Itisprojectedthatthistrendwill continue to80.4yearsin2050.

(Source:General Statistics Office, 2014)

Consequently,thenumberofpeopleagedrangefrom60almostdoubledbetween1990and2015(fromaround5,6milliontoapproximately9,7millionpeople)andareforecasttotripleinthenext20years.Conversely,thenumbero f newbornsandunder-15-year-oldchildrenfellsharply.Thegraphbelowshowstheproportionsmadeupbypeoplea g e

d above60andfewerthan15duringtheperiodfrom1990to2025

Althoughlifeexpectancyincreasesovertime,itisreportedthatelderlypeoplehavebeenlivingunderlimitedh e a l t h andfinancialconditions.AccordingtoVietnamAssociationo f theElderly,73%o f theelderlydon o t havesocialinsurance/

pensionbenefit.A s a result,theyremainworkingo r relyontheiradultchildren.However,thatremainingworkingorbeingdependenceisinadequatebenefitstopreventold-age poverty.BecauseVietnam is stillalowermiddle-incomecountrycomparedtotheworld.Theaverageincomepercapita

in2014is$2.0521.Today,therateofextremepovertyhasfallento3percent

Theproportionofthepopulationlivingbelowthenationalpovertyline(GSO-WBPovertyline)reached13.5percentin20142.Givensuchfact,thestatusofeconomicgrowthandthusincomeper-

capitalevelsarenotatparwiththepaceo f Vietnamdemographictransition.WhileWesternworlddevelopedfirst,thenaged;Vietnamwillagewhileitisstilldeveloping.Vietnamiscurrentlytryingtoaddressthechallengescreatedbythisphenomenonthroughthereformo f

1

http://www.worldbank.org/en/news/press-release/2016/02/23/new-report-lays-out-path-for-vietnam-to-re ac h- up per -mi ddl e- in com e- st at us -i n- 20 -ye ars

2 http://www.worldbank.org/en/country/vietnam/overview

pensionsystemsthathelpthepopulationcopewiththeriskof povertyinolda g e

Thisexposesanalertandalsoachallengetothenationalsocialwelfaresystemingeneral

Thesocialwelfare systems

Overall,thetwomajorobjectiveso f socialwelfaresystemsa r e providingforconsumptionsmoothing( i e protectingagainsttheriskthattherewillb e anabruptdropinconsumptionwhenincomeceaseso r savingaredepleted)andprotectingagainst

theriskofoldagepoverty

Atpresent,theinsurancesysteminVietnamconsistsof(i)mandatorypublic-fundedpensionfund,knowna s a compulsoryretirementpension(calledasSocialSecurity),(ii)supplementarypensionfundscontrolledbythestate,and

(iii) voluntarypensionfundsmanagedbytheprivate(calleda s Pension).Inwhich,SocialSecuritycanbeconsideredasthefirstpillarandPensioncanbeconsidereda s thethirdpillarofthesocialsecuritysysteminlinewithinternationalstandards

Currently,MOLISAh a s completedtheprocesso f studyinganddraftingthedraftofthepilot projectonsupplementarypensionpolicyasfollows(Figure 1)

PensionandSupplementarypensionareaportionincomeoftheretirementage.Everyonehasaseparateretirementaccount.Assetsaccumulatedandformedina retirementaccountareownedbytheinsuredpersonandareentitledtouseatretirementage.FormofpaymentisDC(DefinedContribution).However,thesetwoinsurancekindshavemanydifferent pointsasfollow:

Figure2

Criterion Pension Supplementarypension

Principle A life insurance

Payment Depend on the will

ofindividualoremployer

Contributionratespecifiedinlaborcontract/collectiveagreement

Benefit Besidestheprotectionbenefit,ins

urerscommita minimuminterestrateandtheinterestshareofinsurers

’profit,ifany

Allprofitsfromtheinvestmentwillbepaidtotheparticipant

All paid contributionofemployee

willbereturned

Management InsurersandManagementfundco

mpanies

Managementfundcompanies,Custodianbank,andotherfinancia

l intermediation

Regulation Lawoninsurancebusinessanditsg

uidance

LaborCode,Lawonsocialinsurance

Taxpolicy Taxincentiveforemployeeandem

ployer

MOLISA’ssuggestion,taxincentiveo f Supplementarypensionwillbe higherthanthe

oneofPension

pillarsystem.Thereasonisbecausetherelianceonasinglepillarhascertainlimitations.Vietnam’spensionpolicyisanevidenceforthistrend

Sofar,thekeypensionsysteminVietnamisthes t a t e

-r u n socialinsu-rancesystem,mainlymandato-ry.Thismandato-ryschemeincludesa contributionrequiremento f 26%o f monthlysalary(inw h i c h 18%isbornebyemployersand8%isbornebyemployees)3.TherestrictionofsinglepillarinVietnamasfollows:

 Firstly,theparticipationrateofthemandatorysocialsystemisrelativelyslow.AccordingtostatisticsfromTheSocialWelfaresystem,in2013,therewere10.6millioncontributorstothesystem.However,thiswasmainlyfromstate-

runorganizationsandthenumberofcontributionstovoluntarypensionsystemwasstilllimited

 Secondly,thefunddeficitcanb e attributedtothelacko f capacityformanagementandimplementationofthefund

Apartfromtheabove,thecurrentSocialInsurancesystemalsohasthefollowinglimitations:

 TheannualpensionbenefitfromSocialwelfaresystemiscappedat75%*20monthso f basicsalary(currentlyabout2 1 million)percapitawhichisinsufficienttomaintainemployees’lifestyleafterretirement

 PensionbenefitfromSocialWelfaresystemisn o t

inflation-protected.Therefore,thisamountwillnotbesufficienttomaintainthelifestyleintheperiodofhighinflation

Besides,thoughVietnamhasarelativelylowretirementage,halfofVietnam’semployeesherecontinuetooptforanearlyout,whileVietnam'sofficial

3 Law

onSocialinsuranceandArticle43ofLawonoccupationalsafetyandhealth

Chart 2.1: Ratio of contributors per retiree

outshasincreasedfasterthanthenumberofcontributors.In1996,therewere217contributorsfor1retiree.In2010,thisratiofelltoaslowas10.7/1(seethetrendisshownintheFigure3below)andnowtheratioplummetto8.13:1:

(Source:VietnamSocial Insurance,2011)

Unlessthistrendisreversed,itisprojectedbyMOLISAthatbyaround2034,thenumberofretireeswouldbeequaltothatofsocialinsurancepayers.ThisexposesathreattothebalanceofFunds’cashinflowandoutflow.―Soonerorlater,thesocialinsurancefundwillflyoffbalance‖,saidb y Mr.TranHuyLieu,DeputyHeadofthe SocialInsuranceDepartment4

Therefore,measureshavebeentakentoreformthecurrentsocialinsurancesystem,someof whichincludeexpandingretirementage,increasingthecontributionratioofbothemployersandemployeesintothefundetc.However,thesearemerelyshort-

termsolutionsthata r e unabletoinstantlysolvesystematicproblemsandtheGovernmento f Vietnamhavebeenlookingatalternativepensionfundstoreinforce

thesocialinsurancefund

4 pension-fund-3490583.html

termsustainabilityofthesystem.TheStatelaunchestheroadmaptoencouragepeopletotakecareofthemselvesafterretirementthroughvoluntarypensioninsurance.Accordingly,MOFandtheMOLISAhavedevelopedtwopensionsystemsinparallelcalledSupplementarypensionandPensionproductasintroducedabove

Pension,accordingtotheCircular115/2013/TT-BTC(inthefollowingcalledforshortasCircular115),isdefinedaslifeinsurance

productsissuedbyinsurertoprovideadditionalincometotheinsuredduringretirementperiod.Inwhich,participantscontributeina regularbasisinordertoreceivep a y -

da t overVND11,466billion,upnearly30%overthesameperiodof2015.Termlife,endowmentinsuranceanduniversallifestillaccountforalargeshareoftotalnewpremiumrevenue6.Itmeansthatdespitethepotentialvalue,aftermorethanthreeyearso f deployment,theexistenceo f Pensionh a s n o t expandedcomparedwiththeotherinsuranceproducts

5 bao-hiem-dat-

http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2017-03-31/nam-2017-thi-truong-m u c - t i e u - d o a nh - t hu - p h i - t an g - 1 86 - 4 2 04 9 a sp x

6 bao-hiem-dat-

http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2017-03-31/nam-2017-thi-truong-m u c - t i e u - d o a nh - t hu - p h i - t an g - 1 86 - 4 2 04 9 a sp x

employees,withthesupporto f employers.However,therealityisnotaspredictedbytheregulatordue tomainlyreasonsasfollows:

 Pensionadduptoemployers’totallaborc o s t giventhattheyalreadyhavetoabsorbothersimilarexpensesincludingmakingcontributiononbehalfofemployeestothecurrentmandatorysocialsecurityfund.Whiletherearemanywayofretentionthekeymanpower

 Duetothe

natureofpensionproduct,whichisratherrigidasregulatedinthePensioncircular,theproductdesignhastobestandardizedandhomogeneouswithseverallimitations(earlywithdrawalsandsurrendera r e notallowed,firstpayoutcanonlybemadefrom55or60yearsold,payoutperiodmustbeat least15yearsetc.)

 Thecurrenttaxadvantageisconsideredratherlimitedtobothemployersandemployees

 Forinsurers:theyfindnodemandofthemarket.Andbecauseitrequiresacomplicatedsystemtosplitthefundemployerandthefundofemployeeseparatelytodeductthetaxwheninsurerspaythebenefittoclients,henceinsurershavetoinvestthesystemtooperatethisPension,whichtake lotsofcostwhile the effectofsalepensionissolow

 Foremployees:clientsingeneralandemployeesinparticulararen o t onlyallowedtocancel/

terminatethePensionpolicybutalsowithdrawthemoneyatanytime.Fortaxincentive,althoughemployeesareexemptedfromtaxes,thecurrenttaxpoliciesa r enotattractiveenoughforemployeestocommita long-

termcommitmentwiththecompany.Contrarytothis,employeesprefertoreceiv

ea lumpsumo f payment,suchasabonusratherthanalong-termpension

 Foragents,Pensionproductisn o t attractivethemduetocommissionscheme

1 Reviewtherightso f terminationandwithdrawalo f clientinpensioncontract;

2 Reviewtaxincentiveregulationsappliedforcorporateandemployeeclients

Inordertoreachtheresearchpurpose,inthisthesiscommonusedresearchmethodsinclude:statisticalanalysis,policyandlegalcomparisonandevaluationo f secondaryresources.Accordingly,I analysethekeyfactsfirst,thencomparetheminrelationtootherVietnamregulations/

principles,evenforeignregulationsareusedtoshowwhatthelimitationsofprevailingpensionregulationsa r e andhowtheyshouldb e revised.Concurrently,a smalla n d quicksurveyofYES/

NOquestionsaroundsomecountriesisusedinthispresentationtosupportmore thepersuasionofthisthesis

CHAPTER2OVERVIEWINSURANCEBUSINESS:THEPOLICYANDPE NSION

2.1.1What’slife insurance contract

CurrentlyinVietnam,thereisn o definition,formalconceptforlifeinsurancecontractbutinsteadonlyhavedefinitiononlifeinsurance,typeso f insurancecontract,

objectoflifeinsurancecontractand insurance contract

Aninsurancecontractisanagreementbetweenaninsurancebuyer(client)anda n insurer,inwhichtheinsurancebuyerpayspremiumswhiletheinsurancecompanyagreestopayinsurancemoniestothebeneficiaryo r indemnifytheinsuredontheoccurrenceofaninsuredevent

Life insurancemeansaclassofinsuranceprovidedtocaseswheretheinsuredisaliveordead.7

Theobjectso f humaninsurancecontracts h a l l bethehumanage,life,healthandaccidents.8

Combinationallabovedefinitions,therearesomeconceptso f lifeinsurancecontractatthepracticalstudyasbelow:

 Lifeinsuranceorlifeassurance,especiallyintheCommonwealth,isa contractbetweenaninsurancepolicyholderandaninsurer,wheretheinsurerpromisestopaya designatedbeneficiaryasumo f money(thebenefit)inexchangeforapremium,uponthedeathofaninsuredperson(oftenthepolicyholder)

Dependingonthecontract,othereventssuchasterminalorcriticalillnesscanalsotriggerpayment.Thepolicyholder

7 The

Article3.12ofLawoninsurancebusiness

8 The

Article31.1ofLawoninsurancebusiness

typicallypaysa premium,eitherregularlyo r a s onelumpsum.Otherexpenses(suchasfuneralexpenses)canalsobeincludedinthebenefits.9

 Lifepoliciesarelegalcontractsandthetermsofthecontractdescribethelimitationso f theinsuredevents.Specificexclusionsareoftenwrittenintothecontracttolimittheliabilityo f theinsurer;commonexamplesa r e claimsrelatingtosuicide, fraud,war,riot,andcivilcommotion

 Life-basedcontractstendtofallintotwomajorcategories:

 Protectionpolicies–

designedtoprovideabenefit,typicallyalumps u m paymentintheevento fspecifiedevent.A commonformof a protectionpolicydesignisterminsurance

 Investmentpolicies–

wherethemainobjectiveistofacilitatethegrowthofcapitalbyregularorsinglepremiums.Commonforms(inthe

U.S.)arewholelife,universallifepolicies

 Alifeinsurancepolicyisa contractwitha n insurancecompany.I n exchangeforpremiumpayments,theinsurancecompanyprovidesalump-

sumpayment,knownasadeathbenefit,tobeneficiariesupontheinsured'sdeath

 Lifeinsurancecontractisa n agreementbetweentwopartieswherebypartyinsurance(insurancecompanies)areresponsibleforandshallpaytotheinsuredwhentheinsuredevento c c u rs , andtheinsuredisresponsibleandobligedtopayinsurancepremiumsasagreedunderthelaw

2.1.2 Featuresoflife insurance contract

Sincethelifeinsuranceisnotanindemnitycontract,theinsurer,inhispart,isrequiredtopaya definites u m o f moneyagreedo n maturityo f policya t thedeatho r anamountininstallmentfora fixedperiodo r duringlife.A s such,contrarytootherinsurancepolicies,ithassomedistinctfeatures.Theessentialfeaturesoflifeinsurance areasfollows:

9 https://en.wikipedia.org/wiki/Life_insurance

2.1.2.1 Insurable interest

Theinsuredorpolicyholdermusthaveaninsurableinterestfora validlifeinsurancecontract.Insurableinterestariseso u t o f pecuniaryrelationshipwhichexistsbetweentheinsurerandpolicyholder,theformerorinsurerstandstolosebythedeathofthepolicyholderorlatterandorcontinuoustogainbyhissurvival

Inlifeinsurancecontract,apersonmayhaveinsurableinterestforhisownlifea s wellaslivesofhisrelativessuchaswife,son,daughteretc.Nopersoncanpurchaselifeinsurancepolicyforathirdpersonunlesshehasfinancialinterestinhislife

AccordingtoVietnameselaws,insurableinterestsmeantherightstoownership,therightstopossession,therighttouse,thepropertyrights;therightsandobligationstofosterandprovidefinancialsupportforinsuredobjects.10

InsurableInterestRequirement

Asnotedearlier,insuranceisintendedtocompensateanindividualorab u s i n e s s fora financialloss,nott o provideanopportunityforg a i n Atonet i m e , however,peopleusedinsurancepoliciesasa meansofw a g e r i n g Ineighteenth-

centuryEngland,forexample,peoplefrequentlypurchasedlifeinsuranceonthelivesoffamouspeople,especiallythosewhowerereportedlyill,hopingtomakeaprofitiftheinsuredpersondied

Thepracticeofpurchasinginsuranceasawagerisnowconsideredagainstpublicpolicy.Asaresult,lawsintheUnitedStatesandmanyothercountriesrequiret h a t apolicyownerhaveaninsurable interestintheriskthat isinsuredatthetimet h e policy

isi s s u e d Ani n s u r a b l e interestm e a n s t h a t t h e policyowner

10 The

Article3.9Lawoninsurancebusiness

mustb e likelytos u f f e r a g e n u i n e losso r d e t r i m e n t shouldt h e eventi n s u r e d a

Allp e r s o n s areconsideredtohaveani n s u r a b l e i n t e r e s t i n t h e i r ownlives.Ap

e r s o n isalwaysconsideredtohavemoret o g a i n bylivingt h a n byd y i n g Therefore,aninsurablei n t e r e s t b e t w e e n thepolicyownerandt h e i n s u r e d isp r e s u

ft h e beneficiaryd o e s notpossessaninsurableinterestintheproposedlifeinsured

Inthecaseofathird-partypolicy,lawsinmanycountriesandinmoststatesint h e UnitedStatesrequireonlythatthepolicyownerhaveaninsurableinterestintheinsured’slifewhenthepolicyisissued.Mostinsurancecompanyunderwritingguidelinesandthelawsinsomestates,however,requireboththepolicyo wne randt h e beneficiaryofa third-

partypolicytohaveani n s u r a b l e i n t e r e s t intheinsured’slifewhenthepolicyisissued

Certainfamilyrelationshipsareassumedbylawtocreateaninsurableinterestbetweenaninsuredandapolicyownerorbeneficiary.Accordingtothelawsi n mostjurisdictions,theinsured’sspouse,mother,father,child,

2.1.2.2 Utmostgoodfaith

Thelifeinsurancerequiresthattheprincipleo f utmostgoodfaithshouldb e preservedbyboththeparties;insurerandinsured.Utmostgoodfaithbetweenthepartiesisnecessaryinallkindsofcontracts.Theinsuredinparticular,mustdiscloseallfactsaccuratelyandcompletelywithrespecttotheobjecto f lifepolicy

2.1.2.3 Warranties

Warrantiesaretherepresentationsinlifeinsurancewhichareembodiedinthepolicyandexpresslyo r impliedlyformingp a r t o f thebasiso f thecontract.Warrantiesa r e theintegralparto f thecontract.Thesea r e thebaseso f thecontractbetweeninsuredandinsurerandifa n y statemento r informationorpresentation,whethermaterialo r non-material,isuntruethecontractmayb e voidandthepremiumpaidbyinsuredmaybeforfeitedbytheinsurancecompanyorinsurer

2.1.2.4 Assignmentandnomination

Thelifeinsurancepolicycanbeassignedfreeforalegalconsiderationorloveandaffection.Theinsuredmayassignedtoanybodyonanyground.Assuch,theassignmentshall

be completeandeffectualonlyontheexecutiono f suchendorsementeitheronthepolicyitselforbyaseparate deed

2.1.2.5 Returnofpremium

Generally,theamountofpremiumpaidcannotberefunded.However,forthereasono fequity,thepremiummayb e refunded.I f itisthecaseo f misrepresentationo r breacho

f warranty,theinsured,inthea b s e n c e o f anyexpressconditiontothecontrary,canclaimforreturnofpremiumpaid.But,in

17

caseofguiltyoffraudinobtainingpolicy,theinsuredcannotclaimtheamounto f premiumtobereturned.11

2.2.1 Pensionpolicy

Insurancecontractsthatspecifypensionplanscontributionstoa n insuranceundertakinginexchangeforwhichthepensionplanbenefitswillbepaidwhenthemembersreachaspecifiedretirementa g e o r onearliere x i t o f membersfromthe plan.12

Pensioninsuranceisalifeinsuranceproductthatisimplementedbytheinsurerforthepurposeofprovidingthelifeassuredswithadditionalincomeattheendoftheirworkingage

Pensioninsuranceincludespensioninsuranceforindividualsandpensioninsuranceforagroupofemployees.Incaseofpensioninsuranceforagroupofemployees(hereinafterreferredtoas―GroupPensioninsurance‖),thepolicyholderistheemployerandemployeesshallb e entitledallbenefitso f theinsurancepolicyaftera certainperiodo f timeaccordingtoagreementbetweenthepartiesa s specifiedintheinsurancepolicy

Basedonthepremiumspaidthepolicyholder,thelifeassuredstartsreceivingpensionbenefitswhenuponattainingcertainageasspecifiedintheinsurancepolicy,butnotearlierthanfifty-five(55)yearsoldforfemaleandsixty(60)yearsoldformale13

Pensioninsurancepolicymustb e compliantwiththeregulationso f lawsandfullyhasthebelowinformation:

 Premiumcontributionsofthepolicyholder,thelifeassured;

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 Thepolicytermincludesthepremiumpaymentperiodandthebenefitpayout period;

 Responsibilitiesofpartiesrelevanttogrouppensionpolicy;

 Optionsandbenefitsofthelifeassureduponparticipatinggrouppensionpolicy;

 Therate,specificamount,maximumlimitandmethodo f calculatingpremiumsrelevant topensioninsurancepolicy;

 Rightsandobligationso f thepartiesinaccordancewithregulationsoflaws;

 Enclose theinsurancebenefit illustrationintheinsurance policy;

 SpecifytherightoftransferringpensioninsuranceaccountaccordingtoArticle 15ofthisCircular.14

2.2.2 Legal characteristicsofpensioncontract

Indistinctiontoanotherlifeinsurancecontract,pensioncontracth a s someuniquenature.Amongothers:

Thelifeassuredisnotpermittedtowithdrawthepensioninsuranceaccountbeforereachinga certainageaccordingtoagreementintheinsurancepolicy,exceptingthe casestatedbelow

Thelifeassuredhastherighttorequestforpartialwithdrawalorfullsurrendero f pensioninsuranceaccount inthefollowingcases:

 Thelifeinsuredlosesworkingcapacityby61%ormoreaccordingtotheregulationofcurrentlaw;

 Thelifeassuredsuffersfromcriticalillnessaccordingtotheregulationo f curren

t law;

 Thelifeassured islegalresidence inoversea.15

Thepolicyownerhastherighttorequestforsurrenderofpolicy(lifeinsurancecontract)atanytimeandwillbereturnedsurrendervaluebytheinsurerifthepolicyownerhasalreadypaidthe insurancepremiumsfortwoyearsormore.

Forpensionpolicy,thereisnotsurrendervaluebutpensionaccountvalue.Pensionaccountvalueisthesumofregularpremiumandexcesspremiumafterdeductionofrelatedcharges

Ingeneral,oncepolicyownercancelthepolicy,he/shewillreceivea certainamountwhichiscalculatedupontheoperationspecificationofsuchproduct

Theconsequenceofbeingnotallowedtocancelthepolicyisthepolicyownerisnotabletowithdrawthepensionaccountvaluebutwaitingforreachingtheretirementage

Evenwherethepolicyownercannotaffordtopayinsurancepremiums,thepolicyownercannotcancelthe

pensionpolicybutcanasktemporarilyclosethepensionaccountvalue.Uponthisrequest,thelifea s s u r e d isnotallowedforreceivinganyinsurancebenefitsduringthisperiod,exceptingthepaymento f periodicpensionbenefitswhenthelifeassuredreachesthecertainageo r thepaymento f totalpensionaccountvalueaccumulateduntilthetimethelifeassureddiesorsuffersfromtotalandpermanent dismemberment.16

Theaboveprohibitionisnotincludedthecaseoffree-lookperiod.Althoughitisnotstipulatedinthelaw,thelifeinsurancepracticeallowsaperiodwhereanewinsurancepolicyownerisabletoterminatethecontractwithoutpenaltiessuchassurrendercharges

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13,14Circular115/2013/TT-BTC