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

Pension insurance means a class of insurance in case where the insured person reaches a determined age shall be paid insurance money by insurance enterprise as agreed in the insurance co

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

-

HOANG THI HONG HA

CLIENT’S RIGHTS AND TAX INCENTIVES RELATED TO

VOLUNTARY PENSION INSURANCE BUSINESS

MASTER THESIS IN LAW

Ho Chi Minh City, May 2017

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

-

HOANG THI HONG HA

CLIENT’S RIGHTS AND TAX INCENTIVES RELATED TO

VOLUNTARY PENSION INSURANCE BUSINESS

Major: Economic Law Code: 60380107

MASTER THESIS IN LAW

SUPERVISOR: ASSOC PROF PHAM DUY NGHIA

Ho Chi Minh City, May 2017

INDEX

DECLARATION III PREFACE IV ABSTRACT V LIST OF DEFINITION AND ABBREVIATIONS VI CONTENTS IX LEGAL ASPECTS OF PENSION PRODUCT – REVIEW OF THE CLIENT’S RIGHTS AND TAX

INCENTIVES TO ENCOURAGE VOLUNTARY PENSION INSURANCE BUSINESS IX

CHAPTER 1 INTRODUCTION 1

CHAPTER 2 OVERVIEW INSURANCE BUSINESS: THE POLICY AND PENSION 11

2.1 P OLICY AND ITS FEATURES 11

2.1.1 What’s life insurance contract 11

2.1.2 Features of life insurance contract 12

2.1.2.1 Insurable interest 13

2.1.2.2 Utmost good faith 16

2.1.2.3 Warranties 16

2.1.2.4 Assignment and nomination 16

2.1.2.5 Return of premium 16

2.2 P ENSION POLICY AND ITS FEATURES 17

2.2.1 Pension policy 17

2.2.2 Legal characteristics of pension contract 18

2.3 P ROCEDURE OF LAUNCHING PRODUCT 20

2.4 R IGHTS OF P OLICY OWNER ( CLIENT ) TOWARD POLICY 20

2.4.1 Free-Look Provision 21

2.4.2 Entire Contract Provision 21

2.4.3 Grace Period Provision 21

2.4.4 Reinstatement Provision 22

2.4.5 Policy Withdrawals 22

2.4.6 Nonforfeiture Provision 23

CHPATER 3 REVIEW THE CLIENT’S RIGHT OF TERMINATION/ CANCELLATION AND WITHDRAWAL 24

3.1 R EVIEW OF T ERMINATION / C ANCELLATION RIGHTS 24

3.1.1 Analysis of the current unsound regulations 24

3.1.2 Other policies reference 28

3.1.3 International reference 30

3.2 R EVIEW OF THE RIGHT TO WITHDRAW MONEY IN ADVANCE 34

3.2.1 Analysis of the current unsound regulations 34

3.2.2 Other policies reference 35

CHAPTER 4 REVIEW TAX INCENTIVE REGULATIONS APPLIED FOR CORPORATE AND EMPLOYEE CLIENTS BUYING PENSION PRODUCT 37

4.1 A NALYSIS OF THE CURRENT UNSOUND REGULATIONS – T HE NEED TO ENCOURAGE VOLUNTARY PENSION PRODUCT 37

4.1.1 Corporate Income Tax (CIT) 37

4.1.2 Personal Income Tax (PIT) 40

4.2 O THER POLICIES REFERENCE 43

4.2.1 Corporate Income Tax (CIT) 43

4.2.2 Personal Income Tax (PIT) 44

4.3 I NTERNATIONAL REFERENCE 46

CHAPTER 5 PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT RIGHTS AND TAX INCENTIVES FOR PENSION BUSINESS 50

5.1 T ERMINATION / C ANCELLATION RIGHTS 50

5.2 R IGHTS OF WITHDRAW MONEY IN ADVANCE 51

5.3 T AX INCENTIVE 52

5.3.1 Corporate Income Tax (CIT): 52

5.3.2 Personal Income Tax (PIT): 53

ANNEX 01 54

PENSION CONTRACT IN HONGKONG – PRUMYRETIREMENT RMB ANNUITY INCOME – GENERAL PROVISIONS 54

ANNEX 02 57

PENSION CONTRACT IN SINGAPORE - PRUGOLDEN INCOME 57

ANNEX 03 59

PROCEDURE OF APPROVED PRODUCT 59

REFERENCES 61

DECLARATION

I, HOANG THI HONG HA, trainee code: 7701240806A, a trainee of LLM 24 of Economic University in HCMC, an author of this Thesis on Legal aspects of Pension

I hereby declare that all content presented in this thesis is the result of personally independent research under the guidance of the Mentor In the thesis there are used, quoted some ideas, scientific view of some authors These information sources are cited specific, accurate and verifiable The data and information used in the thesis is completely objective and honest

Author

HOANG THI HONG HA

In the first place, I would like to express my genuine appreciation to my Mentor, Professor Pham Duy Nghia, for his valuable commentaries, constantly guiding and encouraging me through the whole process of working on this thesis I would also like

to thank the Prudential Life Vietnam Company and Cathay Life Vietnam Company for their ideal working environment, for a practical repertory, for giving me a lot of practical experience, which is an important part of the success of this thesis In addition, I am also grateful to my esteemed chief, Mr Robin, Director of Policy Administrative / Finance & Accounting / Legal Department of Cathay Life Vietnam, for his strong assistance in providing me the valuable data and documents in Taiwan Dear Mr Nguyen Viet Hai, a former Secretary Deputy General of Insurance Association of Vietnam, it was a great experience and a great pleasure to work with you, for your worth sharing on life insurance market in Vietnam, particularly for the state policies under the regulator perspective Last, but not least, I would like to offer

my warm thanks to my colleagues, my friends and my family for being with me

Ho Chi Minh City, May 2017

Since 2013, Vietnam had adopted regulation to promote voluntary pension policy Despite the high expectation, after more than three years of deployment, the market for pension insurance remains very limited This thesis aims to explain the legal contracts which impede the development of pension insurance The thesis also analyses the right of clients to terminate the pension contract and to withdraw money

in advance of pension contract

Finally, the thesis reviews tax implications on current policies of corporate income tax and personal income tax applied for corporate and employee clients

As a result, this thesis proposes that pension regulation should admit the client right of termination of pension contract; extend the client right of withdrawal of money in advance in any circumstances And last but not least, tax policies should be adjusted to ensure the fair tax treatment between voluntary pension and social pension

In this thesis, research instruments are used including survey, statistics, comparison and analysis to support for the persuasion

LIST OF DEFINITION AND ABBREVIATIONS

Policy Owner / Policy Holder are organizations or individuals that enter into insurance contracts with insurance enterprises and pay premium An insurance buyer may also

be concurrently the insured or the beneficiary

The Insured / Life Assured means organizations or individuals that have property, civil liabilities and/or life are insured under insurance contracts The insured may also

be concurrently the beneficiary

The Beneficiaries mean organizations or individuals designated by the insurance buyers to receive insurance money under person insurance contracts

Insurable interests mean the rights to ownership, the rights to possession, the right to use, the property rights; the rights and obligations to foster and provide financial support for insured objects

Insured events mean objective events mutually agreed upon by the parties or prescribed by law upon the occurrence of which the insurance enterprises shall have to pay the insurance money to the beneficiaries or pay indemnities to the insured

Premium means a sum of money to be paid by the insurance buyers to insurance enterprises according to time limits and by modes mutually agreed upon by the parties

in the insurance contracts

Pension insurance means a class of insurance in case where the insured person reaches

a determined age shall be paid insurance money by insurance enterprise as agreed in the insurance contract

Surrender Value means an amount of money the Policy Owner will receive if the Policy Owner terminates the Policy while the Policy is on effective period

Free-look period / Cooling-off period means an individual life insurance policy typically includes a free-look provision, some- times referred to as a free-examination provision or a cooling-off provision, which gives the policy owner a stated period of

time—usually at least 10 days—after the policy is delivered within which to cancel the policy and receive a refund In most jurisdictions, this period of time ranges from

10 to 30 days The free-look period begins on the date the policy is delivered to the policy owner, not on the date of issue Insurance coverage is in effect throughout the free-look period or until the policy owner rejects the policy, whichever occurs first Grace period means a length of time following each renewal premium due date within which the premium may be paid without loss of coverage The specified time (often

31 days) following each premium due date during which the contract remains in effect regardless of whether the premium is paid

Reinstatement means the conditions that the policy owner must meet for the insurer to reinstate a policy

Defined-benefit plan means a pension plan with a guarantee by the insurer or pension agency that a benefit based on a prescribed formula will be paid Such plans can be fully funded or unfunded

Defined-contribution means the contributions that the plan sponsor agrees to make to the plan The benefit that a participant will receive is not determined in advance of the participant’s retirement but depends on the investment performance of the funds in the plan

PAYG (Pay as you go) means a withholding tax which requires you to pay incremental amounts which accumulate towards your expected end of year income tax liability

MOF: Ministry of Finance

ISA: Insurance and Supervision Authority

MOLISA: Ministry of Labor, War Invalid and Social Ware fares

MOIT: Ministry of Industry and Trade

CIT: Corporate income tax

PIT: Personal income tax ULP: Universal life product ILP: Unit link life product

RIGHTS AND TAX INCENTIVES TO ENCOURAGE VOLUNTARY PENSION INSURANCE BUSINESS

PENSION POLICY

WITHDRAWAL OF MONEY IN ADVANDE

3.1.1 Analysis of the current unsound regulations

3.1.2 Other policies reference

3.1.3 International reference

3.2.1 Analysis of the current unsound regulations

3.2.2 Other policies reference

CORPORATE AND EMPLOYEE CLIENT BUYING PENSION PRODUCT

voluntary pension policy

CHAPTER 5 PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT RIGHTS AND TAX INCENTIVES FOR PENSION BUSINESS

CHAPTER 1 INTRODUCTION

The rapid increase in the aging rate of global population has affected tremendously on economic, social and political situations of nations Vietnam is regarded as one of the countries with the population’s greatest aging pace which places first in Asia and seventh in the world

Vietnam’s remarkable economic growth which has been achieved in the past

standards which creates healthier lifestyles This has led to the increase in life expectancy from 69.2 years in 2001 to 73.2 years in 2014 It is projected that this trend will continue to 80.4 years in 2050

(Source: General Statistics Office, 2014)

Consequently, the number of people aged range from 60 almost doubled between 1990 and 2015 (from around 5,6 million to approximately 9,7 million people) and are forecast to triple in the next 20 years Conversely, the number

of newborns and under-15-year-old children fell sharply The graph below shows the proportions made up by people aged above 60 and fewer than 15 during the period from 1990 to 2025

62.0 64.0 66.0 68.0 70.0 72.0 74.0 76.0 78.0 80.0 82.0

Graph 1.1: Vietnam's life expectancy trend from 2001 to

2050 (years)

(Source: World Bank, UN, BMI, 2014)

As it can be seen, Vietnam has experienced the demographic transition from a young to an aging population within the last 25 years

Although life expectancy increases over time, it is reported that elderly people have been living under limited health and financial conditions According to Vietnam Association of the Elderly, 73% of the elderly do not have social insurance/pension benefit As a result, they remain working or rely on their adult children However, that remaining working or being dependence is inadequate benefits to prevent old-age poverty Because Vietnam is still a lower middle-income country compared to the world The average income per capita

The proportion of the population living below the national poverty line

economic growth and thus income per-capita levels are not at par with the pace

of Vietnam demographic transition While Western world developed first, then aged; Vietnam will age while it is still developing Vietnam is currently trying

to address the challenges created by this phenomenon through the reform of

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reach-upper-middle-income-status-in-20-years

pension systems that help the population cope with the risk of poverty in old age

This exposes an alert and also a challenge to the national social welfare system

in general

The social welfare systems

Overall, the two major objectives of social welfare systems are providing for consumption smoothing (i.e protecting against the risk that there will be an abrupt drop in consumption when income ceases or saving are depleted) and protecting against the risk of old age poverty

At present, the insurance system in Vietnam consists of (i) mandatory funded pension fund, known as a compulsory retirement pension (called as Social Security), (ii) supplementary pension funds controlled by the state, and (iii) voluntary pension funds managed by the private (called as Pension) In which, Social Security can be considered as the first pillar and Pension can be considered as the third pillar of the social security system in line with international standards

public-Currently, MOLISA has completed the process of studying and drafting the draft of the pilot project on supplementary pension policy as follows (Figure 1)

Pension and Supplementary pension are a portion income of the retirement age Everyone has a separate retirement account Assets accumulated and formed in

a retirement account are owned by the insured person and are entitled to use at retirement age Form of payment is DC (Defined Contribution) However, these two insurance kinds have many different points as follow:

Figure 2

provided by insurers

A social insurance policy

mandatory (post-stage)

Security

Payment Depend on the will of

individual or employer

Contribution rate specified in

agreement

insurers commit a minimum interest rate and the interest share of insurers’ profit, if any

investment will be paid to the participant

Withdrawal

in advance

Limitation in 3 cases: (i) reduced working capacity at 61% or more; (ii) suffers a dangerous disease; (iii) citizen

of Vietnam is permitted abroad residence legally by competent authority of such country

All paid contribution of employee will be returned

Management Insurers and Management fund

companies

Management fund companies, Custodian bank, and other financial intermediation

The current trend is that most countries have reformed their pension system from a single pillar to a multi-pillar system The reason is because the reliance

evidence for this trend

So far, the key pension system in Vietnam is the state-run social insurance system, mainly mandatory This mandatory scheme includes a contribution requirement of 26% of monthly salary (in which 18% is borne by employers

follows:

 Firstly, the participation rate of the mandatory social system is relatively slow According to statistics from The Social Welfare system, in 2013, there were 10.6 million contributors to the system However, this was mainly from state-run organizations and the number of contributions to voluntary pension system was still limited

 Secondly, the fund deficit can be attributed to the lack of capacity for management and implementation of the fund

Apart from the above, the current Social Insurance system also has the following limitations:

 The annual pension benefit from Social welfare system is capped at 75%*20 months of basic salary (currently about 21 million) per capita which is insufficient to maintain employees’ lifestyle after retirement

 Pension benefit from Social Welfare system is not inflation-protected Therefore, this amount will not be sufficient to maintain the lifestyle in the period of high inflation

Besides, though Vietnam has a relatively low retirement age, half of Vietnam’s employees here continue to opt for an early out, while Vietnam's official

3

Law on Social insurance and Article 43 of Law on occupational safety and health

retirement age for men is 60 and women 55, the Social Insurance Department said at a meeting on October 26th, 2015 The number of people receiving pay-outs has increased faster than the number of contributors In 1996, there were

217 contributors for 1 retiree In 2010, this ratio fell to as low as 10.7/1 (see the trend is shown in the Figure 3 below) and now the ratio plummet to 8.13:1:

(Source: Vietnam Social Insurance, 2011)

Unless this trend is reversed, it is projected by MOLISA that by around 2034, the number of retirees would be equal to that of social insurance payers This exposes a threat to the balance of Funds’ cash inflow and outflow ―Sooner or later, the social insurance fund will fly off balance‖, said by Mr Tran Huy

Therefore, measures have been taken to reform the current social insurance system, some of which include expanding retirement age, increasing the contribution ratio of both employers and employees into the fund etc However, these are merely short-term solutions that are unable to instantly solve systematic problems and the Government of Vietnam have been looking at alternative pension funds to reinforce the social insurance fund

4

pension-fund-3490583.html

Given with the above situations, the Government has taken actions in order to reform the pension funding system in a way that ensures long-term sustainability of the system The State launches the roadmap to encourage people to take care of themselves after retirement through voluntary pension insurance Accordingly, MOF and the MOLISA have developed two pension systems in parallel called Supplementary pension and Pension product as introduced above

Pension, according to the Circular 115/2013/TT-BTC (in the following called for short as Circular 115), is defined as life insurance products issued by insurer

to provide additional income to the insured during retirement period In which, participants contribute in a regular basis in order to receive pay-out from the Voluntary Pension Fund when they reach retirement age

Currently, there are six insurers providing pension products in the market, namely: Prudential, AIA, PVI-Sunlife, Manulife, Dai-ichi Life and Bao Viet

revenue in 2015 reached nearly VND 279 billion and 20,000 clients As a result

of 2015, the second year of implementation, pension premiums account for less than 2% of the total new market premiums The first year premium for this product as of September 2016 was less than 1% of the total new market premium According to data of the ISA, total premiums of new life insurance in the first nine months of 2016 were estimated at over VND 11,466 billion, up nearly 30% over the same period of 2015 Term life, endowment insurance and

means that despite the potential value, after more than three years of deployment, the existence of Pension has not expanded compared with the other insurance products

5

muc-tieu-doanh-thu-phi-tang-186-42049.aspx

http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2017-03-31/nam-2017-thi-truong-bao-hiem-dat-6

muc-tieu-doanh-thu-phi-tang-186-42049.aspx

http://thoibaotaichinhvietnam.vn/pages/tien-te-bao-hiem/2017-03-31/nam-2017-thi-truong-bao-hiem-dat-When drafting the Circular 115, MOF found that workers wanted more benefits, less money Therefore, they supposed that this Circular 115 is mainly aimed at workers/employees, with the support of employers However, the reality is not as predicted by the regulator due to mainly reasons as follows:

 Pension add up to employers’ total labor cost given that they already have to absorb other similar expenses including making contribution on behalf of employees to the current mandatory social security fund While there are many way of retention the key manpower

 Due to the nature of pension product, which is rather rigid as regulated in the Pension circular, the product design has to be standardized and homogeneous with several limitations (early withdrawals and surrender are not allowed, first payout can only be made from 55 or 60 years old, payout period must be at least 15 years etc.)

 The current tax advantage is considered rather limited to both employers and employees

 For insurers: they find no demand of the market And because it requires

a complicated system to split the fund employer and the fund of employee separately to deduct the tax when insurers pay the benefit to clients, hence insurers have to invest the system to operate this Pension, which take lots of cost while the effect of sale pension is so low

 For employees: clients in general and employees in particular are not only allowed to cancel/ terminate the Pension policy but also withdraw the money at any time For tax incentive, although employees are exempted from taxes, the current tax policies are not attractive enough for employees to commit a long-term commitment with the company Contrary to this, employees prefer to receive a lump sum of payment, such as a bonus rather than a long-term pension

 For agents, Pension product is not attractive them due to commission scheme

Although there are many reasons listed above, the current unsound regulations stipulated in Pension are the most important issue In this thesis, I will focus on two research issues:

1 Review the rights of termination and withdrawal of client in pension contract;

2 Review tax incentive regulations applied for corporate and employee clients

In order to reach the research purpose, in this thesis common used research methods include: statistical analysis, policy and legal comparison and evaluation of secondary resources Accordingly, I analyse the key facts first, then compare them in relation to other Vietnam regulations/ principles, even foreign regulations are used to show what the limitations of prevailing pension regulations are and how they should be revised Concurrently, a small and quick survey of YES/NO questions around some countries is used in this presentation to support more the persuasion of this thesis

CHAPTER 2 OVERVIEW INSURANCE BUSINESS: THE POLICY AND PENSION

Currently in Vietnam, there is no definition, formal concept for life insurance contract but instead only have definition on life insurance, types of insurance contract, object of life insurance contract and insurance contract

An insurance contract is an agreement between an insurance buyer (client) and

an insurer, in which the insurance buyer pays premiums while the insurance company agrees to pay insurance monies to the beneficiary or indemnify the insured on the occurrence of an insured event

Life insurance means a class of insurance provided to cases where the insured is

typically pays a premium, either regularly or as one lump sum Other

 Life policies are legal contracts and the terms of the contract describe the limitations of the insured events Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion

 Life-based contracts tend to fall into two major categories:

 Protection policies – designed to provide a benefit, typically a lump sum payment in the event of specified event A common form of a protection policy design is term insurance

 Investment policies – where the main objective is to facilitate the growth of capital by regular or single premiums Common forms (in the U.S.) are whole life, universal life policies

 A life insurance policy is a contract with an insurance company In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death

 Life insurance contract is an agreement between two parties whereby party insurance (insurance companies) are responsible for and shall pay

to the insured when the insured event occurs, and the insured is responsible and obliged to pay insurance premiums as agreed under the law

2.1.2 Features of life insurance contract

Since the life insurance is not an indemnity contract, the insurer, in his part, is required to pay a definite sum of money agreed on maturity of policy at the death or an amount in installment for a fixed period or during life As such, contrary to other insurance policies, it has some distinct features The essential features of life insurance are as follows:

9

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

2.1.2.1 Insurable interest

The insured or policyholder must have an insurable interest for a valid life insurance contract Insurable interest arises out of pecuniary relationship which exists between the insurer and policy holder, the former or insurer stands

to lose by the death of the policy holder or latter and or continuous to gain by his survival

In life insurance contract, a person may have insurable interest for his own life

as well as lives of his relatives such as wife, son, daughter etc No person can purchase life insurance policy for a third person unless he has financial interest

in his life

According to Vietnamese laws, insurable interests mean the rights to ownership, the rights to possession, the right to use, the property rights; the rights and obligations to foster and provide financial support for insured

Insurable Interest Requirement

As noted earlier, insurance is intended to compensate an individual or a business for a financial loss, not to provide an opportunity for gain At one time, however, people used insurance policies as a means of wagering In eighteenth-century England, for example, people frequently purchased life insurance on the lives of famous people, especially those who were reportedly ill, hoping to make a profit if the insured person died

The practice of purchasing insurance as a wager is now considered against public policy As a result, laws in the United States and many other countries require that a policy owner have an insurable interest in the risk that is insured at the

time the policy is issued An insurable interest means that the policy owner

10

The Article 3.9 Law on insurance business

must be likely to suffer a genuine loss or detriment should the event insured against occur

To understand how insurable interest requirements are met, we need to consider two possible situations: (1) an individual purchases insurance on her

cases, the applicant for life insurance must name a beneficiary

All persons are considered to have an insurable interest in their own lives A person is always considered to have more to gain by living than by dying Therefore, an insurable interest between the policy owner and the insured is presumed when a person seeks to purchase insurance on her own life

Insurable interest laws do not require that the beneficiary have an insurable interest in the policy owner and/or life insured In other words, the laws allow

a Policy owner or life insured to name anyone as beneficiary Most insurance company underwriting guidelines, however, require that the beneficiary also have an insurable interest in the life of the insured when a policy is issued As a result, insurers typically inquire into the beneficiary’s relationship to the proposed life insured and may refuse to issue the coverage if the beneficiary does not possess an insurable interest in the proposed life insured

In the case of a third-party policy, laws in many countries and in most states in the United States require only that the policy owner have an insurable interest

underwriting guidelines and the laws in some states, however, require both the policy owner and the beneficiary of a third-party policy to have an insurable

Certain family relationships are assumed by law to create an insurable interest between an insured and a policy owner or beneficiary According to the laws in most jurisdictions, the insured’s spouse, mother, father, child,

grandparent, grandchild, brother, and sister are deemed to have an insurable interest in the life of the insured Figure 4 illustrates the family relationships that create an insurable interest

An insurable interest is not presumed when the policy owner or beneficiary is more distantly related to the insured than the relatives previously described In these cases, a financial interest in the continued life of the insured must be demonstrated to satisfy the insurable interest requirement

The insurable interest requirement must be met before a life insurance policy will be issued After the life insurance policy is in force, the presence or absence

of insurable interest is no longer relevant Therefore, a beneficiary need not provide evidence of insurable interest to receive the benefits of a life insurance policy

Family Relationships that Create an Insurable Interest (Figure 4)

Sister-in-Law Brother

Cousin

Mother Grandfather

Spouse

Child Child

Grandchild

Uncle

Sister Spouse

Father

2.1.2.2 Utmost good faith

The life insurance requires that the principle of utmost good faith should be preserved by both the parties; insurer and insured Utmost good faith between the parties is necessary in all kinds of contracts The insured in particular, must disclose all facts accurately and completely with respect to the object of life policy

Warranties are the representations in life insurance which are embodied in the policy and expressly or impliedly forming part of the basis of the contract Warranties are the integral part of the contract These are the bases of the contract between insured and insurer and if any statement or information or presentation, whether material or non-material, is untrue the contract may be void and the premium paid by insured may be forfeited by the insurance company or insurer

The life insurance policy can be assigned free for a legal consideration or love and affection The insured may assigned to anybody on any ground As such, the assignment shall be complete and effectual only on the execution of such endorsement either on the policy itself or by a separate deed

Generally, the amount of premium paid cannot be refunded However, for the reason of equity, the premium may be refunded If it is the case of misrepresentation or breach of warranty, the insured, in the absence of any express condition to the contrary, can claim for return of premium paid But, in

case of guilty of fraud in obtaining policy, the insured cannot claim the amount

Pension insurance is a life insurance product that is implemented by the insurer for the purpose of providing the life assureds with additional income at the end of their working age

Pension insurance includes pension insurance for individuals and pension insurance for a group of employees In case of pension insurance for a group of employees (hereinafter referred to as ―Group Pension insurance‖), the policyholder is the employer and employees shall be entitled all benefits of the insurance policy after a certain period of time according to agreement between the parties as specified in the insurance policy

Based on the premiums paid the policyholder, the life assured starts receiving pension benefits when upon attaining certain age as specified in the insurance policy, but not earlier than fifty- five (55) years old for female and sixty (60)

Pension insurance policy must be compliant with the regulations of laws and fully has the below information:

 Premium contributions of the policyholder, the life assured;

 The policy term includes the premium payment period and the benefit payout period;

 Responsibilities of parties relevant to group pension policy;

 Options and benefits of the life assured upon participating group pension policy;

 The rate, specific amount, maximum limit and method of calculating premiums relevant to pension insurance policy;

 Rights and obligations of the parties in accordance with regulations of laws;

 Enclose the insurance benefit illustration in the insurance policy;

 Specify the right of transferring pension insurance account according to

In distinction to another life insurance contract, pension contract has some unique nature Among others:

The life assured is not permitted to withdraw the pension insurance account before reaching a certain age according to agreement in the insurance policy, excepting the case stated below

The life assured has the right to request for partial withdrawal or full surrender

of pension insurance account in the following cases:

 The life insured loses working capacity by 61% or more according to the regulation of current law;

 The life assured suffers from critical illness according to the regulation

According to the above stipulation, the surrender of pension policy is prohibited while this is the basis right of policy owner (the life assured) which is admitted

by Law on insurance business

The policy owner has the right to request for surrender of policy (life insurance contract) at any time and will be returned surrender value by the insurer if the policy owner has already paid the insurance premiums for two years or more For pension policy, there is not surrender value but pension account value Pension account value is the sum of regular premium and excess premium after deduction of related charges

In general, once policy owner cancel the policy, he/she will receive a certain amount which is calculated upon the operation specification of such product The consequence of being not allowed to cancel the policy is the policy owner

is not able to withdraw the pension account value but waiting for reaching the retirement age

Even where the policy owner cannot afford to pay insurance premiums, the policy owner cannot cancel the pension policy but can ask temporarily close the pension account value Upon this request, the life assured is not allowed for receiving any insurance benefits during this period, excepting the payment of periodic pension benefits when the life assured reaches the certain age or the payment of total pension account value accumulated until the time the life

The above prohibition is not included the case of free-look period Although it

is not stipulated in the law, the life insurance practice allows a period where a new insurance policy owner is able to terminate the contract without penalties such as surrender charges

2.3 Procedure of launching product

Former procedure of approval on product is so simply, insurer just submits the

dossier to MOF, a unit competent authority, to approve the product Since 2015,

not only MOF but also MOIT is involved to check the Terms and Conditions of

policy Therefore, the procedure for approval a product is quite complicated

Hence, in practice, it is pended until at the end of March 2017, a joint guideline

of MOF and MOIT is issued The description of this procedure is enclosed as

Annex 03

To protect policy owners and beneficiaries, insurance laws in many jurisdictions

require insurers to include certain standard provisions in individual life insurance

policies Examples of provisions required in all individual life insurance policies

are the free-look provision, entire contract provision, grace period provision,

reinstatement provision, Policy Withdrawals, and Nonforfeiture Provision

Although the specific wording of these provisions may vary from policy to

policy, from insurer to insurer, and from jurisdiction to jurisdiction, they are

similar in principle Vietnam’s life insurance contract is not out of scope of this provision

2.4.1 Free-Look Provision

An individual life insurance policy typically includes a free-look provision, sometimes referred to as a free-examination provision or a cooling-off provision, which gives the policy owner a stated period of time after the policy

is delivered within which to cancel the policy and receive a refund The look period begins on the date the policy is delivered to the policy owner, not

free-on the date of issue Insurance coverage is in effect throughout the free-look period or until the policy owner rejects the policy, whichever occurs first

2.4.2 Entire Contract Provision

The entire contract provision defines the documents that constitute the contract between the insurance company and the policy owner The entire contract provision limits the terms of the contract to specific written documents, thereby preventing oral statements from altering the terms of the policy The provision thus helps policyowners and insurers avoid misunderstandings regarding the terms of the contractual agreement

The specific wording of the entire contract provision varies depending on whether the policy is a closed contract or an open contract A closed contract

is a contract for which only those terms and conditions that are printed in or attached to the contract are considered to be part of the contract Most individual life insurance policies are closed contracts The entire contract provision in these policies typically states that the entire contract consists of (1) the policy, (2) any attached riders, and (3) the attached copy of the application for insurance The entire contract provision ensures that policyowners have access

to all of the terms of the contractual agreement

2.4.3 Grace Period Provision

The grace period provision specifies a length of time following each renewal premium due date within which the premium may be paid without loss of coverage The specified time following each premium due date during which the contract remains in effect regardless of whether the premium is paid is known as the grace period If the insured dies during the grace period, then the insurer will pay the death benefit to the beneficiary The insurer, however, usually deducts the amount of any unpaid renewal premium from the amount of the death benefit

2.4.4 Reinstatement Provision

Individual life insurance policies typically include a reinstatement provision, which describes the conditions that the policyowner must meet for the insurer to

reinstate a policy Reinstatement is the process by which an insurer puts back

into force an insurance policy that either has been terminated because of nonpayment of renewal premiums or has been continued under the extended term or reduced paid-up insurance nonforfeiture option Most insurers do not permit reinstatement if the policyowner has surrendered the policy for its cash surrender value When an insurer reinstates a policy, the original policy is again

in effect; the insurer does not issue a new policy

2.4.5 Policy Withdrawals

A policy withdrawal provision, which is often called a partial surrender

value by withdrawing up to the amount of the cash value in cash Insurers do not charge interest or expect repayment on policy withdrawals; the amount of the cash value is simply reduced by the amount of the withdrawal However, many policies impose an administrative fee for each withdrawal and limit the number of withdrawals allowed within a one-year period Withdrawals may also reduce the amount of the policy’s death benefit

2.4.6 Nonforfeiture Provision

The nonforfeiture provision sets forth the options available to the owner of a

cash value policy if the policy lapses or if the policyowner decides to surrender

or terminate the policy Most nonforfeiture provisions give the policyowner the right to select from among several nonforfeiture options if a renewal premium is unpaid when the grace period expires These nonforfeiture options include the cash payment nonforfeiture option, two continued insurance coverage options reduced paid-up insurance and extended term insurance and the automatic premium loan option

The cash payment nonforfeiture option states that a policyowner who

discontinues premium payments can elect to surrender the policy and receive

decides to surrender a cash value policy, the insurer first subtracts any surrender charges, which are specific charges imposed if the owner of a cash value insurance policy surrenders the policy for its cash surrender value

CHPATER 3 REVIEW THE CLIENT ’S RIGHT OF

TERMINATION/ CANCELLATION AND WITHDRAWAL

3.1.1 Analysis of the current unsound regulations

According to Article 16 of Circular 115 on temporarily closing the pension insurance account:

pension insurance accounts in case of being not able to pay premiums

2 During temporarily closing the pension insurance account, the insurers are not allowed calculating any charge for the insurance buyer Value of pension insurance account will be accumulated according to the invest rate announced annually by the insurer in accordance with agreements in insurance contracts The insurers will have no obligation to pay insurance rights and benefits during this time, except for case of paying periodical pension rights and benefits when the insured person reaches a defined age

or pay all value of pension insurance account accumulated till time when the insured person dies or suffers permanent and entire injury

3 The insurance buyer may request the insurers to recover pension insurance account and continue submission of insurance premium.

With this provision, client is not allowed to terminate/ cancel the pension policy but temporarily closing the pension insurance account by the way of stop paying premium

This limitation is not only contrary to the basic rights of policyowner as said in the point 2.4.6 (Nonforfeiture provision) above but also against the general principle of transaction stipulated in Civil Code 2015 that (i) Each person establishes, exercises/fulfills and terminates his/her civil rights and obligations

on the basis of freely and voluntarily entering into commitments and/or

Freedom of contract is one of the three pillars of the existence and development

of an economy Freedom promotes the creativity of individuals, and motivates the development of business activities The freedom of contract is interpreted in the law by openly regulate contractual issues into basis principals and protect weaker parties in transactions

Contractual freedom was first recognized in the laws of Vietnam from the Constitution 1992, and continued being recorded in the Constitution 2013, which was developed into the detailed provisions of the Civil Code 1995, 2005, and the latest is Civil Code 2015 Accordingly, the scope of freedom of contract includes the following contents: (i) the right to be equal and voluntary in contracting, (ii) the right to select partners entering into contracts, (iii) the right

to freely make the agreement, change, suspend, postpone, cancel or terminate the content of the contract, (iv) the right to agree on conditions to guarantee contractual performance, and (vi) the right to agree on choosing tribunals and methods of resolving on contractual disputes

Freedom to enter into contract is expressed in Vietnamese contract law quite consistently Accordingly, individuals and entities are free to sign contracts which are not contrary to the laws and social ethics Besides, in order to be valid, contractual parties must comply with the principals of the voluntary,

According to Article 420 of Civil Code 2015, performance of contract upon the basic change of circumstances:

1 The change of circumstances shall be deemed basic when it meets all following conditions:

a) The circumstances change due to objective reasons occurred after the conclusion of the contract;

b) At the time of concluding the contract, the parties could not foresee a change

in circumstances;

c) The circumstances change such greatly that if the parties know in advance, the contract has not been concluded or are concluded, but with completely different content;

d) The continuation of the contract without the change in the contract would cause serious damage to one party;

dd) The party having interests adversely affected has adopted all the necessary measures in its ability, in accordance with the nature of the contract, cannot prevent or minimize the extent of effect

2 In the case of basic circumstances change, the affected party may request the other party to the re-negotiate the contract in a reasonable period of time

3 If the parties cannot reach an agreement on amending the contract within a reasonable period of time, any of the parties may request a court to:

a) Terminate the contract at a specific time;

b) Amend the contract to balance the lawful rights and interests of the parties due to basic change of circumstances

The court may only decide to amend the contract in the event that the termination of the contract would cause greater damage than the cost to perform the contract if it is modified

4 In the process of negotiating amendments and termination of the contract and the court handling the case, the parties must continue to perform its obligations under the contract, unless otherwise agreed.

Given such regulation, the following analysis shall help to understand more each element being applicable:

a Events occur or become known after conclusion of the contract

According to sub-paragraph (a) of this Article, the events causing hardship must take place or become known to the disadvantaged party after the conclusion of the contract If that party had known of those events when entering into the contract, it would have been able to take them into account at that time In such a case that party may not subsequently rely on hardship

b Events could not reasonably have been taken into account by

disadvantaged party

Even if the change in circumstances occurs after the conclusion of the contract, sub-paragraph (b) of this Article makes it clear that such circumstances cannot cause hardship if they could reasonably have been taken into account by the disadvantaged party at the time the contract was concluded

Sometimes the change in circumstances is gradual, but the final result of those gradual changes may constitute a case of hardship If the change began before the contract was concluded, hardship will not arise unless the pace of change increases dramatically during the life of the contract

c Events beyond the control of disadvantaged party