Chapter 4 - Introduction to financial products and customer needs Flashcards
What is a means-tested benefit? How could a means-test affect the behaviour of individuals receiving the benefit? What are the main possible types of means-tested benefits? (6)
An assessment will be carried out to see if someone qualifies for a particular benefit.
It may act as a financial disincentive to individuals to make alternative private provision.
Retirement pensions Medical care (proposed NHI in SA) Income support (unemployment, disability, illness) Housing support Child support Long-term care
Discuss what a benefit scheme is. Give an example.
Similar to a pensions scheme in terms of legal and tax structure.
Contribution by members or their employers (could be compulsory)
Healthcare
What is an investment scheme? Give two examples.
Individual pays a single/series of payments with expectation that a higher amount will be paid out at a later date.
Unit-linked savings product (many other savings products)
Collective Investment Schemes (CIS)
Explain the principles of insurable interest, risk financing and pooling of risk.
Insurable interest
- Can only insure if individual has financial interest in the insured event
- Prevent moral hazard, fraud and other crime
Risk financing is pre-funding the risk
- Put money aside in advance in preparation for the occurrence of an uncertain risk event (in terms of timing, occurrence and cost) in the future.
- Amount of pre-funding will depend on:
1) the probability of the risk event
2) the cost of the risk event
3) and the return that can be earned on the pre-funded money
Pooling of risk
- Protect against uncertainties which exist in the cost of financing the benefits
- Reduce volatility of experience
- Lead to cost-effective provision of benefits
What is micro-insurance?
Insurance products which offer coverage to low-income households.
Offer basic benefits for a low premium. Benefit from pooling large volumes of business.
Tailored specifically for lower valued assets and compensation for illness, injury or death.
Discuss how stakeholders needs can be broken down.
Logical needs
- Systematically working out what needs a customer has and fitting products that meet these needs
Emotional needs
- What an individual feels is needed
Current needs
- Need which has an immediate effect on the customer’s circumstances
Future needs
- Customer’s future aspirations
- Note a need may be relevant in the present and the future
