CH9

Question 1

What are the three main factors in deciding which repayment vehicle to use for interest only?

Answer 1

• age
• ATR and view of future performance
• available income + borrowing requirements

Question 2

What is a Without profit endowment?

Answer 2

This type of policy provides guarantees that the mortgage will be paid off if the policyholder (no investment element):
- dies during the mortgage term; or
- survives for the full mortgage term.

Question 3

What is a Full With Profits endowment?

Answer 3

Provides
* a capital repayment vehicle;
* life insurance for the term of the mortgage loan; and
* the prospect of a tax-free lump sum on maturity.
* basic sum assured = value of mortgage

Question 4

What is a Low Cost With Profits endowment?

Answer 4

Same as full with profits but sum assured = % of value of mortgage

Question 5

What is in the ABI’s code of practice (endowment reviews)?

Answer 5

• initial reviews should be no later than the earlier of half the policy term, ten years from inception or maturity;
• subsequent reviews at min every five years;
• reviews in the last five years should be annual if there is any mortgage shortfall risk;
• policy review assumptions must be provided on either two projections at rates current at the time or a reasonable rate; and
• the current surrender value should be value to which project rates are applied.

Question 6

Review letter options if endowment shortfall?

Answer 6

• Increase monthly premiums.
• Extend the term of the mortgage and the endowment plan.
• Repay some of the mortgage with a lump sum.
• Change part of the loan to capital repayment.
• Wait and see

Question 7

What are retirement interest-only mortgages?

Answer 7

• Help with shortfall on interest only
• Enable borrower to fund shortfall with mortgage repaid on death, LTC or selling property
• Regulated as standard mortgages under MCOB rules

Question 8

What are the rules of stakeholder pension plans?

Answer 8

• Max charge 1-1.5%
• Min contribution £20