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RO5 Keys > 2 > Flashcards

2 Flashcards

1
Q

Protection gap

A

Shortfall in amount of necessary cover

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2
Q

Biggest impact on commoditisation

A

Price and most likely in life cover as providers offering CI, their cover varies

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3
Q

Surrender value of a life policy

A

Surrendering a policy before death for investment element minus fees e.g. whole of life unit linked policy

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4
Q

What are whole of life policies usually used for?

A

Funeral expenses

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5
Q

Bond

A

primarily forinvestment purposes, only nominal life cover will be provided, typically just 101% of the bid value of the units held at the point of death

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6
Q

Pension term assurance

A

Prior to April 2006, benefit from tax relief on term assurance linked to a pension plan providing no changes made since April 2006

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7
Q

Mortality rate calculation

A

rate X sum assured

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8
Q

What is used to calculate premiums of a policy?

A

Mortality rate

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9
Q

Pure premium for a life office

A

premium required just to pay claims for that year

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10
Q

What is premium loading?

A

Extra costs within a premium e.g. admin costs, employee salaries, office costs

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11
Q

Frequency loading on a policy

A

Increase in cost for paying monthly rather than annually

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12
Q

3 advantages of using a test for a life policy

A

Paid quicker to right people even outside of will

Possibly avoid IHT

Better protection against settlor going bankrupt

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13
Q

What is the Married women’s protection act for a policy regarding a trust?

A

A trust for a policy that is only for children and spouse. Also can only be done at outset of policy. But gives greater protection against creditors.

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14
Q

Are flexible and discretionary trusts taxed for policies?

A

Regarded as creating chargeable lifetime transfers (CLTs). In addition, the trust could be subject to a periodic charge every ten years

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15
Q

One advantage and disadvantage to an absolute trust

A

cannot be adapted to changing needs

Is treated as a PET

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16
Q

Should a financial advisor be a trustee?

A

No, due to conflict of interest

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17
Q

Sensitive personal data

A

Beliefs, religion, sexual orientation, health or race

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18
Q

Non disclosure of information for policy application.

Reasonable
Careless
Deliberate or reckless

A

Reasonable - the customer has acted honestly and reasonably but has still failed to disclose all material facts. In such cases, the claim will be paid in full.

• Careless- the customer failed to take reasonable care and should have realised that the information given was incorrect. In such cases, a proportionate remedy will apply.

• D e l i b e r a t e or reckless - on the balance of probabilities, the customer knew, or must have known, that the information was both incorrect and relevant to the insurer. In such cases the insurer can void the policy from inception.

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19
Q

Qualifying policy

A

Any gain is non taxable

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20
Q

Non qualifying policy

A

Any gain is taxable

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21
Q

Main types of qualifying policy

A

Temporary insurance

Whole of life assurance

Endowments

Exempt policies

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22
Q

Friendly society policies

A

Tax exempt

Max. Premium of £25pm or £270 annually

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23
Q

Offshore policy

A

Policy issued by a non UK life office

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24
Q

When will an off shore policy not be tax exempt? (2 ways)

A

When premiums payable to a UK branch

Policy holder becomes a UK resident and life fund is chargeable to UK corporation tax

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25
Q

Limit on what can pay on policies to a friendly society or any tax exempt policies in a year and why?

A

£3,600 per year because this could avoid tax

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26
Q

Restricted relief qualifying policy

A

Taxed on a partly qualifying and non qualifying basis. So if exceeds £3,600 per yr limit

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27
Q

Taxation of life funds is generally at what rate and detail 3 things within this

A

20% on rent and interest and corporation tax

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28
Q

Main benefit of offshore life fund

A

Little or no tax as generally only tax is at issue

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29
Q

Chargeable gains on policies

A

Those policies subject to income tax

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30
Q

Are group life policies subject to chargeable gains?

A

No

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31
Q

IHT nil rate band

A

£325,000

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32
Q

rate of IHT

A

40%

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33
Q

Deed of variation

A

Where someone inherits property through a will or intestate but wants to change the terms as this is not tax efficient

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34
Q

Disclaimer of a will

A

Reject the property when gifted in a will but can then not chose who will receive it

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35
Q

Definition of incapacity for IP

  • Own occupation
  • Suited occupation
  • Any occupation
A

Own occupation - unable to perform own role

Suited occupation - unable to perform role suited to education, training and experience

Any occupation- cannot perform any occupation

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36
Q

Proportionate benefit for IP

A

Plus proportionate benefit to encourage returning to work

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37
Q

Can IP impact state benefit income?

A

Yes

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38
Q

Is IP taxable?

A

No I’d pay for yourself however if employer pays or paid and used as a tax deductible business expense then this is taxable

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39
Q

Typical survival period for CIC

A

14-30 days

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40
Q

Life cover buy back on CIC policy

A

After a CI claim can take out a limited form of life cover without further medical underwriting

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41
Q

Reinstatement cover for joint policies

A

Can split policy into 2 different policies is you split with partner

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42
Q

When is a CIC policy taxable?

A

When paid directly to the employer as a group policy as is taxable as a benefit in kind

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43
Q

What is long term care?

A

When a person is unable to carry out activities of daily living or mentally impaired

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44
Q

FCA definition of long term care

A

When a person cannot live independently without assistance and this is not expected to change

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45
Q

What is state benefit for long term care and how is this funded?

A

NHS and funded by local councils

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46
Q

Is long term care taxable or means tested?

A

No

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47
Q

Attendance allowance

A

Paid after state pension age, when a person needs help with personal care or supervision

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48
Q

Is attendance allowance taxable?

A

No

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49
Q

Who assesses care needs and finds this?

A

Local councils

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50
Q

Personal expense allowance for care is?

A

£25.65pw for essentials

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51
Q

What is the time limit for gifts to no longer be considered to cover care costs?

A

No time limit

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52
Q

What is the minimum threshold from which assets will be considered to cover care costs?

A

£23,250

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53
Q

When will local authority recall gifted assets to cover care costs?

A

When can prove someone had significant motive to deliberately try to avoid costs of care

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54
Q

Immediate needs care plan

A

Care need is immediate and policy pays immediately and will pay for as long as care is needed

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55
Q

When when is immediate needs care plan tax free?

A

When paid directly to the care home

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56
Q

Deferred care

A

Care is paid for by policy after a few months/years so usually good when people have funds to pay for immediate care for length of time

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57
Q

Traditional insurance care policy

A

Started policy before need for care so cheaper

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58
Q

Pre funded investment linked care policy

A

Single premium investment bond and a regulate premium for long term care policy. This is aimed to ensure that even if care is needed the beneficiaries will receive some benefit

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59
Q

Care cash plan

A

Cover against possibility of needing care in the future but no link between amount and cost of care so may not align

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60
Q

Accelerates death benefit

A

Can pay for care if eligible to claim for a policy that is already arranged eg life policy with terminal illness cover or CIC policy

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61
Q

Viatical settlement

A

Sale of an existing life policy to an intermediary for immediate cash benefit. New owner then pays premiums and will get surrender value

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62
Q

Lasting power of attorney

A

A donor is able to appoint someone to make their decisions when they no longer wish to for health and welfare and property and finance

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63
Q

Who do you go to to revoke an enduring power of attorney?

A

Court of protection if registered but can sign a document (deed of revokation) if unregistered

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64
Q

Is personal accident and sickness policy taxable?

A

Yes, no tax relief on premiums or benefit and if the employer pays premiums then is treated as benefit in kind and taxable under PAYE

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65
Q

When is personal accident and sickness insurance usually taken?

A

For short period eg for business trip or holiday

66
Q

What is private medical insurance designed to cover?

A

Acute conditions

67
Q

Acute and chronic medical conditions

A

A - rapid onset and usually amendable

C - long lasting and usually incurable

68
Q

Personal medical insurance plans

Basic

Standard

Comprehensive

A

B - budget plans with limits of cover

S - wider forms of cover with longer periods of claim

C - fullest form of cover but expensive

69
Q

Will private medical insurance cover you abroad?

A

Most likely not

70
Q

Mortgage payment protection insurance

A

Pays monthly benefit to help pay mortgage is sick, accident happens or suffer from involuntary unemployment. Payable for set period of time.

71
Q

Support for mortgage interest

A

Can receive help with mortgage interest from gov. if receive state benefits

72
Q

Can a Mortgage payment protection policy be arranged at same time as mortgage?

A

No

73
Q

Is mortgage payment protection taxable?

A

Yes taxable on premiums and benefits

74
Q

ASU policy

A

Paid if suffer from illness or injury but payable short term and can be reviewed by insurer on review period

75
Q

Is ASU taxable?

A

Benefits are not taxable but no tax relief on premiums. Unless with employer and they pay premiums then taxable under PAYE for employee

76
Q

Health cash plan

A

Pays for health care so upto 100% of treatment upto annual limit. Usually included dentist or optical services.

77
Q

PPI

A

Cover costs of non-mortgaged credit agreement in event of sickness, illness or injury

78
Q

What is minimum time period after a loan agreement PPI can be sold?

A

7 days after the later of the point of sale or illustration received

79
Q

When checking an existing client policy. If the client cannot remember the details do you need to check it?

A

Yes

80
Q

Retail distribution review brought in what 2 things?

A

Min. Qualification increase

Split advisers into restricted and independent

81
Q

What is not under retail distribution review

A

Pure protection

82
Q

Fifth core duty within FCA code

A

Treat customers fairly regardless of age, gender, disability, etc.

83
Q

If disagreement over a recommendation may be best to do what?

A

record the disagreement and ideally get the client to countersign it.

84
Q

If client not proceeding with all recommendations may be best to do what?

A

ask client to countersign it, or otherwise confirm it in writing.

85
Q

Key person insurance

A

Person whose absence is likely to lead to serious financial detriment for the business.

86
Q

Proportion of profits formula for key persons insurance

A

(Key person’s salary × profit for last year × no. of years to replace key person) / total salary bill

87
Q

Calculating amount of key persons insurance methods

A

Multiple of salary

Proportion of profits formula

88
Q

Tax relief given on key persons insurance?

A

No

89
Q

Can you get life, CIC, ASU or IP policy for key persons insurance?

A

All of them

90
Q

Share protection insurance

A

Gives company funds to purchase shares from shareholder

91
Q

Articles of association

A

These are like the company’s will. They usually have a clause that states what should happen to the shares of an individual in the event of their death, illness or retirement.

92
Q

Ways to sell shares of a company on death:

Buy and sell agreement

Cross-Option double agreement

Automatic accrual

A

B - deceased’s heirs must sell their shares in the business to the surviving shareholders, and that the latter must buy.

C - The shareholders of the business have an option to buy the shares from the estate of a deceased shareholder, and the estate has an option to sell the shares.

A - leave shares to shareholders in their wills. Usually person would take out a life policy to compensate family instead.

93
Q

When can you take a policy out on someone else?

A

When you have an insurance interest

94
Q

What trust should be used for a shareholder trust and why?

A

Flexible as an absolute cannot be changed in the future eg if shareholders changed could not change trust

95
Q

Partnership act 1980 brought what policy?

A

a partnership without a partnership agreement in place is automatically dissolved in certain situations, one of which is the death of a partner.

96
Q

What main thinner should a partnership agreement include?

A

A clause stating what should happen fi a partner dies, which can prevent the partnership from being dissolved by death.

97
Q

Under qualifying rules an endowment policy on death pays what %?

A

75%

98
Q

For each year a person passes age 55 what % does the endowment payment reduced by on death?

A

2%

99
Q

With a group policy, free cover relates to?

A

Without any evidence of health required

100
Q

Severity based cover with a CIC policy

A

More than one claim can be made should the illness progress in severity

101
Q

Max. pension pot allowance for tax relief on premiums?

A

£6k

102
Q

State benefits can be measured by your own income and capital or partners also?

A

Both personal and partner

103
Q

Can IP life offices consider benefits received when making payments?

A

Yes, may do

104
Q

Are benefit entitlement effected by IP?

A

No

105
Q

If deferred on a policy medical review this means?

A

Declined

106
Q

Are costs of life cover considered by reduction in yield figures?

A

No

107
Q

Who has equitable ownership of a policy in trust?

A

Beneficiary

108
Q

What reduction in tax liabilities come from marriage or a civil partnership?

A

CGT and IHT

109
Q

When are financial planning reviews unnecessary?

A

They’re always necessary

110
Q

How to easily define non-qualifying policies?

A

Usually if they have a surrender value

111
Q

Contingent policy

A

Pays on life assured proving another person is still alive

112
Q

Taxation of dividends, rent and interest are at what rates?

A

Dividends - Exempt
Rent and interest - 20%

113
Q

Chargeable gains on a life policy are subject to CGT or income tax?

A

Income tax on amount over the amount paid for premiums

114
Q

Tax rules on a trust

A

Settlor pays - If settlor still alive or in same year of death

Trustees pay - if after same year of settlors death or settlor non UK resident

Beneficiary pays - if trustees non UK resident (no top slicing)

115
Q

When will tax be paid on offshore policies?

A

On chargeable gains, such as surrender value of policy

116
Q

How much of a gift is IHT exempt per year?

A

£3k

117
Q

Gift inter vivo policy

A

Where the sum assured falls in line with IHT payable on any potentially exempt transfers

118
Q

How long before proceeds must be paid after death or trust must be registered?

A

2yrs

119
Q

Who do you register a trust with?

A

HRMC

120
Q

Maturity claim for an endowment policy is what?

A

End of policy and initiated by life office contacting policy holder giving details of amount payable, maturity date, etc.

121
Q

Probate and administration will or no will?

A

Probate - will
Admin. - No will (intestate)

122
Q

Policy is pad when they provide what?

A

Proof of policy and either deed of assignment, evidence of being a trustee or grant of representation

123
Q

Rehabilitation benefit is what?

A

Proportionate benefit

124
Q

Renewable IP policy

A

Set renewal cost when renewal due. Insured may renew but insurer can’t decline

125
Q

Group IP policy can pay same, more or less than normal IP?

A

More

126
Q

Typical survival period for CIC?

A

14-30days

127
Q

CIC must cover what 3 things?

A

Cancer, heart attack and stroke

128
Q

NHS continuing care

A

Fully funded care for those who’s primary need for care is health based

129
Q

Attendance allowance

A

Can claim if past SPA and need help with care

130
Q

Immediate long term care is essentially what?

A

Assurance policy

131
Q

Immediate needs care policy

A

Pay lump sum for care costs covered until care no longer needed so no set end date

132
Q

Pre-funded investment linked care policy

A

Cover for care and investment aspect for policy holder or beneficiaries. Works by:

  • if no care needed then value of bond and growth - premiums payed
  • if care needed then bond value can be claimed at any time
133
Q

Pre funded investment linked policy disadvantages

A

If investment not performing then can lead to a reduction in cover or require additional single premium

134
Q

Care cash plan

A

Pay lump sum or income for set period of time in event of a claim but no link between amount payable and cost of care

135
Q

Lifetime mortgages available to over what age?

A

55

136
Q

Peppercorn rent

A

Rent payable on a home reversion plan

137
Q

Viaticle settlement

A

Selling a life policy when I’ll for immediate lesser value then companies pays premiums and owns policy

138
Q

Where do you register a LPA

A

Office of public guardian

139
Q

Where do you revoke a EPA if registered or unregistered?

A

Court of protection if registered or deed of revokation if not registered

140
Q

Co payment and excess on PMI

A

Co payment - customer pays part of cost of treatment upto a limit

Excess - insured covers first £X amount of any years claims

141
Q

Would PMI be applicable abroad?

A

Most likely not, would be better with holiday insurance

142
Q

Moratorium underwriting on a PMI policy

A

Exclusion of a pre-existing condition for a set length of time proving no claim for that within that period

143
Q

Health cash plan

A

Covers upto 100% of health care upto a pre-set limit. Such as dentist, preset limit for treatment in hospital and optician

144
Q

Dental capacitation scheme

A

Helps budget costs of dental care

145
Q

Free asset ratio

A

Amount of excess assets against liabilities

146
Q

Buy and sell agreement

A

Must buy and sell shares

147
Q

Cross option agreement

A

Both have option to buy and sell shares. If one chooses to then other must comply.

148
Q

Automatic accrual agreement

A

Leave shares to shareholders in their wills and usually have a life policy for beneficiaries

149
Q

Partnership act 1980

A

Partnership automatically dissolved if partner dies if has no partnership agreement

150
Q

Partnership agreement

A

Should state what will happen to shares in event of death

151
Q

Only policy to not have no tax on benefit and tax on premiums?

A

PAS

152
Q

Limit on premiums payable to qualifying policies

A

£3,600

153
Q

Tax payable on a gain from a policy

A

Current tax bracket - basic rate is rate of income tax payable

154
Q

When is pension taxable

A

When receive as income tax

155
Q

Can you buy and sell endowment policies

A

Yes

156
Q

When are offshore policies taxed?

A

On gain

157
Q

Rate of IHT

A

40%

158
Q

IHT gift exemptions

A

Upto first £3k a year tax free and £250 max on as many gifts as want tax free

159
Q

Deed of variation

A

Change how receive something from will for tax benefit

160
Q

disclaimer on will

A

Decline to accept asset from will

161
Q

Endowment life cover must not be less then what % of premiums?

A

75%

162
Q

Friendly society premium limits

A

£25per month or £270 per year

RO5 Keys (2 decks)

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