2: Financial Protection Needs Flashcards
(38 cards)
What type of insurance offers a lump sum payment on the death of the life assured?
Life assurance
What type of insurance provides a regular income if the insured is unable to work due to accident or illness?
Income protection insurance
What type of insurance provides a lump sum payment if the insured is diagnosed with one of the specified critical illnesses?
Critical illness cover
What type of insurance offers cover for the costs of long-term care due to old age or infirmity?
Long-term care insurance
What type of insurance provides a regular income to cover loan or credit card repayments in cases of illness, accident, redundancy, or unemployment?
Payment protection insurance
What type of insurance provides a lump sum or income benefits if the insured suffers an accident or illness?
Personal accident and sickness insurance
What type of insurance offers a lump sum or income benefits if the insured suffers an accident or is unable to work due to sickness, redundancy, or unemployment?
Accident, sickness, and unemployment insurance
What type of insurance provides cover for the costs of private medical treatment?
Private medical insurance
What type of insurance offers small lump sum benefits for medical treatments or daily hospital stays?
Health cash plan
What type of insurance combines multiple covers, such as life assurance with critical illness cover or income protection insurance, into one contract?
Menu plans
What type of insurance can help avoid long NHS waiting times and ensure quicker access to treatment?
Private medical insurance
Name 2 types of insurance that will help mitigate the effects of being off work through accident or illness?
Income protection
Accident, sickness, and unemployment cover (ASU)
What’s the difference between assurance and insurance?
Assurance: Covers events that are certain to happen, like death (e.g., life assurance).
Insurance: Covers events that might happen, like accidents or illnesses (e.g., health insurance).
How long is protection typically available for mortgage repayments or other loan and credit card arrangements?
2 years
What remains most people’s protection against redundancy, since it is impossible to insure fully against?
Personal savings.
What is usually the most appropriate insurance for a single person without dependants who is buying their first home, and why?
Income protection – as the person has no dependants, the most important cover is one to enable them to continue to make their mortgage payments.
Why might a child be dependent on their parents long after age 21?
Physical and/or mental disability
What is the IHT rate on estates exceeding the nil-rate band?
Up to 40% of the excess
What is the nil-rate band and residence nil rate band for IHT in 2024/25?
£325,000 and £175,000
What happens if a potentially exempt transfer (PET) fails?
It falls back into the donor’s estate and may result in a tax bill.
What is the tax rate for chargeable lifetime transfers (CLTs) exceeding the nil-rate band?
20% initially, with further tax possible if the donor dies within 7 or 14 years.
Are transfers between spouses or civil partners subject to IHT?
No, they are generally exempt, and unused allowances can be transferred.
A person gifts £100,000 to their child. Five years later, they pass away, leaving an estate worth £400,000. How is the £100,000 treated for IHT purposes, and is there any tax due?
The £100,000 gift is treated as a Potentially Exempt Transfer (PET). Since the donor died within seven years, the PET is considered to have “failed” and falls back into the estate. The estate total is now £400,000 + £100,000 = £500,000. After the nil-rate band of £325,000, the taxable amount is £175,000, with IHT at 40%, making the tax due £70,000.
An individual transfers £400,000 to a trust (discretionary) in a single year. What is the immediate tax implication if the nil-rate band has already been used?
As the nil-rate band has been exhausted, the excess £400,000 incurs a chargeable lifetime transfer (CLT) tax of 20%, which is £400,000 x 20% = £80,000. If the donor dies within 7 years, there could be further tax implications.
