C) Protection Flashcards
(32 cards)
What are the main factors of protection needs?
- age;
- dependants;
- income;
- financial liabilities;
- employment status; and
- existing cover
How would you determine the required income cover amount?
- Level of death cover - income x 10 less benefits
- Level of ill-health cover - income x 50% to 75% less benefits
How to estimate a Level of ill-health cover?
What is the best way to secure a policy amount against inflation?
Either by taking index-linked cover or
specifying increase options
What type of policy can be used to pay an inheritance tax?
Whole of life last survivor policy written in trust for the heir(s)
What are the main protection needs of a young single person in work
- to build an emergency fund
- to protect their earnings
- to provide a capital sum should they
be diagnosed with a critical illness
What financially interdependent means?
It means you rely on the joint finances of yourself and your partner to support your standard of living
What a term assurance policy is?
It’s a** life policy** that pays a lump sum (or, in the case of family income benefit, a series of lump sums) on the death of the life assured
List 6 types of term assurance?
- Level term assurance
- Decreasing term assurance
- Family income benefit policies
- Increasable term assurance
- Convertible term assurance
- Renewable term assurance
What is endowment policy?
Endowment policies pay a lump sum on the death of the life assured but these policies are primarily savings vehicles
What is a Whole of life policies?
Whole of life policies are primarily geared towards providing a substantial level of life cover, but some do have an element of investment
What non profit WOL policy guarantees to pay?
Guarantees to pay a** fixed amount of life cover** on the death of the life insured. May accumulate a surrender value
What with profit WOL policy guarantees to pay?
Guarantees to pay a minimum level amount of life cover
on the death of the life assured, and this amount increases annually by the addition of
annual (or ‘reversionary’) bonuses, although these bonuses are not guaranteed
What is flexible WOL policy?
The flexible whole of life policy can offer the policyholder an opportunity to obtain high levels of cover at very low cost (similar to a long-term life assurance contract), or to place more emphasis on savings
Janet has a £10,000 loan, which is repayable in one lump sum in ten years’ time. She needs a policy with a sum assured of £10,000 at the lowest cost to provide protection should she die before the loan is repaid. What is the most suitable policy for Janet?
A level term assurance
At around what age is there the greatest need for protection products?
Between the mid-20s and early 40s
Why must existing cover be taken into account in assessing protection needs?
Not to do so is poor advice as it will provide more cover than required and increase costs and could breach FCA rules and the provisions relating to the fair treatment of
customers.
What is Income protection (IP)?
IP policies are designed to replace lost income for an individual who, due to illness or accident, is unable to work.
What is the maximum percentage benefit for Income protection?
50–60% of earnings
Discribe term ‘moral hazard’
Restrictions are imposed by insurers because they want to make sure that claimants have an incentive to return to work. Without this incentive insurers fear that the after-effects of an illness or accident would continue for an unusually long period of time
How permanent health insurance (PHI) policy works?
This is when the insurer cannot cancel the contract as long as premiums continue to be paid, no matter how many times or for how long claims are made
What is mortality and which type of policy underwriting is based on it?
It is the length of
time someone is likely to live. Life assurance is based on the study of mortality
What is morbidity and which type of policy underwriting is based on it?
It is the rate of incidence
of disease or medical problems. Income protection is based on the study of morbidity
List 4 differences between personal accident and sickness and income protection insurance:
- may also pay a one-off lump sum
- will pay benefit for maximum of one or two years
- more occupations are likely to be accepted
- regular benefit is likely to be a fixed sum, rather than a percentage of the policyholder’s earnings
