Chapter 10 - Needs And Priorities Personal Protection

Question 1

Give 5 examples of capital needs:

Answer 1

1. Funeral
2. Emergency funds
3. Specific bequests
4. Debts and mortgages
5. IHT

Question 2

Give an example of long term income needs:

Answer 2

Annual expenses for surviving spouse which are likely to last forever

Question 3

Give an example of short term income needs:

Answer 3

Annual expenditure on children

Question 4

What factors are usually used to calculate income needs over 5,10,15,20 and 25 years?

Answer 4

Income multipliers
Years       Factor
    5              5
   10             10
   15            14.5
   20           18.5
   25           22.5

Question 5

What assumptions are used for creating the factors for calculating income needs?

Answer 5

Capital will be used up to create spendable income
Annual income will rise by 3% a year
20% deducted in tax
Factors rounded to nearest 0.5

Question 6

What calculation is used to calculate IP needs?

Answer 6

Current expenditure + additional expense from illness - savings - state benefits - income from other sources = Total need for income protection cover per year

Question 7

What calculation is used for CIC?

Answer 7

General needs + repayments of loans + pension protection + additions and substitutions for IP = Total CIC need

Question 8

How can one plan for redundancy?

Answer 8

Emergency reserve
Insurance to pay mortgage interest
Flexible mortgage
Drastically reduce expenses

Question 9

What should an IFA consider before recommending products?

Answer 9

Cost
Scope of cover
Underwriting requirements
Quality of service
Financial strength of provider