Chapter 2 Flashcards by Jerome de Kamps

Give 5 areas of need requiring financial protection

Death
Incapacity/accident/illness
Insuring income and debts eg mortgage
Protecting assets
Business protection

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What is the impact of the law on financial protection and insurance plans? What are they subject to?

All forms of contracts thus subject to contract law

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When does does a person (A) have an insurable interest in an individual (B)

A person (A) has an insurable interest in an individual (B) when the death or illness of that individual (B; the life assured) would cause the person (A; the assured) and/or their dependents to suffer a financial loss and/or other kinds of loss

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In which cases is there automatic insurable interest? 2 examples

Own life
Spouses life

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What would an insurer need before any plan is underwritten/accepted/put on risk if there isn’t automatic insurable interest?

They would need evidence of the financial impact resulting from death

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At what point does insurable interest need to exist?

At point of application for the cover
Some insurers also check when a claim is made

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Why is it often a good idea to consider financial protection planning against death?

Individuals can have many dependants
Bread winner - the surviving partner/dependant may not have sufficient earnings to support themselves
House person - also financial implications for surviving spouse eg child care, cooking, cleaning

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Why is it often a good idea to consider financial protection planning against incapacity/accident/illness?

More likely to get ill than die during working life
DWP benefits always changing to reduce costs and no guarantee an individual will qualify

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Why might an employee be less affected by illness/incapacity/accident than someone who is self employed?
Why is financial protection still a good idea?

May have employer sponsored benefits such as sick pay to at least partially cover salary
Self employed person would only have saving so would need replacement income almost immediately
Also may need private health care
Employees still face being left without cover if made redundant or employer goes bust

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Why is critical illness cover a good idea?

Covers initial loss of earning
Could also include capital sums for house adjustments

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Why is long term care an increasingly important issue that requires financial protection ?
What are the benefits?

Life expectancy increasing
Helps people live longer in their home by making home adjustments eg ramps, stair lift
Residential care when no longer independent

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Why is it a good idea to insure income and debts such as mortgages?

Income can be lost due to a variety of reasons
Can affect outgoings and leads to consequences if payments on a mortgage or credit card eg are not maintained

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How long is cover for mortgages/debts?

Usually restricted to maximum of two years

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What can happen if mortgage payments are missed repeatedly?

Lender can repossess house
Credit rating and ability to obtain credit later severely affected

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What is asset protection usually concerned with?

Protecting an estate against inheritance tax

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What can IHT be levied on?

An estate valued at £325,000+, currently the NRB, death rate of 40% above this
Lifetime gifts categorised as Potentially Exempt Transfers where donor dies within 7 years and value of gift exceed NRB, IHT at 40% charged
Chargeable Lifetime Transfer where the value of the transfer, added to other CLTs in last 7 years, exceeds NRB. IHT levied at rate of 20% on excess of NRB. If donor dies within 7 years additional IHT at 40% may be due to

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What is the main residence NRB?
When was it introduced and why?

Introduced in April 2017
Additional IHT free allowance
Aim to help parents pass down their main home to immediate relatives
This means an estate up to £1,000,000 which includes a main residence with sufficient value is now protected against IHT - as for a couple 2xNRB + 2xRNRB = 1Mil

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How has the RNRB changed over time?

2017/18 - £100,000
2018/19 - £125,000
2019/20 - £150,000
2020/21 - £175,000 IHT free band available

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At what rate do estates over £2,000,000 lose RNRB allowance?

£1 for every £2 over the £2,000,000 threshold

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Why might businesses need financial protection? What are the three categories?

The death, critical illness, and loss of incomes of certain individuals can cause problems in businesses where financial reserves have not been built up and success relies on key individuals/ partners/ shareholders

Key person assurance
Shareholder protection
Partnership protection

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What does life assurance do?
What different types are there?

Provides a lump sum (usually tax free) on death, either during a set term or whole of an individual’s life
Used by beneficiaries for various reasons
Different types of cover eg income paid for set term instead of lump sum

What does income protection do?
What is this also known by and why?

Replaces lost income if unable to work after specified time
Provides long-term sickness cover

Also known by PHI ie permanent health insurance as it cannot be cancelled by insurer as long as premiums are paid

What is a deferred period with regards to income protection and how does length affect cost?

Time “unable to work” before cover starts the shorter the more expensive - usually min 4 weeks

How is the term decided for income protection?
What is the upper limit that is paid?

Term is predetermined and linked to expected retirement age
Upper limit typically 60% of gross earnings paid tax free

What happens if a claim is made for income protection?

Cover continues even after a claim premiums do not generally need to be paid during a claim

What is PAS and how does this compare with income protection?

Personal accident and sickness - shorter term and cheap version of IP

How long does PAS pay out? How is this paid out?

Usually pays out regular fixed amount for typically 12-24 months Can be lump sum in event of significant event eg limb loss

How do the factor influencing IP and PAS differ? Can PAS be cancelled?

PAS not affected by occupation age or health due to smaller amount payable in event of claim Yes unlike IP can be cancelled as PAS is classed as an annual contract

What is mortgage payment protection insurance?

Short term cheaper version of IP where benefit payments are linked to mortgage payments and associated bills

How does MPPI pay out/ how long? How much does it pay out?

Pays out regular benefits typically for 12 or 24 months if the individual is unable to work due to sickness, accident or involuntary unemployment Maximum benefit level of 125% of mortgage payments + associated bills

Can MPPI be cancelled?

Can be cancelled by insurer

What does critical illness cover do? Does the policy have an investment content?

Pays a pre-determined lump sum on the diagnosis of a specific serious/critical illness or permanent total disability- design to ease financial burden of diagnosis No investment content

Which illnesses are covered by CIC?

Illnesses covered depends on insurance company

What is meant by “survival period” with regards to CIC?

The individual needs to have suffered the illness for a set number of days 14-30 days - dying instantly of heart attack does not constitute valid claim

Is CIC a stand alone policy or not?

Can be standalone but due to survival period often added to whole of life or term assurance policies

What is private medical insurance? What does the premium price depend on? When is this underwritten?

Gives people the option of private medical care, the more comprehensive the more expensive Underwritten at inception as pre existing conditions are excluded and these exclusions are disclosed upfront

Does PMI treat short term or long term conditions?

Generally acute short term conditions

What does PMI exclude?

Excludes dental care, routine health checks A and E s and some areas exclusion can occur due to cost eg mental health

What is meant by a moratorium with regards to PMI?

Moratorium- any conditions suffered in last 5 years excluded from cover for first 2 policy years

What is long term care cover?

Pays towards long term care of individuals that are typically elderly covering chronic conditions

What is the payment of benefits based on for long term care cover?

Payment of benefits based on individuals ability to carry out “activities of daily living”

What are the 2 main types of cover for long term care?

Immediate needs - taken out at time a medical care requirement has been diagnosed. Paid for by lump sum from saving. Money buys an annuity and resulting income is used to fund care costs Pre funded - bought “just in case” like most other forms of insurance. An insurance plan that provides the income for care costs if needed

Who should advise long term care cover products?

Highly regulated so require specialist advice from trained and qualified adviser

What is PPI?

Another form of short term cheaper version of IP Benefit payments are linked to loan and credit card repayments

How is PPI paid out? Can it be cancelled

Pays out regular benefit of 12 or 24 months typically if individual unable to work due to sickness, accident unemployment Considered annual contract - can be cancelled by insurer

What is ASU cover? How are the benefits paid out?

Accident, sickness and unemployment cover is another short term cheaper version version of IP Regular benefit paid out typically 12 or 24 months if individual unable to work Can also pay out lump sum

Can ASU be cancelled by an insurer? When is it not paid out with regards to unemployment?

Yes If unemployment is voluntary or due to disciplinary issues

Which relationships have legal standing?

Marriage and civil partnerships

What features have insurers developed on plans in the event a relationship breaks down? Name 3

Splitting policy Putting existing policy in a trust “gifted away” Transferring a policy- policy assured changed not life assured Retaining or surrendering existing cover Taking out fresh cover

Where does financial protection support usually come from (3 sources)?

The state Employer-sponsored benefits Private provisions

What state support is given for financial protection?

DWP state benefits ensure individuals and dependents are not starving in the case of illness disability and death Constantly changing so sometimes ignored when looking at protection needs

What employer sponsored benefits exist when it comes to financial protection? What are the drawbacks?

Income if you are sick Death in service CIC, PMI or pension income Drawback - linked to employment so may cease if made redundant or company goes bust