Benefits can be categorised as (5)
- benefits on events unpredictable in time (death)
- benefits on events unpredictable
- benefits on events predictable in time (retirement)
- benefits for immediate consumption
- benefits from the accumulation of disposable income and capital
5 Financial product categories
- insurance contracts
- reinsurance contracts
- pension schemes
- benefit schemes
- investment schemes
In return for a single payment (or series of payments) the provider will pay an individual or his/her heirs an agreed amount that starts or ends on a pre-specified event.
This event may happen to the individual, the individual’s property or a 3rd party.
Involves accumulation of funds paid out on a later date, for example, retirement, death or withdrawal from the scheme.
Involve an individual paying a single payment or series of payments to a provider with the expectation that a higher amount will be paid back at a later date.
A financial instrument whose value depends on the value of other investments or variables.
Can be used by providers of financial products to pass on risks to 3rd parties.
Types of needs to differentiate for customers
- logical and emotional needs
- Current and future needs
3 classifications of a customer’s logical needs
- maintaining a current lifestyle
- accumulation for a purpose
- accumulation for a purpose as yet unknown out of any remaining disposable income or capital
The result of what a customer thinks is needed or wants
One triggered by an event that has an immediate effect on a customer’s circumstances,
May be one that relates to a customer’s future aspirations.
Types of provision
- social security (state-provided)
- financial products
3 main principles of insurance and pensions
- Insurable interest (to prevent moral hazard, fraud and other crimes)
- Pre-funding (prob that the risk occur, cost of the risk event and the returns that can be earned on pre-funding before the event occurs)
- The pooling of risk (more cost-effective provision)
insurance products that offer coverage to low-income households