Learning Objective 4 Flashcards
(46 cards)
1
Q
Term Assurance
A
- Protects against death or CI for a certain time period
- Pays lump sum out on event
- No investment element
- Cancel anytime to stop cover
- No surrender value
- Used to protect debts
2
Q
Whole of Life
A
- Lump sum on death
- Investment element so potential surrender value
- Used for IHT / Funeral costs
3
Q
Whole of Life - With Profits
A
- Set sum assured at outset
- Annual bonus (performance dependent)
- Terminal bonus on death
4
Q
Whole of life - Unit Linked
This is the most popular WOL plan
A
- Set amount at outset
- Premiums are invested
- Costs are covered in early premiums
- Risk profile and investment strategy agreed
- On death, receive higher of sum assured or value of units
- Premiums are reviewed due to fund performance
5
Q
WOL Cover Plans
Guaranteed/Minimum cover
A
- No real investment element as used to cover client
- Guaranteed premiums and sum assured
6
Q
WOL Cover Plans
Standard Cover
A
- Premiums set at rate that should not need to increase providing the returns match the investment assumptions
7
Q
WOL Cover Plans
Maximum cover plan
A
Premiums are set for a specific timeframe, then are likely to increase as client ages
8
Q
WOL Cover Plans
Funeral Plans
A
- Low sum assured and premiums
- Simple underwriting
- Becomes paid up after certain age, but will still pay out on death
9
Q
WOL Cover Plans
Life Assurance Bonds
A
- Usually focuses on investments over cover
- Small element of cover (10% of value on death)
10
Q
Term Assurance policies
A
- Pay premiums for a set period, policy ends if no claim
11
Q
Level Term Assurance
A
- Set amount of cover
- Set term
- No increase or decrease in premiums or cover level
12
Q
Decreasing Term assurance
A
- Cover reduces over time
- Set term period
Mortgage cover is the most popular version of this
13
Q
Increasing term assurance
A
- Not as common
- Cover increases at either set times, or with CPI
- Set term
- Premiums increase in line with cover
14
Q
Mortgage Protection Insurance
A
- DTA
- Slower reduction in sum assured as capital is paid off
15
Q
Gift Inter Vivos
A
7 year DTA plan to cover any IHT from PET’s.
Used in case gifter passes away within 7 years from gifting capital
16
Q
Family income benefit
A
- Default option for family planning as cheapest
- Decreasing amount paid p.a.
- Aim to workout yearly benefit required and for how long
- if client dies 2 years into 10 year term, then 8 years of payments will be made
- not a lump sum payment, paid annually
17
Q
Renewable Term Assurance
A
- Set amount of cover
- Set term, but can be extended without further medical u/w - Premiums may increase on extension
- 1-5 years most common term
18
Q
Convertible Term
A
- Set amount of cover
- Can convert to WOL / Fixed Term
- Premiums will increase
19
Q
Pension Term Assurance
A
- Pre A-day
- Allowed to take life assurance linked to a pension
- Would provide tax relief on premiums paid
- But sum assured was tested against LTA
20
Q
Relevant Life Plans
A
- Successor to Pension Term Assurance
- Tax relief life cover provided by company for employees
- Life cover only with benefits in trust for employee’s beneficiaries
21
Q
Multi Plans
A
- ‘Menu’ approach to life assurance
- All grouped together under one policy umbrella
- life, CiC, IPP etc.
22
Q
How can policies be written?
Own Life Policy
A
- Clients wish to benefit themselves
- e.g. Life Assurance bonds
- Cash the investment in after term and benefit from the proceeds
23
Q
How can policies be written?
Life of another
A
- Death of life assured, policyholder benefits
- Usually when someone has insurable interest - Such as a key person in a business
- Alternative to a trust
24
Q
How can policies be written?
Joint Life 1st death
A
- Life cover needed for both parties equally
- Cover ends on 1st death
- Think DTA / Mortgage protection. One person dies and the mortgage is paid off for the surviving partner
25
# How can policies be written?
Joint life 2nd death
* Good for IHT Planning, as liability is on 2nd death of estate
* pays out on 2nd death of lives assured
26
Things that are likely to impact cover/costs
* Age
* Health
* Dependents
* Income/Debts
* Existing cover
* State support
27
How are insurance premiums calculated?
Insurance companies use a mortality table to predict the life expectancy for each age and gender group
28
What is a natural premium?
Premiums 'should' be cheaper when we are younger but get more expensive as we age. This doesnt happen as people would end up cancelling.
Instead life insurance companies use a 'Level premium system'.
29
Level premium system
Premiums are the same through the whole term. So you may pay more than your natural premium when you are younger. You will pay less in later years
## Footnote
Think mortgage interest, you pay more interest than equity at the start, but towards the end of the term you are paying more equity.
30
Premium loadings
Insurance companies use similar mortaility tables but premiums differ, due to greed. an increase in natural premium for expenses and profit. This does not include any client specific things such as age or illness
31
Advantages of holding life assurance in trust
* Allows prompt payment of sum assured, no need for probate as is outside of estate
* Avoids IHT
* You can name beneficiares so you have control over who receives the capital
* Premiums are not considered gifts as it is expenditure out of normal income
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Absolute Trust
* Once established the benficiaries or trustees cannot be changed
* Also known as bare trusts
33
Flexible / Discretionary trust
* Can be amended and added to after inception
* Allows trustees to decide who gets the benefits
*
34
What is a Settlor?
* The person who creates the trust at outset
* Potentially the owner of the original assets
* They are gifting the assets to the trust for IHT purposes
35
What is a Trustee?
* They are responsible for looking after the Trust.
* Fulfilling duties such as tax returns
* The official owner of the trust assets
* There should be more than 1 named - Friend, family or a legal respesentative
* One is usually the settlor
* They must abide by the trust deed
36
What is a beneficiary?
* They are who will eventually benefit from the Trusts assets
* Entitled to either an income or lump sum, dependent on the trust deed
## Footnote
e.g. grandchildren of the settlor who will benefit from the proceeds at either a specific time or when the settlor passes away
37
Why is life cover subject to the least amount of underwriting?
Risk of death is less than serious illness or incapacity to workq
38
# Underwriting Terms
Free cover
* Free from underwriting, not free monetary wise
* Companies offering life insurance to employees
* U/W is not done on employees individually
* Done at a higher level using demographics of employees
39
# Underwriting Terms
Moratorium
* No formal assessment
* Pre-existing conditions are declared and excluded for a set period (ie. 1st 5 years)
40
# Underwriting Terms
Full Underwriting
* Formal assessment
* Application form completed
* Potentially further assessment if required dependent on questions answered in app
* Medicals/GP Reports etc
41
How terms are offered
* Standard - Full acceptance of original quote
* Special - Loading added to premium/exclusions due to app info
* Decline
* Deffered - Can be until certain medicals are done etc.
42
# Different types of Non disclosure
Reasonable
* Acted honestly but all facts not disclosed/forgotten
* Claim paid in full
43
# Different types of Non disclosure
Careless
* Failed to take reasonable care in application
* Partial payment of claim
44
# Different types of Non disclosure
Deliberate / Reckless
* Knew information was wrong or should've known
* invalid contract
* no payout
45
Terminall illness benefits / Accelerated death benefit
* Often free with life policies
* Paid out if life assured diagnosed with terminal illness and less than 12 months to live
* May not apply if in final 12-18 months of term
* Not repayable if you outlive prognosis
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