Topic 11 (Life assurance)

Question 1

What is life Assurance?

Answer 1

Products that are designed to provide financial protection when someone dies

Question 2

What is term assurance?

Answer 2

Most basic life assurance that contains no investment element and can be used for personal, family or business protection

Question 3

What is one characteristic all life assurances have?

Answer 3

The sum assured is payable only if the death of the life assured occurs within a specified term

Question 4

What is meant by ‘sum assured’?

Answer 4

The amount that will be paid out under the terms of the policy

Question 5

What is mean by ‘life assured’?

Answer 5

The persons who life is covered by the policy

Question 6

What is the policyholder?

Answer 6

The person who owns the policy and premiums

Question 7

What is the ‘term’?

Answer 7

The period for which cover is provided under the policy

Question 8

What is the ‘Surrender value’?

Answer 8

The sum payable by the insurance company to the policyholder if the policyholder choses to terminate the policy before the end of the term

Question 9

What is Level Term Assurance?

Answer 9

Where the sum assured remains constant throughout the term.

Premiums are normally paid monthly or annually and often used when a fixed amount is needed upon death

Question 10

What is decreasing Term Assurance?

Answer 10

Where the sum assured decreases to nothing over the term of the policy.
The policy can be used to cover outstanding capital

Only pays benefits when the insured dies within the policy term

Question 11

What is gift inter vivos cover?

Answer 11

A plan arranged to cover a special requirement such as a gift

Question 12

When is family income benefit used?

Answer 12

When someone wants to protect family finances and needs regular income

is a form of decreasing term assurance

Question 13

What is Increasing term assurance?

Answer 13

Where the sum assured increases each year by a fixed amount or a % of the original sum assured

It provides a hedge against inflation

Question 14

What is Renewable term assurance?

Answer 14

An option to renew the policy at the end of the initial term for the same sum assured, without the need to provide medical evidence

Question 15

What is convertible term assurance?

Answer 15

Carried out when cancelling term assurance and converting the policy to whole of life or endowment without medical evidence or underwriting

Question 16

What is pension term assurance?

Answer 16

A type of policy people could take out at the time they set up a personal/stakeholder pension plan. It offers tax relief on premiums

Question 17

What is Whole of life assurance?

Answer 17

Designed to offer protection rather than investment to the life assured for the whole of their lifetime

Question 18

Give 2 features of premiums…

Answer 18

1. Premiums may be payable throughout life

2. May be limited to a fixed term or a specified age

Question 19

What is a joint life death policy?

Answer 19

A policy that pays out when partner dies and the estate is passed on to the surviving partner free of IHT

Question 20

What is a non profit investment structure?

Answer 20

A fixed level of life assurance in return for payment of a fixed premium

Question 21

What is a with profit investment structure?

Answer 21

A fixed minimum level of cover to which bonuses are added to reflect investment profits

Question 22

What is a low cost investment structure?

Answer 22

Promises a certain level of cover provided by with-profits and decreasing term assurance (bonuses are paid to with-profits so decreasing term reduces)

Question 23

What is a unit linked investment structure?

Answer 23

Units issued to the placeholder, a minimum level of cover is set at outset which is increased when the value of units rises

Question 24

What is unitised with profit investment structure?

Answer 24

Issues units with a guarantee that unit prices will never fall below a certain level or will increase by at least a stated minimum amount

Question 25

What does tax treatment depend on?

Answer 25

Wether it is classed as qualifying (20%) or non-qualifying (20% or 25%)

Question 26

What is flexible whole of assurance?

Answer 26

Unit linked policies that offer the client flexibility of being able to change the mix of life cover and investment as circumstances change (best suited as a protection plan with some allowance on savings)

Question 27

What are the 3 levels of cover on flexible whole of life assurance?

Answer 27

1. Maximum cover - maintained for 10 years, increased premiums required for cover to continue 2. Minimum cover - maximum investment combined with the min. level of cover to keep policy qualifying 3. Balanced cover - cover should be able to be maintained throughout their life

Question 28

What is a waiver of premium?

Answer 28

a policy provision that allows the policyholder to suspend paying premiums but retain their policy cover if they are unable to work due to sickness/disability

Question 29

What are endowment policies?

Answer 29

Life assurance products that combine life assurance and savings

Question 30

What is the difference between an endowment and a whole of life plan?

Answer 30

Endowment runs over an agreed term and if death occurs life cover is paid out

Question 31

What are the main features of non-profit endowment?

Answer 31

1. Guaranteed sum assured on maturity or death | 2. Unable to share in profits the company might make

Question 32

What are the features of a full with-profit endowment?

Answer 32

1. Has a fixed sum assured and a fixed regular income | 2. The premiums are higher

Question 33

What is a Reversionary Bonus?

Answer 33

A bonus declared each year and once added it can't be taken away, providing the policy is held until end of term/death

Question 34

What is a terminal bonus?

Answer 34

Bonuses that may be added to a with profits policy when death or maturity claim becomes payable

Question 35

The FCA requires life companies that carry out with profit business to publish a document, what is this called?

Answer 35

The Principles and Practices of Financial Management (PPFM) It sets out how the firm has managed it business

Question 36

Give features of a low cost with profit endowment...

Answer 36

Has high premiums This is overcome by having a sum assured payable on death with 2 element: - with profits - decreasing term assurance Doesn't guarantee full mortgage at end of term

Question 37

What is endowment mis selling and how do we now avoid this situation?

Answer 37

Where customers were promised that plans were guaranteed to repay their mortgage in full Overcome now by including regular progress reviews of mortgage related endowments

Question 38

Why were unit linked endowment developed?

Answer 38

Developed for investors who wanted their investment returns to be more directly linked to the stock market

Question 39

What don't Unit linked policies guarantee?

Answer 39

a minimum return at maturity

Question 40

What is variable term assurance?

Answer 40

Works by the value rising and falling to compensate for changing investment rules

Question 41

Why were unitised with profits introduced?

Answer 41

in an attempt to combine the security of the with-profit policy with he greater potential for reward The premiums are used to purchase the units in a fund

Question 42

What is meant by Market Value Adjustment? (MVA)

Answer 42

If the policy is cashed in early, a deduction may be made from the value of the units. MVA is this deduction