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R05 > 04. Life assurance > Flashcards

04. Life assurance Flashcards

1
Q

What are whole of life policies designed to do?

A

Pay out a cash lump sum whenever that occurs.

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2
Q

Why do most new policies have no surrender value at any time?

A

To enable lower premiums.

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3
Q

Name 2 reasons why funeral plans with low sums assured are popular.

A
  • low premiums
  • simplified or no underwriting
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4
Q

What is a life assurance bond?

A

A special form of insurance contract, designed primarily for investment purposes.

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5
Q

What are most life assurance bonds written as?

A

Single premium, non-qualifying, WoL contracts, i.e. no specific maturity date.

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6
Q

Al life assurance bonds are designed primarily for investment purposes, only nominal life cover is provided, typically at what value and why?

A
  • 101% of the bid value of the units held at the point of death.
  • To ensure the primary purpose of investment growth can be achieved without reduction for the cost of life cover.
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7
Q

What are the 3 types of term insurance?

A
  • level
  • increasing
  • decreasing
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8
Q

Name 3 examples of decreasing term insurance.

A
  • mortgage protection insurance
  • FIB
  • gifts inter vivos term insurance (where sum assured falls in line with any IHT payable on PETs)
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9
Q

What is renewable term insurance?

A

At the end of the term a new term can be started but premium will be higher.

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10
Q

What is convertible term insurance?

A

At any time during the term, the policy can be converted to a WoL, or in some cases, endowment policy

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11
Q

Under reviewable term and WoL policies, the premium and and/or sum assured are set for a given period and then subject to a review where the insurer will take into account what 3 things?

A
  • mortality rates
  • expenses
  • investment returns
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12
Q

For a policy to be a RLP, a capital sum must be payable or arise on death if the insured person is under what age?

A

75

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13
Q

For a policy to be a RLP, must not have or be capable of acquiring what?

A

A surrender value.

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14
Q

RLPs are normally arranged and paid for by who, written how, and for the benefit of who?

A
  • by the EER
  • in trust
  • the EEE’s dependants
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15
Q

Name 3 advantages and 1 disadvantage of multiplans (menu plans) vs single policies

A
  • ’+’ possibly lower charges
  • ’+’ less overlap of cover
  • ’+’ greater flexibility
  • ’-‘ can be more complex to set up
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16
Q

Name 5 possible needs for life cover.

A
  • pay off outstanding mortgage/loans
  • provide income for surviving spouse
  • pay costs of bringing up dependants
  • pay school fees / education costs
  • pay funeral costs
  • pay IHT liabilities
  • pay business liabilities
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17
Q

Name 5 adviser considerations when considering life assurance.

A
  • who needs to be insured (single or joint life basis)
  • how much life cover needed (existing provision?)
  • term
  • type of benefit needed (capital or income)
  • who should receive benefits
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18
Q

Name 4 ways life insurance policies can be written.

A
  • own life
  • life of another
  • joint life 1st death
  • joint life 2nd death
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19
Q

What must be present to insure the life of another?

A

An insurable interest (no insurable interest between generations).

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20
Q

When may insuring on a life of another be used in a business context?

A

To enable a deceased’s interest in a business to be purchased by the surviving business co-owners.

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21
Q

When are joint life 1st death policies not suitable?

A

When the survivor needs continuing cover.

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22
Q

When might problems arise with joint life 1st death policies?

A

When couples separate.

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23
Q

What might going life 2nd death policies be suitable for and how would they normally be written?

A
  • IHT liabilities
  • in trust
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24
Q

Joint life last survivor places are ~ per £ of cover than joint life 1st death policies.

A

cheaper

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25
Q

When determining the amount and term of cover needed, what 2 types of needs need to be distinguished between?

A
  • capital & income needs
  • ST & LT needs
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26
Q

What is a drawback of employer-provided life cover?

A

It will likely cease when you leave that employment as continuation options are rare.

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27
Q

Name 4 main factors when choosing suitable types of policy.

A
  • purpose of policy
  • investment content or not
  • client’s budget
  • guaranteed or flexible premiums
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28
Q

Name 3 ways to include flexibility in a life insurance policy.

A
  • term but with convertibility feature
  • add a renewability feature
  • add indexation feature
  • add a guaranteed insurability option so sum assured can increase if certain life events take place
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29
Q

When calculating LI premiums, what are used to predict the number of claims per year?

A

Mortality tables

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30
Q

What are natural premiums and what is a problem with them?

A
  • The premium required just to meet claims in respect of those who died during the year
  • premiums will increase steeply in later years and people won’t be able to afford cover when they need it most
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31
Q

How does the level premium system work?

A

Policies under which claims occur at an early date are subsidised by policies occur at a later date.

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32
Q

Under the level premium system, what happens to the reserve and what code that mean for the pure premium?

A
  • reserve is invested and ears interest
  • it can be reduced somewhat
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33
Q

What is the main thing loadings on premiums cover?

Name 3 examples.

A

Life office expenses

  • EEE salaries
  • commission paid to policy sellers
  • office building costs
  • policy charge
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34
Q

Name 2 types of margin built into premium loadings.

A
  • safety margin (to guard against higher than expected mortality)
  • profit margin
35
Q

Regarding premiums, what is frequency loading?

A

Charging slightly more in total (e.g. 4%) to compensate for entire annual premium not being paid upfront.

36
Q

Who are the 3 parties to a trust?

A
  • settlor (sets it up)
  • beneficiaries (benefit from it)
  • trustees (manage it)
37
Q

Name 3 advantages of using trusts for LI policies.

A
  • proceeds don’t form part of estate (IHT)
  • proceeds don’t go through probate so can go quickly to beneficiaries
  • trust can make sure benefits are distributed as per settlor’s wishes
  • may be better protection against creditors if settlor goes bankrupt
38
Q

What type of trusts preceded simple absolute trusts?

A

MWPA trusts.

39
Q

How does a flexible interest trust work? [boxes]

A
  • Box A : all possible beneficiaries
  • Box B : default beneficiaries
40
Q

How does a discretionary trust work? [boxes]

A

Box A only : all possible beneficiaries

41
Q

What should be looked for when choosing trustees? [3]

A
  • should have understanding of settlor’s wishes
  • should be sensible, honest & reliable
    should ideally be younger than settlor
42
Q

Who do trusts need to be registered with?

A

HMRC

43
Q

Name the 5 main things that would normally be in the application process for LI in the form of underwriting.

A
  • personal details inc. age
  • current health
  • medical history
  • occupation / any hazardous pursuits
  • lifestyle
44
Q

What might some ST policies and group policies go for instead of full medical underwriting?

A

A moratorium

45
Q

Under moratorium underwriting, explain the 5/2/2 rule.

A
  • 5: any conditions where treatment has been received in last 5 yrs exc.
  • 2: these conditions will remain exc. for 2 yrs if no further treatment req
  • 2: if further treatments/check ups in that time will be exc. for another 2 yrs
46
Q

Name 4 things that might be required as underwriting evidence.

A
  • GP report
  • DSARs
  • paramedical (short medical questionnaire + basic tests)
  • medical examination
  • additional health questionnaire
  • health screening
47
Q

Name 2 advantages of tele-underwriting.

A
  • allows shorter application forms
  • allows faster underwriting
48
Q

There are 7 data protection principles. Name 4 of them.

A
  • lawfulness, fairness, transparency
  • purpose limitation
  • data minimisation
  • accuracy
  • storage limitation
  • integrity & confidentiality
  • accountability
49
Q

Individuals have 8 rights when it comes to data protection. Name 4 of them.

A

Right:
- to be informed
- of access (SAR)
- to rectification (1m to respond)
- to erasure (1m to respond)
- to restrict processing
- to data portability
- to object

50
Q

Full medical underwriting, usually found in LT policies, leads to what?

A

Higher premiums being charged for higher risks.

51
Q

What are the 3 types of non-disclosure and their outcomes?

A
  • reasonable: paid in full
  • careless: proportionate remedy
  • deliberate / reckless: policy can be voided from inception
52
Q

When are non-disclosure remedies applied?

A

Only where full disclosure would have resulted in different underwriting outcome.

53
Q

What is terminal illness benefit (TIB)?

A

Sum assured is payable (as an accelerated death benefit) if life expectancy is less than 12m.

54
Q

When will TIB not normally apply?

A

In the last 12-18 months of the policy.

55
Q

What is an assignment?

A

A trf of ownership from one person to another, common with life policies.

56
Q

Assignments may be ~ or ~, and can confer an ~ or ~ interest.

A
  • temporary
  • permanent
  • absolute
  • limited
57
Q

Name 4 types of assignment.

A
  • Absolute assignments (inc. by way of sale & by gift)
  • assignments by way of mortgage
  • assignments by operation of law on bankruptcy
  • assignments to trustees
58
Q

What is joint tenancy?

A

If 1 tenant dies, their interest automatically passes to the survivor(s).

Then on death of last survivor, property passes via will to their legal personal representatives.

59
Q

Joint tenancy is common under what type of policies?

A

Joint life 1st death under joint tenancy.

60
Q

What is tenancy in common?

A

On death of tenant in common, their beneficial interest passes to their estate and can be disposed of by will.

61
Q

It would be rare for a joint life 1st death policy to be held under a tenancy in common but what would it mean if it was?

A

It would mean that the sum assured would be payable partly to the survivor and partly to the estate of the deceased in line with ownership shares.

62
Q

What does the Policies of Assurance Act of 1867 enable?

A

Assignees to claim against the life office in their own name without involving the assignor.

63
Q

What must an insurer have to comply with the Policies of Assurance Act, and why?

A
  • A system of recording notices of assignment in policy records
  • to ensure payments are made to the correct person
64
Q

What is constructive notice?

A

It applies when an assurer might have reason to suspect that an assignment has taken place even though no express or implied notice has been received.

65
Q

What scenario might suggest an assignment has taken place?

A

Lost policies & documentation.

66
Q

Name 3 effects of giving notice.

A
  • gives the assignee the right to sue in their own name
  • binds the insurers so that if they pay another claimant, they will be responsible
  • gain priority of claim over other assignees who have failed to give notice
  • preserve priority of claim over subsequent assignees
67
Q

What is an absolute assignment?

A

The complete transfer of a policy, either by way of sale or by gift.

68
Q

How are assignments normally achieved?

A

By deeds of assignment

69
Q

What is the minimum proportion of policy that can be assigned?

A

The whole of the policy must be assigned.

70
Q

Can policies be assigned to joint assignees, or equitable interest be held in portions of a policy under trust?

A

Yes

71
Q

What happens when a deed of assignment is produced to a life office as part of a claimant’s proof of title?

A

It must be examined to see if it validly passes title to the claimant.

72
Q

What is equity of redemption?

A

Under mortgaged properties, the right to have the asset reassigned to the borrower on repayment of the loan.

73
Q

Name 3 things claims are subject to.

A
  • payment of all due premiums
  • production of policy
  • proof of title (onus on claimant)
  • proof of death (on death claims)
  • proof of age (on death claim)
74
Q

What are the 2 types of claim?

A
  • maturity claims
  • death claims
75
Q

What type of policy, when it matures, becomes the subject of a maturity claim, and how is the claim normally initiated?

A
  • An endowment policy
  • Life office writes to policyholder a month or two before maturity
76
Q

Where a death occurs overseas, a death certificate should be issued from where and what else may be needed?

A
  • the country where the death occurred
  • further enquiries e.g ‘death abroad’ questionnaire or specialist investigator
77
Q

How long must the life assured have disappeared for a claim to be made on presumption of death?

A

7 years

78
Q

Name 2 reasons why the life office will check cause of death?

A
  • in case death was as result of an excluded activity (hazardous)
  • in case of non-disclosure of material medical issue
79
Q

Regarding claims, what happens when non-disclosures are:

  • reasonable
  • careless
  • reckless / deliberate
A
  • insurer must pay claim
  • proportionate remedy had insurer known facts
  • insurer may refuse claim
80
Q

What are the 2 types of grant normally produced by executors to prove their title?

A
  • grant of probate (valid will)
  • grant of letters of administration (no valid will)
81
Q

Where 2 lives assured under a joint life policy die at the same time, who is assumed to have died first?

A

The eldest, the youngest is presumed to survive the eldest.

82
Q

The general rule of public policy does not allow a person to benefit from what?

A

Their own unlawful (criminal) acts

83
Q

Life offices look for lost policies in case policies have been assigned to a 3rd party.

If the policy is not found and the office is satisfied it is generally lost, they may ask the claimant to execute what?

A

A statutory declaration

R05 (9 decks)

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