04. Life assurance Flashcards
What are whole of life policies designed to do?
Pay out a cash lump sum whenever that occurs.
Why do most new policies have no surrender value at any time?
To enable lower premiums.
Name 2 reasons why funeral plans with low sums assured are popular.
- low premiums
- simplified or no underwriting
What is a life assurance bond?
A special form of insurance contract, designed primarily for investment purposes.
What are most life assurance bonds written as?
Single premium, non-qualifying, WoL contracts, i.e. no specific maturity date.
Al life assurance bonds are designed primarily for investment purposes, only nominal life cover is provided, typically at what value and why?
- 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.
What are the 3 types of term insurance?
- level
- increasing
- decreasing
Name 3 examples of decreasing term insurance.
- mortgage protection insurance
- FIB
- gifts inter vivos term insurance (where sum assured falls in line with any IHT payable on PETs)
What is renewable term insurance?
At the end of the term a new term can be started but premium will be higher.
What is convertible term insurance?
At any time during the term, the policy can be converted to a WoL, or in some cases, endowment policy
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?
- mortality rates
- expenses
- investment returns
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?
75
For a policy to be a RLP, must not have or be capable of acquiring what?
A surrender value.
RLPs are normally arranged and paid for by who, written how, and for the benefit of who?
- by the EER
- in trust
- the EEE’s dependants
Name 3 advantages and 1 disadvantage of multiplans (menu plans) vs single policies
- ’+’ possibly lower charges
- ’+’ less overlap of cover
- ’+’ greater flexibility
- ’-‘ can be more complex to set up
Name 5 possible needs for life cover.
- 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
Name 5 adviser considerations when considering life assurance.
- 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
Name 4 ways life insurance policies can be written.
- own life
- life of another
- joint life 1st death
- joint life 2nd death
What must be present to insure the life of another?
An insurable interest (no insurable interest between generations).
When may insuring on a life of another be used in a business context?
To enable a deceased’s interest in a business to be purchased by the surviving business co-owners.
When are joint life 1st death policies not suitable?
When the survivor needs continuing cover.
When might problems arise with joint life 1st death policies?
When couples separate.
What might going life 2nd death policies be suitable for and how would they normally be written?
- IHT liabilities
- in trust
Joint life last survivor places are ~ per £ of cover than joint life 1st death policies.
cheaper
When determining the amount and term of cover needed, what 2 types of needs need to be distinguished between?
- capital & income needs
- ST & LT needs
What is a drawback of employer-provided life cover?
It will likely cease when you leave that employment as continuation options are rare.
Name 4 main factors when choosing suitable types of policy.
- purpose of policy
- investment content or not
- client’s budget
- guaranteed or flexible premiums
Name 3 ways to include flexibility in a life insurance policy.
- 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
When calculating LI premiums, what are used to predict the number of claims per year?
Mortality tables
What are natural premiums and what is a problem with them?
- 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
How does the level premium system work?
Policies under which claims occur at an early date are subsidised by policies occur at a later date.
Under the level premium system, what happens to the reserve and what code that mean for the pure premium?
- reserve is invested and ears interest
- it can be reduced somewhat
What is the main thing loadings on premiums cover?
Name 3 examples.
Life office expenses
- EEE salaries
- commission paid to policy sellers
- office building costs
- policy charge
Name 2 types of margin built into premium loadings.
- safety margin (to guard against higher than expected mortality)
- profit margin
Regarding premiums, what is frequency loading?
Charging slightly more in total (e.g. 4%) to compensate for entire annual premium not being paid upfront.
Who are the 3 parties to a trust?
- settlor (sets it up)
- beneficiaries (benefit from it)
- trustees (manage it)
Name 3 advantages of using trusts for LI policies.
- 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
What type of trusts preceded simple absolute trusts?
MWPA trusts.
How does a flexible interest trust work? [boxes]
- Box A : all possible beneficiaries
- Box B : default beneficiaries
How does a discretionary trust work? [boxes]
Box A only : all possible beneficiaries
What should be looked for when choosing trustees? [3]
- should have understanding of settlor’s wishes
- should be sensible, honest & reliable
should ideally be younger than settlor
Who do trusts need to be registered with?
HMRC
Name the 5 main things that would normally be in the application process for LI in the form of underwriting.
- personal details inc. age
- current health
- medical history
- occupation / any hazardous pursuits
- lifestyle
What might some ST policies and group policies go for instead of full medical underwriting?
A moratorium
Under moratorium underwriting, explain the 5/2/2 rule.
- 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
Name 4 things that might be required as underwriting evidence.
- GP report
- DSARs
- paramedical (short medical questionnaire + basic tests)
- medical examination
- additional health questionnaire
- health screening
Name 2 advantages of tele-underwriting.
- allows shorter application forms
- allows faster underwriting
There are 7 data protection principles. Name 4 of them.
- lawfulness, fairness, transparency
- purpose limitation
- data minimisation
- accuracy
- storage limitation
- integrity & confidentiality
- accountability
Individuals have 8 rights when it comes to data protection. Name 4 of them.
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
Full medical underwriting, usually found in LT policies, leads to what?
Higher premiums being charged for higher risks.
What are the 3 types of non-disclosure and their outcomes?
- reasonable: paid in full
- careless: proportionate remedy
- deliberate / reckless: policy can be voided from inception
When are non-disclosure remedies applied?
Only where full disclosure would have resulted in different underwriting outcome.
What is terminal illness benefit (TIB)?
Sum assured is payable (as an accelerated death benefit) if life expectancy is less than 12m.
When will TIB not normally apply?
In the last 12-18 months of the policy.
What is an assignment?
A trf of ownership from one person to another, common with life policies.
Assignments may be ~ or ~, and can confer an ~ or ~ interest.
- temporary
- permanent
- absolute
- limited
Name 4 types of assignment.
- Absolute assignments (inc. by way of sale & by gift)
- assignments by way of mortgage
- assignments by operation of law on bankruptcy
- assignments to trustees
What is joint tenancy?
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.
Joint tenancy is common under what type of policies?
Joint life 1st death under joint tenancy.
What is tenancy in common?
On death of tenant in common, their beneficial interest passes to their estate and can be disposed of by will.
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?
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.
What does the Policies of Assurance Act of 1867 enable?
Assignees to claim against the life office in their own name without involving the assignor.
What must an insurer have to comply with the Policies of Assurance Act, and why?
- A system of recording notices of assignment in policy records
- to ensure payments are made to the correct person
What is constructive notice?
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.
What scenario might suggest an assignment has taken place?
Lost policies & documentation.
Name 3 effects of giving notice.
- 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
What is an absolute assignment?
The complete transfer of a policy, either by way of sale or by gift.
How are assignments normally achieved?
By deeds of assignment
What is the minimum proportion of policy that can be assigned?
The whole of the policy must be assigned.
Can policies be assigned to joint assignees, or equitable interest be held in portions of a policy under trust?
Yes
What happens when a deed of assignment is produced to a life office as part of a claimant’s proof of title?
It must be examined to see if it validly passes title to the claimant.
What is equity of redemption?
Under mortgaged properties, the right to have the asset reassigned to the borrower on repayment of the loan.
Name 3 things claims are subject to.
- 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)
What are the 2 types of claim?
- maturity claims
- death claims
What type of policy, when it matures, becomes the subject of a maturity claim, and how is the claim normally initiated?
- An endowment policy
- Life office writes to policyholder a month or two before maturity
Where a death occurs overseas, a death certificate should be issued from where and what else may be needed?
- the country where the death occurred
- further enquiries e.g ‘death abroad’ questionnaire or specialist investigator
How long must the life assured have disappeared for a claim to be made on presumption of death?
7 years
Name 2 reasons why the life office will check cause of death?
- in case death was as result of an excluded activity (hazardous)
- in case of non-disclosure of material medical issue
Regarding claims, what happens when non-disclosures are:
- reasonable
- careless
- reckless / deliberate
- insurer must pay claim
- proportionate remedy had insurer known facts
- insurer may refuse claim
What are the 2 types of grant normally produced by executors to prove their title?
- grant of probate (valid will)
- grant of letters of administration (no valid will)
Where 2 lives assured under a joint life policy die at the same time, who is assumed to have died first?
The eldest, the youngest is presumed to survive the eldest.
The general rule of public policy does not allow a person to benefit from what?
Their own unlawful (criminal) acts
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 statutory declaration
