16. Financial Protection And Planning Flashcards
What are the 4 circumstances that might make someone vulnerable to financial difficulties upon illness or death?
- Little/no savings
- Inability to replace earnings
- Unprotected debt
- Financial dependents
Any of the above would indicate protection is needed
How do we calculate the amount of protection cover needed?
By looking at the SHORTFALL
so, amount of protection needed if an event happened, minus the amount of protection they already have
What types of financial protection might someone already have in place? (4)
- savings
- policies
- investments
- state benefits
What are 6 reasons that people often underinsure themselves?
- Thinking “it won’t happen to me”
- underestimating needs
- Believe they can’t afford it (but can be quite affordable when taken out young)
- Think state benefits will be enough to support them
5.Unhappy subject
6. Trust in insurers and product complexity
What happens with the mortgage when someone dies when a property is in sole name?
Executor/representative will have to pay off the mortgage before anyone can benefit from the property as part of the estate
What happens with the mortgage when a property is a joint tenancy?
Survivor becomes the sole owner but is responsible for the whole of the mortgage
What happens with the mortgage when a property is owned by tenants in common?
Deceased’s share passes according to their will. Survivor now may only own half of property but all of mortgage.
What is likely to be the protection priorities of a young single person?
Illness, accident, critical illness and unemployment.
Unlikely to be life assurance, not likely to have a financial dependent who will suffer in the event of their death
What are the financial priorities of a young couple without children? (3)
Joint debt, income protection needed for if one becomes ill or dies.
Possibly private medical insurance, but some would not be worrying about long term care at this age
Possibly thinking about IHT if they are expecting to inherit
What are the financial priorities of a young couple with children?
As with a couple without children, but the needs are magnified
If both work, need to replace one income on illness or death
If one works, need to either replace sole income or replace the work at home the other was doing, e.g. childcare
What are the financial priorities of a middle aged couple with children who have left home (empty nesters)?
REDUCED need for protection in event of illness or death due to:
- no dependents
-mortgage reduced or paid off
MEDICAL (PMI), LONG TERM CARE & IHT needs become more important
What are the financial priorities in retirement?
No longer reliant on earned income, no longer need protection against death or illness so much (pension benefits continue to be paid when ill & pension can be transferred to partner)
Some pensions not transferrable, particularly annuities, so would need to arrange annuity cover.
IHT planning important
What is the ranking for the prioritisation of needs? (4) What is the rationale behind it?
- Dependants (in event of death)
- Long term illness/loss of income
- Retirement planning
- Value of Money/investments
Protect the income someone already has before looking forward to the future
What are the 6 things that we should consider when assessing need?
- Sick pay
- how much and how long? - Family Medical History
- determines priority for CIC - Support from friends/family
- could help mitigate costs of illness/death - Financial circumstances
- how tight is budget, can we cover everything or do we need to put off long term needs to protect income now? - Dependants?
- life cover more necessary - Lack of financial/practical support?
- CIC & Income protection are priority
Why might a portfolio of protection policies might be a good idea?
Sometimes people are reluctant to cover everything. You can have a portfolio of policies with all different terms to meet needs
