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Cemap 2&3 Self Testing > 17. Types Of Financial Protection > Flashcards

17. Types Of Financial Protection Flashcards

1
Q

When assessing income for benefits, what is taken into account?

A

Amount left each week after specified outgoings, etc mortgage or rent

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2
Q

Which benefits are contribution based? (7) Are they means tested? Are they taxable? What are the exceptions?

STAT, PAT, JB

A

Means tested - NO
Taxable - YES
1. State pension
2. Statutory Maternity pay
3. Paternity Pay
4. Statutory Sick Pay
5. ESA - NI Based
6. JSA - NI Based
7. Bereavement support

Exception = State Pension Credit (still STAT)
Backwards, MEANS TESTED AND TAXABLE

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3
Q

Which benefits are non-contribution based? (7) Are they means tested? Are they taxable? What are the exceptions?

Anything children, tax credit and income based

A

Means tested -YES
Taxable - NO
1. Maternity Allowance
2. Child Benefit
3. Working tax credit
4. Income Support
5. Child tax credit
6. ESA - Income based
7. JSA - Income based

Exceptions =
PIP & Attendance Allowance - NOT ANYTHING
CARERS - JUST TAXABLE

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4
Q

What benefits is UC replacing? (6)

Anything income, anything tax credit (not pension) and Housing Benefit

A
  1. Income Support
  2. Income based JSA
  3. Income related ESA
  4. Working tax credit
  5. Child tax credit
  6. Housing Benefit
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5
Q

Is UC means tested?

A

Yes

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6
Q

What is the eligibility criteria for UC? (3)

A
  1. Age 18+ to pension age (some 16/17)
  2. Low income/unemployed
  3. Less than £16k household savings
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7
Q

What household circumstances can affect the amount of UC someone is entitled to? (4)

A
  1. Relationship status
  2. Children
  3. Disability
  4. Housing needs
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8
Q

What is the max number of weeks SSP is paid for?

A

28 weeks

Spells of sickness with less than 8 weeks between them count as one spell

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9
Q

What is the minimum number of days you have to be sick for before you can claim SSP?

A

4 consecutive days

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10
Q

Is SSP means tested?

A

NO

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11
Q

Who qualifies for SSP? (2)

A
  1. Employees
  2. Earnings above the Lower Earnings Limit (LEL)
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12
Q

What is the Lower earnings limit (LEL)?

A

If you receive above this level of earnings, you are entitled to contributory benefits as if you pay NI contributions, even if you don’t earn enough to contribute

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13
Q

If someone is ill for more than the max number of weeks you can claim SSP, what can they do?

A

Claim short term Incapacity Benefit (existing claimants)/ESA (new claimants)

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14
Q

Is any money received as SSP taxable and subject to NICS?

A

YES, both

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15
Q

How long must someone have been experiencing a condition to be eligible for pip? How long must they expect to carry on experiencing it?

A

have had it for 3 months, expect it to continue for 9 more

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16
Q

How many activities are there in PIP for:
1. daily living
2. mobility

A
  1. 10
  2. 2
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17
Q

To receive Carers Allowance, what criteria must the person needing care meet? (2)

A
  1. not be in hospital
  2. receive either PIP, DLA, AA, Constant AA or Armed forces independence payment
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18
Q

To receive carers allowance, what criteria must the carer meet? ( 4)

A
  1. 16+
  2. care 35+ hours a week
  3. not in full time education
  4. not work more than max amount of hours/ receive pension over certain amount
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19
Q

Why would someone be put on contribution based JSA rather than income based?

A

They have a severe disability premium

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20
Q

What is the maximum amount of time you can receive new style JSA for?

A

128 days

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21
Q

What is a Support for Mortgage Interest Loan? (SMI)

A

A loan, not a benefit, that people can have to pay off the INTEREST only payments of their mortgage if they are having financial difficulties. You have to be on certain benefits to be eligible

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22
Q

Which benefits qualify for being able to receive SMI? (5)

Income x3, UC, PC

A
  1. Income Support
  2. JSA - Income Based
  3. ESA - Income Based
  4. UC
  5. Pension Credit
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23
Q

After you submit a claim for SMI, how long do you have to wait until you are able to receive payment?
1. UC
2. Pension Credit
3. Income Support, Income based JSA & Income based ESA

A
  1. 9 consecutive payments
  2. No waiting time at all
  3. 39 weeks since the initial claim
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24
Q

How much of your mortgage payments would SMI cover?

A

Only the interest, not C/R and:
Pension credit - first £100,000
everything else - first £200,000…

Of either:
1. the original loan amount
2. loan taken out for repairs
3. loan taken out to buy ex partner’s share in property

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25
Q

How are SMI loans secured? How are they repaid? (4)

A

Secured as a second charge loan against the property.
A standard rate of interest is charged - this is not the borrower’s actual rate of interest, likely to be lower than market rates.

Must be repaid when:
1. house is sold/transferred
2. Claimant dies (but if not enough money in estate, will be written off)
3. Claimant returns to work and can meet voluntary payments
4. If transferred to partner on death or property forms part of maintenance agreement, loan not repayable until partner dies

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26
Q

What is the minimum repayment instalment for SMI?

A

£100

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27
Q

How long can someone receive SMI payments for?

A

indefinitely for as long as they qualify

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28
Q

Are SMI payments paid to the claimant or lender?

A

Lender

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29
Q

What happens if someone claims SMI for more than 26 weeks and then finds a job which would make them ineligible to carry on claiming?

A

They can claim mortgage insterest run-on. This means they carry on receiving payments for an extra 4 weeks whilst they wait for their first pay packet. These 4 weeks is paid to them rather than the lender

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30
Q

What is the 52 week linking rule? What is the aim of it?

A

Those who have already served the SMI waiting period and have ceased to claim SMI for 52 weeks, will not have to serve another waiting period at the start of a second claim.

This encourages people to take up short term or seasonal jobs without it affecting their claim

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31
Q

Does SMI cover the following:
1. Endowment premiums
2. Buildings Insurance
3. Arrears

A

No to all

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32
Q

Does a lender have a right to the funds from someone’s life assurance policy?

A

Only if the policy has been assigned to them.

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33
Q

What is equitable right?

A

Agreement between two parties (lender and borrower) that a policy has been given as a form of security.

Equitable = fair

Not legally binding

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34
Q

What is the cheapest and most basic form of life assurance?

A

Term assurance

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35
Q

When does term assurance pay out?

A

Only if you die within the term

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36
Q

Is there a cash surrender value on term assurance?

A

no

37
Q

What happens if you miss payment on term assurance? (2)

A

Usually get 30 days to pay of the policy gets cancelled and you are entitled to nothing. Some allow you to re-instate the policy within 12 months

38
Q

How are premiums paid on term assurance?

A

Can be monthly, annually or a lump sum

39
Q

What is level term assurance? What is this most suited to covering?

A

A form of term assurance where the amount of cover stays the same throughout.

Suitable for FIXED TERM DEBT - e.g. I/O mortgages

40
Q

Can level term assurance be used as family protection?

A

It can, but isn’t the best for this as it is likely to decrease in value in real terms due to the effects of inflation

41
Q

What is decreasing term assurance? What is it most suited to covering?

A

A form of assurance which reduces to nothing at the end of the term.

Suitable for CAPITAL DEBT WHICH REDUCES EACH YEAR - e.g. C/R mortgage

42
Q

What is Mortgage Protection Assurance (MPA)?

A

A type of decreasing term assurance specifically used for capital repayment mortgages. The main difference is, because more interest is paid off at the start of mtg than capital, then more capital towards the end, the curve is steeper than normal decreasing term assurance. It better mirrors how your mortgage decreases.

43
Q

Do the premiums of decreasing term assurance change during the term?

A

No, they stay the same, they don’t decrease.

44
Q

What is Convertible term assurance? What type of assurance is it usually offered with?

A

Term assurance which has an option to convert into a Whole of Life Assurance or Endowment policy, without further underwriting/a health assessment. Usually offered with LEVEL term assurance

45
Q

How much does convertible term assurance tend to cost compared with other term assurance?

A

More expensive, usually 10-15% more.

46
Q

What is the process for converting convertible term assurance?

A

You cancel the original policy and take out a new one. The new policy CANNOT EXCEED THE ORIGINAL AMOUNT. Your payments after conversion will be the standard rate for the new policy

47
Q

What is personal pension term assurance?

A

Level term assurance which is included as part of a pension agreement. It is no longer offered as a new policy to take out, but existing ones do still exist.

48
Q

Who can be insured using pension term assurance? What is the maximum term?

A

Sole lives insured only. Max term cannot exceed 75th birthday.

49
Q

Why should someone seriously think before considering pension term assurance?

A

They would lose out on tax advantages

50
Q

What is Whole of Life Assurance?

A

Assurance that pays out when you die, REGARDLESS OF WHEN THIS HAPPEN (ie no term)

51
Q

What purposes is Whole of Life Assurance best suited to? (2)

A
  1. Family protection
  2. IHT
52
Q

What are the benefits of Whole of Life assurance? (4)

A
  1. Pays a lump sum on death
  2. protects dependants from financial loss
  3. covers death expenses
  4. covers IHT
53
Q

What type of cover does Whole of Life assurance offer? Level, increasing, decreasing?

A

Both LEVEL and INCREASING WITH INTEREST (better against inflation)

54
Q

What is a non-profit Whole of Life Policy?

A

Level cover/FIXED AMOUNT NEEDED ON DEATH

unlikely to be suitable as it doesn’t keep up with inflation

55
Q

What is a With profit Whole of Life policy?

A

INCREASING BENEFIT IS NEEDED but a CAUTIOUS APPROACH IS PREFERRED

56
Q

What is an Unit Linked Whole of Life Policy? What type of funds should be chosen?

A

Some of the money is used to but LIFE ASSURANCE, rest is used to BUY UNITS

Primarily a protection policy, so RISKY FUNDS SHOULD BE AVOIDED

57
Q

What is Universal Whole of Life Policy?

A

Similar to unit linked, but the UNIT TYPES ARE MUCH MORE VARIED

58
Q

Rank the following in order of cost from lowest to highest:
1. Convertible term assurance
2. Decreasing Term assurance
3. Whole of Life Assurance
4. Level term assurance

A
  1. Decreasing term
  2. Level term
  3. convertible
  4. Whole of life
59
Q

What might might someone uninsurable for life assurance purposes? (4)

A
  1. Risky jobs
  2. Risky hobbies
  3. Serious health issues
  4. High risk lifestyle - eg, long term smoking
60
Q

What instances might a life assurance policy not pay out, even if the person was properly insured? (4)

A
  1. Death from Alcohol/Drugs
  2. Terrorism/War
  3. Suicide/Self inflicted injury
  4. Recklessness/negligence
61
Q

What is Critical Illness Cover (CIC)?

A

Pays out on DIAGNOSIS OF A SPECIFIC RANGE OF LIFE THREATENING/DEBILITATING ILLNESSES

62
Q

Is CIC paid as a lump sum or income?

A

Lump sum. Some pay an ‘income’ but really it’s just the lump sum being paid in instalments until it runs out.

63
Q

What are the main things CIC is used for? (6)

A
  1. Long term care needs.
  2. Alterations to Accommodation
  3. To buy medical equipment
  4. Mortgage/Debt repayment
  5. Protect other investments (don’t use them to cover other expenses mentioned instead)
    6/. Improve the quality of life for the terminally ill
64
Q

What happens with you CIC policy if you are diagnosed with one of the specified conditions?

A

You get paid out a lump sum, then your policy gets cancelled. It does not matter if you get better or not, the policy is over.

65
Q

In relation to CIC, what is the survival period?

A

The amount of time after the policy is taken out which you have to survive for to be able to make a claim, usually 14-28 days

66
Q

What core conditions does CIC have to cover? (3)

A
  1. Most cancers (except less advanced)
  2. Heart attack of specified severity
  3. Stroke

Can cover more, but this is minimum

67
Q

What is the role of the Association of British Insurers? ABI(3)

A

They make sure there is more consistency with insurers offering CIC by:
1. Providing model definitions of the core conditions
2. Provides model definitions of ‘total and permanent disability’ - 4 variations
2. providing statements of best practice

68
Q

When providing advice on CIC, what must an advisor ensure they do? (2)

A

Make sure the client understands the full extent of which conditions they would be protected against. Make sure the client understands which definition of total and permanent disability is being used.

69
Q

What levels of cover can be offered with CIC? (3) How are the premiums affected? What is the main use of each one?

A
  1. Level - fixed premiums, usually for I/O mortgage
  2. Decreasing - fixed premiums, usually for repayment loans
  3. Increasing (index linked) - premiums and cover both increase over time, usually better for COVERING MEDICAL COSTS
70
Q

Which type of assurance can CIC be added to? (2) Why would someone want to do this?

A
  1. Level term
  2. decreasing term

So they can be covered against both death and critical illness

71
Q

When adding CIC to term assurance, which two ways can this be done?

A
  1. Benefits paid on death or critical illness, whichever is 1st
  2. Benefits paid out on both diagnosis of illness and on death - two payouts
72
Q

What is a buy back option?

A

When someone has CIC that only pays out on diagnosis and then gets cancelled, not paying out again for death - some insurers allow the person to ‘buy back’ their policy, i.e. re-instate it

73
Q

What is a combined needs plan?

A

Where CIC and life assurance are combined into one policy (different to adding CIC to life assurance, death does not have to arise from a CIC condition to be paid)

74
Q

What types of CIC premium are offered? (2) What are the benefits/ disadvantages of each?

A
  1. Guaranteed - premiums are fixed, this is better for budgeting but is much less commonly offered by providers as claims can get higher than they are making with inflation
  2. Reviewable - reviewed regularly, costs less to start with, allowing insurers to increase/reduce in line with claims experience & investment returns, but this means its harder to budget

Guaranteed tend to be more popular as people prefer ceetainty

75
Q

What is income protection insurance?

A

Replacing income in the event of:
1. Illness
2. Disability
3. Accident

76
Q

Can IPI be cancelled? Can ASU be cancelled?

A

IPI - Only if you don’t pay premiums. IPI is PERMANENT and cannot be cancelled by the insurer, regardless of their claims experience

This differs from ASU, which is reviewed annually and can be cancelled due to an insurer’s claim experience

77
Q

What are the 3 types of IPI available?

A
  1. Pure protection plan (stand alone)
  2. unit-linked (stand alone)
  3. As part of Universal Whole of Life
78
Q

Who is IPI designed to protect? (2)

A
  1. Working people
  2. Their dependent spouses - would need to pay for childcare if they could no longer provide it themselves
79
Q

What is the definition of sickness/disability relating to workers claiming IPI? (2)

A
  1. Inability to carry out occupation
    OR
  2. Inability to carry out any occupation they are trained to do
80
Q

What is the definition of sickness/disability relating to dependent spouses covered by IPI? (2)

A
  1. Confined to bed
  2. Inability to leave the house
81
Q

How is IPI paid out? (3)

A

As a porportion of earnings, usually 50-80% and up to a MAXIMUM AMOUNT. The maximum amount is not per policy, but across all IPI products - so won’t really help to take out lots. If you don’t declare other IPI products to insurer they can refuse payout

82
Q

What is the proportionate benefit clause (IPI)?

A

Included in some policies - if you return to work but have to take a lower paid job, proportion of salary will be paid

83
Q

What level of cover and terms are available for IPI?

A

Cover is usually INDEXED - so it’s a proportion of your income calculated at the start of the policy, but it rises with inflation as your pay is likely to rise with inflation too

Min and Max terms are set by each provider, but max overall is retirement age

84
Q

What is a deferred period? (IPI)

A

Minimum amount of time you must be ill for before the policy will pay out

options are 4, 13, 26 or 52 weeks

85
Q

What are the deciding factors on how long someone’s deferred period should be? (2)

A
  1. Amount of employee sickness benefit available - self employed is none, need a short deferred period
  2. Cost/budget - the longer the deferred period, cheaper it will be
86
Q

Other than having a longer deferred period, what other two ways are there of making IPI cheaper?

A
  1. Limited period of benefits - pays out a max number of years for each individual claim
  2. Age costing/low start - premiums are cheap for young people but increase with age - this is a popular option for high risk workers who might otherwise find premiums unaffordable
87
Q

The customer is looking for a monthly income, which is more suitable - CIC or IPI?

A

IPI

88
Q

The customer is looking to protect themselves against any medical expenses arising from long term case needs, which is more suitable - IPI or CIC?

A

CIC, IPI is designed to replace income - care needs might be too expensive and need a lump sum

89
Q

The customer is looking for a policy which will pay out multiple times, which is more suitable - IPI or CIC?

A

IPI

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