17. Types Of Financial Protection Flashcards
When assessing income for benefits, what is taken into account?
Amount left each week after specified outgoings, etc mortgage or rent
Which benefits are contribution based? (7) Are they means tested? Are they taxable? What are the exceptions?
STAT, PAT, JB
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
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
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
What benefits is UC replacing? (6)
Anything income, anything tax credit (not pension) and Housing Benefit
- Income Support
- Income based JSA
- Income related ESA
- Working tax credit
- Child tax credit
- Housing Benefit
Is UC means tested?
Yes
What is the eligibility criteria for UC? (3)
- Age 18+ to pension age (some 16/17)
- Low income/unemployed
- Less than £16k household savings
What household circumstances can affect the amount of UC someone is entitled to? (4)
- Relationship status
- Children
- Disability
- Housing needs
What is the max number of weeks SSP is paid for?
28 weeks
Spells of sickness with less than 8 weeks between them count as one spell
What is the minimum number of days you have to be sick for before you can claim SSP?
4 consecutive days
Is SSP means tested?
NO
Who qualifies for SSP? (2)
- Employees
- Earnings above the Lower Earnings Limit (LEL)
What is the Lower earnings limit (LEL)?
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
If someone is ill for more than the max number of weeks you can claim SSP, what can they do?
Claim short term Incapacity Benefit (existing claimants)/ESA (new claimants)
Is any money received as SSP taxable and subject to NICS?
YES, both
How long must someone have been experiencing a condition to be eligible for pip? How long must they expect to carry on experiencing it?
have had it for 3 months, expect it to continue for 9 more
How many activities are there in PIP for:
1. daily living
2. mobility
- 10
- 2
To receive Carers Allowance, what criteria must the person needing care meet? (2)
- not be in hospital
- receive either PIP, DLA, AA, Constant AA or Armed forces independence payment
To receive carers allowance, what criteria must the carer meet? ( 4)
- 16+
- care 35+ hours a week
- not in full time education
- not work more than max amount of hours/ receive pension over certain amount
Why would someone be put on contribution based JSA rather than income based?
They have a severe disability premium
What is the maximum amount of time you can receive new style JSA for?
128 days
What is a Support for Mortgage Interest Loan? (SMI)
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
Which benefits qualify for being able to receive SMI? (5)
Income x3, UC, PC
- Income Support
- JSA - Income Based
- ESA - Income Based
- UC
- Pension Credit
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
- 9 consecutive payments
- No waiting time at all
- 39 weeks since the initial claim
How much of your mortgage payments would SMI cover?
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
How are SMI loans secured? How are they repaid? (4)
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
What is the minimum repayment instalment for SMI?
£100
How long can someone receive SMI payments for?
indefinitely for as long as they qualify
Are SMI payments paid to the claimant or lender?
Lender
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?
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
What is the 52 week linking rule? What is the aim of it?
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
Does SMI cover the following:
1. Endowment premiums
2. Buildings Insurance
3. Arrears
No to all
Does a lender have a right to the funds from someone’s life assurance policy?
Only if the policy has been assigned to them.
What is equitable right?
Agreement between two parties (lender and borrower) that a policy has been given as a form of security.
Equitable = fair
Not legally binding
What is the cheapest and most basic form of life assurance?
Term assurance
When does term assurance pay out?
Only if you die within the term
Is there a cash surrender value on term assurance?
no
What happens if you miss payment on term assurance? (2)
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
How are premiums paid on term assurance?
Can be monthly, annually or a lump sum
What is level term assurance? What is this most suited to covering?
A form of term assurance where the amount of cover stays the same throughout.
Suitable for FIXED TERM DEBT - e.g. I/O mortgages
Can level term assurance be used as family protection?
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
What is decreasing term assurance? What is it most suited to covering?
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
What is Mortgage Protection Assurance (MPA)?
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.
Do the premiums of decreasing term assurance change during the term?
No, they stay the same, they don’t decrease.
What is Convertible term assurance? What type of assurance is it usually offered with?
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
How much does convertible term assurance tend to cost compared with other term assurance?
More expensive, usually 10-15% more.
What is the process for converting convertible term assurance?
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
What is personal pension term assurance?
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.
Who can be insured using pension term assurance? What is the maximum term?
Sole lives insured only. Max term cannot exceed 75th birthday.
Why should someone seriously think before considering pension term assurance?
They would lose out on tax advantages
What is Whole of Life Assurance?
Assurance that pays out when you die, REGARDLESS OF WHEN THIS HAPPEN (ie no term)
What purposes is Whole of Life Assurance best suited to? (2)
- Family protection
- IHT
What are the benefits of Whole of Life assurance? (4)
- Pays a lump sum on death
- protects dependants from financial loss
- covers death expenses
- covers IHT
What type of cover does Whole of Life assurance offer? Level, increasing, decreasing?
Both LEVEL and INCREASING WITH INTEREST (better against inflation)
What is a non-profit Whole of Life Policy?
Level cover/FIXED AMOUNT NEEDED ON DEATH
unlikely to be suitable as it doesn’t keep up with inflation
What is a With profit Whole of Life policy?
INCREASING BENEFIT IS NEEDED but a CAUTIOUS APPROACH IS PREFERRED
What is an Unit Linked Whole of Life Policy? What type of funds should be chosen?
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
What is Universal Whole of Life Policy?
Similar to unit linked, but the UNIT TYPES ARE MUCH MORE VARIED
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
- Decreasing term
- Level term
- convertible
- Whole of life
What might might someone uninsurable for life assurance purposes? (4)
- Risky jobs
- Risky hobbies
- Serious health issues
- High risk lifestyle - eg, long term smoking
What instances might a life assurance policy not pay out, even if the person was properly insured? (4)
- Death from Alcohol/Drugs
- Terrorism/War
- Suicide/Self inflicted injury
- Recklessness/negligence
What is Critical Illness Cover (CIC)?
Pays out on DIAGNOSIS OF A SPECIFIC RANGE OF LIFE THREATENING/DEBILITATING ILLNESSES
Is CIC paid as a lump sum or income?
Lump sum. Some pay an ‘income’ but really it’s just the lump sum being paid in instalments until it runs out.
What are the main things CIC is used for? (6)
- Long term care needs.
- Alterations to Accommodation
- To buy medical equipment
- Mortgage/Debt repayment
- Protect other investments (don’t use them to cover other expenses mentioned instead)
6/. Improve the quality of life for the terminally ill
What happens with you CIC policy if you are diagnosed with one of the specified conditions?
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.
In relation to CIC, what is the survival period?
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
What core conditions does CIC have to cover? (3)
- Most cancers (except less advanced)
- Heart attack of specified severity
- Stroke
Can cover more, but this is minimum
What is the role of the Association of British Insurers? ABI(3)
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
When providing advice on CIC, what must an advisor ensure they do? (2)
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.
What levels of cover can be offered with CIC? (3) How are the premiums affected? What is the main use of each one?
- Level - fixed premiums, usually for I/O mortgage
- Decreasing - fixed premiums, usually for repayment loans
- Increasing (index linked) - premiums and cover both increase over time, usually better for COVERING MEDICAL COSTS
Which type of assurance can CIC be added to? (2) Why would someone want to do this?
- Level term
- decreasing term
So they can be covered against both death and critical illness
When adding CIC to term assurance, which two ways can this be done?
- Benefits paid on death or critical illness, whichever is 1st
- Benefits paid out on both diagnosis of illness and on death - two payouts
What is a buy back option?
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
What is a combined needs plan?
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)
What types of CIC premium are offered? (2) What are the benefits/ disadvantages of each?
- 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
- 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
What is income protection insurance?
Replacing income in the event of:
1. Illness
2. Disability
3. Accident
Can IPI be cancelled? Can ASU be cancelled?
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
What are the 3 types of IPI available?
- Pure protection plan (stand alone)
- unit-linked (stand alone)
- As part of Universal Whole of Life
Who is IPI designed to protect? (2)
- Working people
- Their dependent spouses - would need to pay for childcare if they could no longer provide it themselves
What is the definition of sickness/disability relating to workers claiming IPI? (2)
- Inability to carry out occupation
OR - Inability to carry out any occupation they are trained to do
What is the definition of sickness/disability relating to dependent spouses covered by IPI? (2)
- Confined to bed
- Inability to leave the house
How is IPI paid out? (3)
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
What is the proportionate benefit clause (IPI)?
Included in some policies - if you return to work but have to take a lower paid job, proportion of salary will be paid
What level of cover and terms are available for IPI?
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
What is a deferred period? (IPI)
Minimum amount of time you must be ill for before the policy will pay out
options are 4, 13, 26 or 52 weeks
What are the deciding factors on how long someone’s deferred period should be? (2)
- Amount of employee sickness benefit available - self employed is none, need a short deferred period
- Cost/budget - the longer the deferred period, cheaper it will be
Other than having a longer deferred period, what other two ways are there of making IPI cheaper?
- Limited period of benefits - pays out a max number of years for each individual claim
- 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
The customer is looking for a monthly income, which is more suitable - CIC or IPI?
IPI
The customer is looking to protect themselves against any medical expenses arising from long term case needs, which is more suitable - IPI or CIC?
CIC, IPI is designed to replace income - care needs might be too expensive and need a lump sum
The customer is looking for a policy which will pay out multiple times, which is more suitable - IPI or CIC?
IPI
