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Cemap 2&3 Self Testing > 19. Protection Advice > Flashcards

19. Protection Advice Flashcards

1
Q

What is pure protection?

A

Protection against perils that DOES NOT CONTAIN AN INVESTMENT ELEMENT

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2
Q

Are the following examples of pure protection?
1. Term Assurance
2. IPI
3. CIC
4. ASU
5. MPPI
6. Whole of Life Products

A
  1. Yes
    2.Yes
    3.Yes
    4.Yes
    5.Yes
  2. NO
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3
Q

What types of protection does ICOBS cover? (3)

A
  1. PURE PROTECTION
  2. Buildings
  3. Contents
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4
Q

Can mortgage firms be subject to ICOBS?

A

Yes, if they sell protection products

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5
Q

Are insurance applications based on the principle of utmost good faith?

A

No, this was unfair on the customer - they are now only responsible for providing info on anything they are asked about, but must take REASONABLE CARE when answering and NOT MISREPRESENT

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6
Q

If a consumer misrepresents information during an insurance application, what remedy can the insurer take if the misrepresentation was HONEST AND REASONABLE?

A

NONE - Insurer must pay any claim

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7
Q

If a consumer misrepresents information during an insurance application, what remedies can the insurer take if the misrepresentation was CARELESS? (3) (and what does this mean?)

A

Careless = BELIEVED IT TO BE TRUE, DIDN’T TAKE CARE TO CHECK FACTS

  1. If the insurer would not have entered into the contract if they had known = REFUSE CLAIMS BUT RETURN PREMIUMS
  2. If the insurer would have entered into it under different terms = TERMS THEY WOULD HAVE TAKEN APPLY INSTEAD
  3. If a higher premium would have been charged = MAKE A PROPORTIONATE REDUCTION FROM THE CLAIM AMOUNT
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8
Q

If a consumer misrepresents information during an insurance application, what remedy can the insurer take if the misrepresentation was DELIBERATE or RECKLESS? (3) What is the difference between the two?

A

DELIBERATE = Knows they should disclose but didn’t
RECKLESS = Acting w/o care or regard for the truth of an answer

  1. Treat contract AS IF IT NEVER EXISTED
  2. REFUSE CLAIMS
  3. RETAIN PREMIUMS
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9
Q

What document must an insurer provide when a recommendation is given? What is provided within this?

A

KFD - Key Features Document

Key features of the plan - maybe a brochure
aka a POLICY SUMMARY

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10
Q

What documents must an insurer provide after underwriting and upon offer? (2)

A
  1. ACCEPTANCE LETTER
    -like an offer letter, contains T&Cs
  2. CANCELLATION NOTICE
    - consumer rights if you decide to cancel
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11
Q

What document must an insurer provide when the policy commences?

A

Policy Document AKA ILLUSTRATION
- confirms plan details
- serves as certificate of insurance (needs to be kept safe)

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12
Q

What is a Statement of Demands and Needs?

A

Like a factfind, MUST be presented to customer BEFORE contract is in place

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13
Q

ICOBS - What info must be provided to the customer before the contract is in place, to enable them to make an informed choice? (6)

A
  1. Term
  2. Definitions of benefits and options
  3. Payment - means and duration
  4. Tax arrangements of benefits
  5. Cancellation
  6. Complaints
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14
Q

ICOBS - Firm must take REASONABLE steps to give appropriate info to customers. Other than the 6 compulsory pieces of info mentioned, which other factors determine what level of information must be given? (4)

A
  1. Knowledge and experience of a TYPICAL CUSTOMER for that policy
  2. Policy terms, benefits, exclusions & duration
  3. COMPLEXITY
  4. Whether the policy has been purchased IN CONJUNCTION WITH OTHER PRODUCTS
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15
Q

When a policy is NOT PAYABLE on DEATH, INJURY or SICKNESS, what medium must the policy be document be provided in?

A

A DURABLE medium, e.g. paper or PDF

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16
Q

What is Churning?

A

Cancelling an existing product to replace it with another one

17
Q

Is Churning usually considered appropriate? (2)

A

Not unless:
1. Same level of cover can be obtained at reduced cost
2. More appropriate plan can be obtained at lower cost

18
Q

If churning does take place, when should the existing plan be cancelled?

A

Not until the new one is in place

19
Q

What responsibility does the firm have to the customer once the policy is in place?

A

must carry out REGULAR REVIEWS to ensure the product still meets the customer needs that were identified in the fact find

20
Q

In relation to a person’s capital and income needs in the event of death, what is the amount of cover:
1. normally based on
2. what would it be better if it was based on?

A
  1. Normally based on CURRENT INCOME & DEBT
  2. Would be more accurate if it were based on DEPENDENTS’ PROJECTED EXPENDITURE + costs relating to death
21
Q

What is likely to be the capital and income protection needs of a couple with children relating to death? (3) Are they likely to feel this is a priority?

A
  1. ensure dependants are cared for
  2. two income families, would need to replace one. one income, replace it or childcare costs.
  3. ensure family is not left with debt

MAJOR priority

22
Q

What is likely to be the capital and income protection needs of a single person in relation to life assurance?(2) Are they likely to feel this is a priority?

A
  1. Less likely to need it, no dependents
  2. Sale of property might pay off their debts so they aren’t passed on

More likely to prioritise sickness, accident and unemployment cover

23
Q

To quantify the total amount of death benefit needed, what needs to be taken into account? (2) What process is normally used?

A

BOTH

INCOME (regular) + CAPITAL (lump sum)

process = BUDGET PLANNER

24
Q

What are the options for how someone can receive death benefit? (3)

A
  1. Regular income
  2. Lump sum
  3. combination of both
25
Q

What are the two methods of calculating the amount of income needed upon death? What should always be considered in addition to either method?

A

Option A
MULTIPLE of either the insured’s ANNUAL INCOME or INCOME SHORTFALL that would be left if they die

Option B
ANNUAL INCOME REQUIRED X HOW LONG IT WOULD BE REQUIRED FOR (eg until youngest kid is 18 or until insured reaches retirement)

INFLATION should always be considered

26
Q

What method is needed to asses the amount of capital needed in the event of death?

A

would need to match the amount and term of the mortgage

27
Q

What is more important to insure against - death or illness/disability? Why? (2)

A

Illness / disability
1. Long term consequences can be more severe - medical bills, extra person still left alive for living expenses
2. More likely for people of working age than death

28
Q

What needs should be taken into consideration when assessing how much capital and income is needed in the event of illness/disability? (3)

A
  1. Does work need to be given up permanently or temporarily?
  2. Will they need to move or pay for home adaptations?
  3. Will medical bills need to be paid for?
29
Q

What are the main uses for CIC? (3)

A

On diagnosis of a SPECIFIED CONDITION:
1. Debt REPAYMENT
2. Cover cost of MEDICAL TREATMENT
3. Maintain an acceptable standard of living

30
Q

What are the main uses for IPI? (3)

A

On diagnosis of a specified illness or disability PREVENTING WORK AFTER DEFERRED PERIOD
1. SERVICES debt
2. Allows for RECUPERATION without FINANICIAL STRESS
3. Maintain an acceptable standard of living

31
Q

How should we quantify the amount of cover needed for capital and income needs as a result of sickness and disability? (4)

A
  1. Assess the shortfall - as with death
  2. Speculate any increases in future need - as with death
  3. Speculate what the cost of any medical bills or needing to stay at home more would be
  4. remember policies like IPI are subject to a MAXIMUM BENEFIT PAYABLE - Based on a percentage of annual income
32
Q

How to you work out someone’s disposable income to determine how much is available as a protection budget? What must be considered in relation to future expenditure?

A

NET INCOME - OUTGOINGS

However, can’t use the full amount of disposable income, must have some for other things. Over committing usually leads to cancelled policies

Must be an element of flexibility for future increases in expenditure

33
Q

If someone is unwilling to go with the protection policy as advised due to feeling that they are too expensive, what compromises can be made? (8)

A
  1. Joint policy - cheaper than single
  2. Shorter term
  3. Mortgage related plans can be kept separate from other plans to minimise cost
  4. Decreasing term = cheaper than level
  5. CIC can be added to term assurance - would only pay out once on illness or death, but cheaper than 2 policies
  6. Universal WOL meeds lots of needs in one plan (and is flexible, can be adjusted in future if expenditure increases)
  7. Portfolio of shorter term policies might be cheaper than 1 long one
  8. PMI (private mortgage ins) has a lot of options - can usually choose a lower benefit scheme to keep things cheaper
34
Q

What considerations need to be taking into account relating to savings and investments?

A

If these are going to be taken into account as protection, do additional provisions need to be made to keep funding them to ensure savings goals are still reached if income is lost?

35
Q

What considerations need to be taking into account relating to relationship breakdown? (4)

A
  1. Joint life plans may need replacing with single (if they still have joint interests, eg dependent children)
  2. Needs may change relating to custody agreements
  3. If one was covered by workplace pension plan, might be greater shortfall covering with a personal pension plan
  4. Where child maintenance payments are made - the recipient has an interest in the life of the other person
36
Q

When churning plans, what considerations need to be made? (5) which type of cover must you be particularly careful with?

A

remember: only allowed if same level of protection maintained
1. Are there as many conditions?
2. Are the definitions of illness more restrictive?
3. Does the new plan have reviewable premiums? this would be worse if old one was fixed
4. Are any rider benefits still available?
5. Are pre-existing conditions still covered?

37
Q

What type of policy should advisers always recommend if the customer can afford it? Why?

A

Whole of Life, because it was flexible enough to cope with future changes

38
Q

What are the main things that need to be considered when assessing suitability (ICOBS)? (5)

A
  1. Level of cover
  2. Cost
  3. Exclusions/limitations
  4. Excess
  5. Conditions
39
Q

What must firms do if a customer’s needs are not fully met?

A

Inform them of this and explain how

Cemap 2&3 Self Testing (29 decks)

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