2 Flashcards
Protection gap
Shortfall in amount of necessary cover
Biggest impact on commoditisation
Price and most likely in life cover as providers offering CI, their cover varies
Surrender value of a life policy
Surrendering a policy before death for investment element minus fees e.g. whole of life unit linked policy
What are whole of life policies usually used for?
Funeral expenses
Bond
primarily forinvestment purposes, only nominal life cover will be provided, typically just 101% of the bid value of the units held at the point of death
Pension term assurance
Prior to April 2006, benefit from tax relief on term assurance linked to a pension plan providing no changes made since April 2006
Mortality rate calculation
rate X sum assured
What is used to calculate premiums of a policy?
Mortality rate
Pure premium for a life office
premium required just to pay claims for that year
What is premium loading?
Extra costs within a premium e.g. admin costs, employee salaries, office costs
Frequency loading on a policy
Increase in cost for paying monthly rather than annually
3 advantages of using a test for a life policy
Paid quicker to right people even outside of will
Possibly avoid IHT
Better protection against settlor going bankrupt
What is the Married women’s protection act for a policy regarding a trust?
A trust for a policy that is only for children and spouse. Also can only be done at outset of policy. But gives greater protection against creditors.
Are flexible and discretionary trusts taxed for policies?
Regarded as creating chargeable lifetime transfers (CLTs). In addition, the trust could be subject to a periodic charge every ten years
One advantage and disadvantage to an absolute trust
cannot be adapted to changing needs
Is treated as a PET
Should a financial advisor be a trustee?
No, due to conflict of interest
Sensitive personal data
Beliefs, religion, sexual orientation, health or race
Non disclosure of information for policy application.
Reasonable
Careless
Deliberate or reckless
Reasonable - the customer has acted honestly and reasonably but has still failed to disclose all material facts. In such cases, the claim will be paid in full.
• Careless- the customer failed to take reasonable care and should have realised that the information given was incorrect. In such cases, a proportionate remedy will apply.
• D e l i b e r a t e or reckless - on the balance of probabilities, the customer knew, or must have known, that the information was both incorrect and relevant to the insurer. In such cases the insurer can void the policy from inception.
Qualifying policy
Any gain is non taxable
Non qualifying policy
Any gain is taxable
Main types of qualifying policy
Temporary insurance
Whole of life assurance
Endowments
Exempt policies
Friendly society policies
Tax exempt
Max. Premium of £25pm or £270 annually
Offshore policy
Policy issued by a non UK life office
When will an off shore policy not be tax exempt? (2 ways)
When premiums payable to a UK branch
Policy holder becomes a UK resident and life fund is chargeable to UK corporation tax
Limit on what can pay on policies to a friendly society or any tax exempt policies in a year and why?
£3,600 per year because this could avoid tax
Restricted relief qualifying policy
Taxed on a partly qualifying and non qualifying basis. So if exceeds £3,600 per yr limit
Taxation of life funds is generally at what rate and detail 3 things within this
20% on rent and interest and corporation tax
Main benefit of offshore life fund
Little or no tax as generally only tax is at issue
Chargeable gains on policies
Those policies subject to income tax
Are group life policies subject to chargeable gains?
No
IHT nil rate band
£325,000
rate of IHT
40%
Deed of variation
Where someone inherits property through a will or intestate but wants to change the terms as this is not tax efficient
Disclaimer of a will
Reject the property when gifted in a will but can then not chose who will receive it
Definition of incapacity for IP
- Own occupation
- Suited occupation
- Any occupation
Own occupation - unable to perform own role
Suited occupation - unable to perform role suited to education, training and experience
Any occupation- cannot perform any occupation
Proportionate benefit for IP
Plus proportionate benefit to encourage returning to work
Can IP impact state benefit income?
Yes
Is IP taxable?
No I’d pay for yourself however if employer pays or paid and used as a tax deductible business expense then this is taxable
Typical survival period for CIC
14-30 days
Life cover buy back on CIC policy
After a CI claim can take out a limited form of life cover without further medical underwriting
Reinstatement cover for joint policies
Can split policy into 2 different policies is you split with partner
When is a CIC policy taxable?
When paid directly to the employer as a group policy as is taxable as a benefit in kind
What is long term care?
When a person is unable to carry out activities of daily living or mentally impaired
FCA definition of long term care
When a person cannot live independently without assistance and this is not expected to change
What is state benefit for long term care and how is this funded?
NHS and funded by local councils
Is long term care taxable or means tested?
No
Attendance allowance
Paid after state pension age, when a person needs help with personal care or supervision
Is attendance allowance taxable?
No
Who assesses care needs and finds this?
Local councils
Personal expense allowance for care is?
£25.65pw for essentials
What is the time limit for gifts to no longer be considered to cover care costs?
No time limit
What is the minimum threshold from which assets will be considered to cover care costs?
£23,250
When will local authority recall gifted assets to cover care costs?
When can prove someone had significant motive to deliberately try to avoid costs of care
Immediate needs care plan
Care need is immediate and policy pays immediately and will pay for as long as care is needed
When when is immediate needs care plan tax free?
When paid directly to the care home
Deferred care
Care is paid for by policy after a few months/years so usually good when people have funds to pay for immediate care for length of time
Traditional insurance care policy
Started policy before need for care so cheaper
Pre funded investment linked care policy
Single premium investment bond and a regulate premium for long term care policy. This is aimed to ensure that even if care is needed the beneficiaries will receive some benefit
Care cash plan
Cover against possibility of needing care in the future but no link between amount and cost of care so may not align
Accelerates death benefit
Can pay for care if eligible to claim for a policy that is already arranged eg life policy with terminal illness cover or CIC policy
Viatical settlement
Sale of an existing life policy to an intermediary for immediate cash benefit. New owner then pays premiums and will get surrender value
Lasting power of attorney
A donor is able to appoint someone to make their decisions when they no longer wish to for health and welfare and property and finance
Who do you go to to revoke an enduring power of attorney?
Court of protection if registered but can sign a document (deed of revokation) if unregistered
Is personal accident and sickness policy taxable?
Yes, no tax relief on premiums or benefit and if the employer pays premiums then is treated as benefit in kind and taxable under PAYE
When is personal accident and sickness insurance usually taken?
For short period eg for business trip or holiday
What is private medical insurance designed to cover?
Acute conditions
Acute and chronic medical conditions
A - rapid onset and usually amendable
C - long lasting and usually incurable
Personal medical insurance plans
Basic
Standard
Comprehensive
B - budget plans with limits of cover
S - wider forms of cover with longer periods of claim
C - fullest form of cover but expensive
Will private medical insurance cover you abroad?
Most likely not
Mortgage payment protection insurance
Pays monthly benefit to help pay mortgage is sick, accident happens or suffer from involuntary unemployment. Payable for set period of time.
Support for mortgage interest
Can receive help with mortgage interest from gov. if receive state benefits
Can a Mortgage payment protection policy be arranged at same time as mortgage?
No
Is mortgage payment protection taxable?
Yes taxable on premiums and benefits
ASU policy
Paid if suffer from illness or injury but payable short term and can be reviewed by insurer on review period
Is ASU taxable?
Benefits are not taxable but no tax relief on premiums. Unless with employer and they pay premiums then taxable under PAYE for employee
Health cash plan
Pays for health care so upto 100% of treatment upto annual limit. Usually included dentist or optical services.
PPI
Cover costs of non-mortgaged credit agreement in event of sickness, illness or injury
What is minimum time period after a loan agreement PPI can be sold?
7 days after the later of the point of sale or illustration received
When checking an existing client policy. If the client cannot remember the details do you need to check it?
Yes
Retail distribution review brought in what 2 things?
Min. Qualification increase
Split advisers into restricted and independent
What is not under retail distribution review
Pure protection
Fifth core duty within FCA code
Treat customers fairly regardless of age, gender, disability, etc.
If disagreement over a recommendation may be best to do what?
record the disagreement and ideally get the client to countersign it.
If client not proceeding with all recommendations may be best to do what?
ask client to countersign it, or otherwise confirm it in writing.
Key person insurance
Person whose absence is likely to lead to serious financial detriment for the business.
Proportion of profits formula for key persons insurance
(Key person’s salary × profit for last year × no. of years to replace key person) / total salary bill
Calculating amount of key persons insurance methods
Multiple of salary
Proportion of profits formula
Tax relief given on key persons insurance?
No
Can you get life, CIC, ASU or IP policy for key persons insurance?
All of them
Share protection insurance
Gives company funds to purchase shares from shareholder
Articles of association
These are like the company’s will. They usually have a clause that states what should happen to the shares of an individual in the event of their death, illness or retirement.
Ways to sell shares of a company on death:
Buy and sell agreement
Cross-Option double agreement
Automatic accrual
B - deceased’s heirs must sell their shares in the business to the surviving shareholders, and that the latter must buy.
C - The shareholders of the business have an option to buy the shares from the estate of a deceased shareholder, and the estate has an option to sell the shares.
A - leave shares to shareholders in their wills. Usually person would take out a life policy to compensate family instead.
When can you take a policy out on someone else?
When you have an insurance interest
What trust should be used for a shareholder trust and why?
Flexible as an absolute cannot be changed in the future eg if shareholders changed could not change trust
Partnership act 1980 brought what policy?
a partnership without a partnership agreement in place is automatically dissolved in certain situations, one of which is the death of a partner.
What main thinner should a partnership agreement include?
A clause stating what should happen fi a partner dies, which can prevent the partnership from being dissolved by death.
Under qualifying rules an endowment policy on death pays what %?
75%
For each year a person passes age 55 what % does the endowment payment reduced by on death?
2%
With a group policy, free cover relates to?
Without any evidence of health required
Severity based cover with a CIC policy
More than one claim can be made should the illness progress in severity
Max. pension pot allowance for tax relief on premiums?
£6k
State benefits can be measured by your own income and capital or partners also?
Both personal and partner
Can IP life offices consider benefits received when making payments?
Yes, may do
Are benefit entitlement effected by IP?
No
If deferred on a policy medical review this means?
Declined
Are costs of life cover considered by reduction in yield figures?
No
Who has equitable ownership of a policy in trust?
Beneficiary
What reduction in tax liabilities come from marriage or a civil partnership?
CGT and IHT
When are financial planning reviews unnecessary?
They’re always necessary
How to easily define non-qualifying policies?
Usually if they have a surrender value
Contingent policy
Pays on life assured proving another person is still alive
Taxation of dividends, rent and interest are at what rates?
Dividends - Exempt
Rent and interest - 20%
Chargeable gains on a life policy are subject to CGT or income tax?
Income tax on amount over the amount paid for premiums
Tax rules on a trust
Settlor pays - If settlor still alive or in same year of death
Trustees pay - if after same year of settlors death or settlor non UK resident
Beneficiary pays - if trustees non UK resident (no top slicing)
When will tax be paid on offshore policies?
On chargeable gains, such as surrender value of policy
How much of a gift is IHT exempt per year?
£3k
Gift inter vivo policy
Where the sum assured falls in line with IHT payable on any potentially exempt transfers
How long before proceeds must be paid after death or trust must be registered?
2yrs
Who do you register a trust with?
HRMC
Maturity claim for an endowment policy is what?
End of policy and initiated by life office contacting policy holder giving details of amount payable, maturity date, etc.
Probate and administration will or no will?
Probate - will
Admin. - No will (intestate)
Policy is pad when they provide what?
Proof of policy and either deed of assignment, evidence of being a trustee or grant of representation
Rehabilitation benefit is what?
Proportionate benefit
Renewable IP policy
Set renewal cost when renewal due. Insured may renew but insurer can’t decline
Group IP policy can pay same, more or less than normal IP?
More
Typical survival period for CIC?
14-30days
CIC must cover what 3 things?
Cancer, heart attack and stroke
NHS continuing care
Fully funded care for those who’s primary need for care is health based
Attendance allowance
Can claim if past SPA and need help with care
Immediate long term care is essentially what?
Assurance policy
Immediate needs care policy
Pay lump sum for care costs covered until care no longer needed so no set end date
Pre-funded investment linked care policy
Cover for care and investment aspect for policy holder or beneficiaries. Works by:
- if no care needed then value of bond and growth - premiums payed
- if care needed then bond value can be claimed at any time
Pre funded investment linked policy disadvantages
If investment not performing then can lead to a reduction in cover or require additional single premium
Care cash plan
Pay lump sum or income for set period of time in event of a claim but no link between amount payable and cost of care
Lifetime mortgages available to over what age?
55
Peppercorn rent
Rent payable on a home reversion plan
Viaticle settlement
Selling a life policy when I’ll for immediate lesser value then companies pays premiums and owns policy
Where do you register a LPA
Office of public guardian
Where do you revoke a EPA if registered or unregistered?
Court of protection if registered or deed of revokation if not registered
Co payment and excess on PMI
Co payment - customer pays part of cost of treatment upto a limit
Excess - insured covers first £X amount of any years claims
Would PMI be applicable abroad?
Most likely not, would be better with holiday insurance
Moratorium underwriting on a PMI policy
Exclusion of a pre-existing condition for a set length of time proving no claim for that within that period
Health cash plan
Covers upto 100% of health care upto a pre-set limit. Such as dentist, preset limit for treatment in hospital and optician
Dental capacitation scheme
Helps budget costs of dental care
Free asset ratio
Amount of excess assets against liabilities
Buy and sell agreement
Must buy and sell shares
Cross option agreement
Both have option to buy and sell shares. If one chooses to then other must comply.
Automatic accrual agreement
Leave shares to shareholders in their wills and usually have a life policy for beneficiaries
Partnership act 1980
Partnership automatically dissolved if partner dies if has no partnership agreement
Partnership agreement
Should state what will happen to shares in event of death
Only policy to not have no tax on benefit and tax on premiums?
PAS
Limit on premiums payable to qualifying policies
£3,600
Tax payable on a gain from a policy
Current tax bracket - basic rate is rate of income tax payable
When is pension taxable
When receive as income tax
Can you buy and sell endowment policies
Yes
When are offshore policies taxed?
On gain
Rate of IHT
40%
IHT gift exemptions
Upto first £3k a year tax free and £250 max on as many gifts as want tax free
Deed of variation
Change how receive something from will for tax benefit
disclaimer on will
Decline to accept asset from will
Endowment life cover must not be less then what % of premiums?
75%
Friendly society premium limits
£25per month or £270 per year
