2 - Financial Protection Needs

Question 1

What is Life Assurance

How is it paid? What conditions must individual satisfy

Answer 1

Provides a lump sum on death of life assured

Question 2

What is Income Protection Insurance

How is it paid? What conditions must individual satisfy

Answer 2

Provide a regular income when insured is unable to work due to accident or illness

Question 3

What is Critical Illness Cover (CIC)

How is it paid? What conditions must individual satisfy

Answer 3

Provide a lump sum if if insured is diagnosed as suffering from one of listed illnesses

Question 4

What is Long term Care Insurance (LTCI)

How is it paid? What conditions must individual satisfy

Answer 4

Provide cover twoards the costs of long-term care due to old age or infirmity

Question 5

What is Payment Protection Insurance (PPI)

How is it paid? What conditions must individual satisfy

Answer 5

Provide a regular income like MPPI, to cover loan or credit card repayments if insured is unable to work due to illness, accident, redudancy or unemployment

Question 6

Personal accident and sickness insurance (PAS)

How is it paid? What conditions must individual satisfy

Answer 6

Providing a lump sum or income benefits if the insured suffers an accident or falls ill.

Question 7

Accident, sickness and unemployment insurance (ASU)

How is it paid? What conditions must individual satisfy

Answer 7

Providing a lump sum or income benefits if the insured suffers an accident or is unable to work due to sickness, redundancy or unemployment.

Question 8

Private medical insurance (PMI)

How is it paid? What conditions must individual satisfy

Answer 8

Providing cover towards the costs of private medical treatment.

Question 9

Health cash plans

How is it paid? What conditions must individual satisfy

Answer 9

Providing small lump sum benefits for a number of medical treatments or on a per day basis for a hospital stay.

Question 10

What is a menu plan?

Answer 10

Combination of different types of cover provided by one single contract

Question 11

What are the main areas in need for protection

(5)

Answer 11

1. Health, incapcaity or accident
2. Income, mortgage or debt
3. Death
4. Asset protection
5. Business protection

Question 12

Why does an individual need cover for health?

What cover?

Answer 12

Income protection - Anyone who is financially dependent on earnings
Those who cannot return to work after critical illness - may require long term care -state benefits may not cover (PIP, Attendance Allowance).

Question 13

What is a policy used to repay loan of mortgage

Answer 13

Life assurance policy

Question 14

What type of protection would individuals take for death

Answer 14

Life Assurance

Question 15

What is the rate of Nil Rate band

Answer 15

£325,000

Question 16

What is a Chargeable Lifetime transfers (CLTs)

Answer 16

If individual makes lifetime gifts (other than absolute or disabled trust) and such transfers over a seven year period exceeds nil-rate band there is an immediate 20% tax of excess. If donor dies within seven or 14 years, further tax may be due.

Question 17

What is Key person insurance

Answer 17

can take the form of life assurance, critical illness or income protection. The protection need will depend on the nature of the individual’s role within the business.

Question 18

If a couple gets divorced is there any effect on cover?

Answer 18

• Policyholder
• Life assured
• Trustee
• Beneficiary

Will continue unless court orders otherwise

Question 19

If a divorce occurs and one person has a critical illness since the assurance had been taken place what happens?

Answer 19

In this case, neither of the split policies would require any underwriting, as the life office will treat both policies as having been effected on the date the original policy commenced, but there might be a need for fresh cover. For example, the court may order one spouse to pay maintenance to the other, but this would cease if the former died, so the latter may wish to protect themselves by insuring their life for an appropriate sum.

Question 20

What will be necessary to complete before insurance is required

Answer 20

Know your customer - Assets and liabilities of customer and financial dependents.

Question 21

Employee benefits (protection cover)

Answer 21

• Sick pay/income replacement
• Life cover (death in service)
• Critical illness cover
• Pension arrangements
• Private medical insurance

Question 22

What is advantage for employee for employer to provide protection

Answer 22

Employer bears cost. Underwriters provide “free cover” (amount of insured benefit allowed without medical underwriting)

Question 23

Where is there a benefit in kind tax charge when employer pays employee?

Answer 23

Income replacement benefits, (income tax and National insurance)
Critical illness cover and private medical insurance - taxable as benefit in kind to employee and benefit is paid free of tax to individual

Question 24

Where there is no benefit in kind tax charge for employee

Answer 24

Employer provides life assurance (death in service) or continue to pay a proportion of pre-disability income.