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R01 2024 > 2 - retail customer > Flashcards

2 - retail customer Flashcards

1
Q

Hieratchy of client needs

A

TSRPBDB

The sensible rat peruses big dirty bins

Tax planning
Saving and investment
Retirement planning
Protection
Borrowing
Debt
Budgeting

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2
Q

Mortgages: 2 methods of interest repayment

A
  1. Capital and interest
  2. Interest only, capital repaid from lump sum at end of the term e.g. ISA, property sale…
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3
Q

Mortgages: 11 mortgage types

A

CCDEE FFGOTB

  1. Cap & collar
  2. Capped
  3. Discount
  4. Euro/foreign currency
  5. Equity-linked/shared appreciation mortgage
  6. Fixed interest (w redemption penalty)
  7. Flexible
  8. Green (new builds)
  9. Offset (linked with current account)
  10. Tracker (tracks index e.g. BoE base rate
  11. Buy to let (consumer reg by FCA, business not reg by FCA)
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4
Q

Mortgages: 2 types of equity release for over 60s

A
  1. Lifetime mortgage: client arranges lump sum or drawdown plan with lender to meet expenditure needs, under premise that when home is sold upon death/care home and proceeds pay off full loan. Remaining money goes to client/beneficiaries. Interest is amassed monthly.
  2. Home reversion plan: part or all of home is sold to lender in return for tax free lump sum of only 20% to 60% of property value, becoming tenant minus rent. Upon death, home belongs to lender.
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5
Q

Mortgage: What is no negative equity guarantee and when does it apply?

A

The guarantee that those with a lifetime mortgage never have to repay more than value of home even if interest has compounded to amass larger debt than value of home.

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6
Q

Mortgages: How might Muslims wanting to comply with Sharia law buy a home without paying interest?

A
  1. Ijara: lender buys property and rent is paid by occupier; monthly rent payments are held by lender and used to purchase the home at the end of agreement.
  2. Diminishing musharaka: each payment towards buying property buys extra slice of firm’s sare; client’s share increases and so does rent paid for use of firm’s share.
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7
Q

Mortgages: What is a flash sale and what are 3 other names for it?

A

Flash sale = firm buys home when client has urgent financial need of lump sum, and rents back to them for fixed period before selling property. Usually c5 yrs.

Aka mortgage rescue, rent back, or sell-to-let.

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8
Q

Mortgages: 2 types of loan

A
  1. Unstructured: more variable/flexible repayments so loan can be repaid sooner, without penalty and avoiding extra interest. E.g. loan on commercial property, overdrafts, personal loans. Interest rate given depends on risk of client defaulting on payments. between 1% and 4% over BoE base rate.
  2. Structured: for smaller purchases e.g. car loan. Fixed interest rate payable over fixed term; penalty if repaid early. Good for budgeting as no changes to payments or unpredictability.
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9
Q

Protection: Factors influencing protection needs (EDILEA)

A

Employment status
Dependents
Income
Liabilities
Existing cover
Age

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10
Q

Protection: 6 types of life assurance

A

Level term assurance
Decreasing term assurance
Family income benefit policies
Increasable term assurance
Convertible term assurance
Renewable term assurance

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11
Q

Protection: What is an endowment policy?

A

Policies that combine life cover and investment, paying a lump sum upon death of life assured BUT primarily used as savings vehicles that pay out upon maturity. Can provide critical illness cover.

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12
Q

Protection: What is a whole of life policy and what are the 3 types?

A

Policies that provide cover for the lifetime of the assured; substantial level of cover but do have an element of investment for savings.

Non-profit, with-profit and flexible.

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13
Q

Protection: Describe the 3 types of life policy.

A
  1. Non profit = guaranteed to pay out fixed amount of life cover upon death. May have low surrender value.
  2. With-profit = guaranteed minimum amount of life cover upon death and increases annually by reversionary bonuses. Terminal bonus also paid upon death to increase cover.
  3. Flexible = aka unit-linked whole of life plans as premiums are allocated to buy specific funds and premium is paid from investment; policyholder chooses min/max levels of cover.
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14
Q

Protection: 5 types of sickness/health insurance

A
  1. Income protection
  2. Personal accident and sickness insurance
  3. Critical illness cover
  4. Private medical insurance
  5. Payment protection insurance (PPI) including mortgage PII (MPPI)
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15
Q

Protection: What is income protection (IP) and when/why does it expire?

A

IP policies replace lost income when policyholder is unable to work at their own job.

Benefits continue until return to work, death, or expiry date of contract (usually retirement date). Benefits income tax exempt.
Deferred period min 4 weeks. Harder to get due to substantial cover offered.

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16
Q

Protection: What is personal accident/sickness insurance and when/why does it expire?

A

Policy replacing income while policyholder unable to work BUT different from IP as a) fixed, not income related b) short term payment and c) may also pay one-off lump sum if policyholder permanently disabled e.g. loses limb/digit/eyesight.

Benefits continue for 1-2 years only, instead of up to retirement age. Deferred period only 14 days max. Easier to get with fewer questions asked as lower cover.

17
Q

Protection: What is critical illness cover (CIC) and when/why does it expire?

A

Policy often combined with life cover, but differ from IP in 3 ways:
1. lump sum instead of regular income.
2. benefits upon diagnosis of specific illness only regardless of whether it prevents working own job.
3. provided standalone or incorporated into whole life, term or endowment policies.

18
Q

Protection: What is private medical insurance (PMI) and what are its bases/conditions?

A

Policy that may cover costs of inpatient treatments and surgery or outpatient treatments depending on cover level.

Can be purchased on a) full medical underwriting basis - full assessment of policyholder health which impacts level offered or b) moratorium basis i.e. no assessment but any health conditions in last 5 years will not be covered.

19
Q

What are payment protection insurance (PPI) and MPPI?

A
  1. PPI = policy that pays benefits if made redundant. Usually only available in connection with mortgages and loans. May also offer accident/sickness benefits.
  2. Mortgage PPI = as above but covers mortgage. Adheres to min standards by UK Finance and Association of British Insurers, including must: a) provide accident, sickness and unemployment cover, b) pay out after min 60 days off work, c) provide min 12 months of cover, d) pay out to self-employed who have registered for ESA (employment and support allowance) and told HMRC they have voluntarily ceased trading.
20
Q

Protection: What is the impact of provision of state benefits?

A

State benefits affect need for protection planning as may reduce level of private insurance necessary for illness, retirement of death. However, it is low/subject to caps to discourage reliance upon State.

21
Q

Protection: What is the benefit cap and what benefits count towards it?

A

Benefit cap = limit to total benefits receivable so that households on benefits cannot cannot receive more than avg earnings of working households.

DWP caps Universal Credit and local authorities cap Housing Benefits.

Benefits may include: bereavement allowance, child benefit, child tax credit, employment and support allowance (ESA), incapacity benefit, income support, jobseeker’s allowance, maternity allowance, severe disablement allowance, Universal Credit (except in certain circumstances), widowed parent’s allowance. Some of these benefits have been replaced by Universal Credit.

22
Q

Protection: What is Universal Credit and how does it work?

A

UC = means tested benefit for people of working age on low income. It replaced 6 ‘legacy’ benefits (income support; jobseeker’s allowance (JSA); employment and support allowance (ESA); housing benefit; child tax credit; working tax credit). Some people may retain legacy benefits; others may be switched to UC.

DWP calculates monthly UC payments based on: a) current income and b) expected expenditure.

23
Q

What 6 benefits are available for families and children?

A
  1. Child benefit
  2. Child tax credit
  3. Maternity allowance
  4. Statutory adoption pay
  5. Statutory maternity pay
  6. Statutory paternity pay
24
Q

What benefits are

A

R01 2024 (2 decks)

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