4. Life Assurance

Question 1

What are the 2 types of policy premiums?

Answer 1

Level; sum assured and premiums fixed for term
Indexed; benefits & premium increase annually

Question 2

Describe the following types of policies:
- non-profit/guaranteed
- with-profit
- unit-linked
- unitised with-profit
- low-cost

Answer 2

• non-profit/guaranteed; most new policies - fixed premium for fixed sum assured
• with-profit; potential for bonuses to be added to sum assured
• unit-linked; sum assured dependent on value of underlying investments - usually min guaranteed amount
• unitised with-profits; combination of the above
• low-cost; sum assured made up of decreasing term and with-profit element - rely on investment performance

Question 3

Key features of term assurance (3)

Answer 3

• only pays out if death occurs within the term
• if life assured survives the term, cover ceases and premiums not returned
• no cash value or surrender value

Question 4

Describe the following decreasing term assurances:
- Level decreasing
- Family income benefits
- Mortgage protection

Answer 4

• Level decreasing; cover decreases at fixed rate
• FIB; provides income after death til end of term
• Mortgage protection; cover matches mortgage balance over term

Question 5

Describe a gift inter vivos policy (3)

Answer 5

Designed to cover IHT liability on a PET

Sum assured set to IHT liability which reduces to nil after 7 years, aligned to taper relief

Only suitable if PET brings 7yr cumulative PETs above NRB

Question 6

Describe an increasing term assurance policy

Answer 6

Sum assured increases over term

Question 7

Key features of convertible term assurance (5)

Answer 7

• option to convert to whole-of-life or endowment
• no further medical underwriting
• costs 10-15% more to include option
• no increase to sum assured
• new premiums based on age at conversion

Question 8

Key features of renewable term assurance (4)

Answer 8

• policy can be renewed at end of term for another term of the same length
• no further medical underwriting
• new premiums based on age at renewal
• renewable & increasable policy; can also increase sum assured by specified amount

Question 9

Describe the following life assurance rider benefits:
- waiver of premium
- terminal illness cover
- accidental death benefit
- total and permanent disability cover
- guaranteed insurability options

Answer 9

• waver of premium; cover continues if premiums cannot be paid due to accident, illness or disability
• terminal illness; pays early if diagnosed with terminal illness with <12m life expectancy
• accidental death; pays multiple of sum assured if death is due to accident
• total & permanent disability; pays early if this occurs
• guaranteed insurability; sum assured can increase without further medical underwriting