6. Life insurance products

Question 1

What are the various life insurance products? And No if group version does not exist.

15

Answer 1

TWITTED TICK LIIP

• Term Assurance (level)=> protection for dependents on death
• Term Assurance (decreasing)=> loan repayments, family income benefit
• Term Assurance (renewable & convertible) => cheap life cover with option to renew or convert without further medical evidence
• Endowment insurance=> loan repayment on death/survival, savings
• Pure endowment=> loan repayments on survival, savings
• Whole life assurance (NO)=> funeral costs, protection for dependents, wealth transfer/inheritance tax planning
• Critical illness=> medical treatment, protection for dependents, lifestyle enhancement on getting a serious, often terminal illness
• Long-term care=> nursing home or home care in old age
• Income protection=> income when off work due to sickness/accident
• Immediate annuities=> School fees or income in retirement
• Deferred annuities=> Retirement savings
• Income drawdown=> retirement provision
• Investment bond (NO)=> longer-term flexible investment with life cover
• Keyperson cover (NO)=> sum for loss or replacement of key business person

Question 2

What are examples of customers needs being met by a group version of a term assurance product?

Answer 2

• Employer=> Group term assurance product for employees=> benefit paid to employees dependents on death of employee
• Credit card company=> group term assurance on credit card holders to pay off any balance outstanding on death of a cardholder
• Supplier of goods with payments instalments=> Group TA on creditors

Question 3

When are benefits paid under a critical illness contract?

Answer 3

• On diagnosis of a critical illness as set out in the policy documentation

Question 4

When are benefits paid for an income protection product?

Answer 4

• During periods of incapacity due to accident or illness

Question 5

When are benefits for long term care payable?

Answer 5

• Insured needs home or nursing-home care

Question 6

What are the 4 main investment types for life insurance contracts?

Answer 6

1.Without profit=> benefits are fixed at outset.

• Insurer bears risks of experience not being as expected
• Receives profits
• Typically used for protection products=> Also for savings products

2.With profit=> profits+ risks shared between policyholder and insurer

• There are both discretionary and guaranteed benefits.
• Typically used for savings products but can be used for protection

3.Unit-linked=> Benefit depends on the performance of the underlying assets

• Experience risks are borne by the policyholder unless there is a minimum guaranteed benefit
• Both for savings and protection=> significant investment element

4.Index-linked=> benefit linked to performance of an economic or investment index.

• Premiums=> move in line with index or fixed in monetary terms

Question 7

How is profit calculated/contract?

Answer 7

Profit = Premiums net of reinsurance + Investment income and gains - claims net of Re - Expenses - Increase in provisions (reserves) - Increase in cost of capital - Tax