Analysing the client’s financial situation – Protection

Question 1

Outline the weaknesses in Joshua and Amina’s current protection provision. (10 points)

Answer 1

• Joshua has no life cover besides mortgage protection.
• Amina has only employer’s death in service benefit/this would cease if she left employment/inadequate.
• No family income benefit/cover for costs in the event of death.
• Three young children dependent on them.
• No PHI/no CIC/mortgage cover does not include CIC.
• No redundancy cover for Amina.
• No PMI.
• Joshua is a builder/he is reliant on physical health.
• Joshua has no employer sick pay.
• Limited State benefits available/State benefits are inadequate.

Question 2

Identify the factors that a financial adviser should consider when establishing a suitable suite of financial protection products to meet Joshua and Amina’s requirements. (11 points)

Answer 2

• Limited cover at present/life cover for mortgage only/no PHI,CIC,PMI.
• Mortgage term/plans to move.
• Any more children planned?
• Trust status for life cover.
• Smoker status/family history/dangerous hobbies/pastimes.
• Affordability/cost of premiums/surplus income.
• Priorities/term/retirement age/sum assured.
• Joshua is business owner/no employer cover.
• Nominations on pension/death in service cover.
• Plans to change employment/security of employment.
• Premium and term on existing term policy

Question 3

Outline to Joshua and Amina the key differences between critical illness cover (CIC) and income protection (IP). (11 points)

Answer 3

• CIC pays a lump sum/IP pays regular income.
• CIC can be held for life/IP ceases on retirement.
• CIC pays on diagnosis of specified condition/not linked to job
• Survival period of up to 30 days.
• IP is limited by income/CIC can be unlimited.
• IP can include deferred period to meet need/reduce premiums.
• IP based on ability to work.
• CIC usually cancelled on claim.
• IP can have multiple claims/insurer cannot cancel.
• Waiver of premium optional on CIC/automatic on IP.
• Children’s cover available on CIC/houseperson’s on IP.

Question 4

Identify the key factors that Joshua and Amina’s financial adviser should consider when reviewing the suitability of their existing mortgage protection policy. (10 points)

Answer 4

• Term of mortgage.
• Plans to move.
• Premium amount.
• First or second death.
• Guaranteed or reviewable premium.
• Cost of alternative policies.
• Insurability/state of health/underwriting.
• Cover amount/does it still match the mortgage amount?
• Any critical illness cover?
• In trust?

Question 5

Explain to Joshua and Amina why it is important to review their current protection arrangements. (11 points)

Answer 5

• Limited life cover.
• No health/IP/CIC/PMI.
• Joshua is a business owner/no sick pay/no company benefits.
• Also needs quick return to work as runs his own business as a builder.
• It doesn’t appear that Amina has employer benefits/life cover only.
• Death-in-service ceases if she leaves the employer.
• Consider unemployment cover.
• Three dependent children.
• No pension death benefit nominations evident.
• Affordability/CFL/limited emergency resources.
• Cannot access pensions as too young.
• Limited State benefits payable.

Question 6

Outline the key issues that Joshua and Amina’s financial adviser should take into account when helping them to prioritise their protection needs. (12 points)

Answer 6

• Affordability/expenditure.
• Liabilities/outstanding mortgage.
• Joshua has no sick pay/limited sick pay.
• No family protection in place.
• Period of children’s dependency/plans to have more children.
• Term of mortgage/plans to move.
• Amina’s job security/intention to change jobs.
• Support from family/financial or practical.
• Inheritances/windfalls expected.
• Pension death benefits.
• Willing to use current assets/savings/emergency funds.
• Family health history/health issues in family/smoker status/any hazardous pursuits.