C) Protection

Question 1

What are the main factors of protection needs?

Answer 1

• age;
• dependants;
• income;
• financial liabilities;
• employment status; and
• existing cover

Question 2

How would you determine the required income cover amount?

Answer 2

• Level of death cover - income x 10 less benefits
• Level of ill-health cover - income x 50% to 75% less benefits

Question 3

How to estimate a Level of ill-health cover?

Question 4

What is the best way to secure a policy amount against inflation?

Answer 4

Either by taking index-linked cover or
specifying increase options

Question 5

What type of policy can be used to pay an inheritance tax?

Answer 5

Whole of life last survivor policy written in trust for the heir(s)

Question 6

What are the main protection needs of a young single person in work

Answer 6

• to build an emergency fund
• to protect their earnings
• to provide a capital sum should they
  be diagnosed with a critical illness

Question 7

What financially interdependent means?

Answer 7

It means you rely on the joint finances of yourself and your partner to support your standard of living

Question 8

What a term assurance policy is?

Answer 8

It’s a** life policy** that pays a lump sum (or, in the case of family income benefit, a series of lump sums) on the death of the life assured

Question 9

List 6 types of term assurance?

Answer 9

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

Question 10

What is endowment policy?

Answer 10

Endowment policies pay a lump sum on the death of the life assured but these policies are primarily savings vehicles

Question 11

What is a Whole of life policies?

Answer 11

Whole of life policies are primarily geared towards providing a substantial level of life cover, but some do have an element of investment

Question 12

What non profit WOL policy guarantees to pay?

Answer 12

Guarantees to pay a** fixed amount of life cover** on the death of the life insured. May accumulate a surrender value

Question 13

What with profit WOL policy guarantees to pay?

Answer 13

Guarantees to pay a minimum level amount of life cover
on the death of the life assured, and this amount increases annually by the addition of
annual (or ‘reversionary’) bonuses, although these bonuses are not guaranteed

Question 14

What is flexible WOL policy?

Answer 14

The flexible whole of life policy can offer the policyholder an opportunity to obtain high levels of cover at very low cost (similar to a long-term life assurance contract), or to place more emphasis on savings

Question 15

Janet has a £10,000 loan, which is repayable in one lump sum in ten years’ time. She needs a policy with a sum assured of £10,000 at the lowest cost to provide protection should she die before the loan is repaid. What is the most suitable policy for Janet?

Answer 15

A level term assurance

Question 16

At around what age is there the greatest need for protection products?

Answer 16

Between the mid-20s and early 40s

Question 17

Why must existing cover be taken into account in assessing protection needs?

Answer 17

Not to do so is poor advice as it will provide more cover than required and increase costs and could breach FCA rules and the provisions relating to the fair treatment of
customers.

Question 18

What is Income protection (IP)?

Answer 18

IP policies are designed to replace lost income for an individual who, due to illness or accident, is unable to work.

Question 19

What is the maximum percentage benefit for Income protection?

Answer 19

50–60% of earnings

Question 20

Discribe term ‘moral hazard’

Answer 20

Restrictions are imposed by insurers because they want to make sure that claimants have an incentive to return to work. Without this incentive insurers fear that the after-effects of an illness or accident would continue for an unusually long period of time

Question 21

How permanent health insurance (PHI) policy works?

Answer 21

This is when the insurer cannot cancel the contract as long as premiums continue to be paid, no matter how many times or for how long claims are made

Question 22

What is mortality and which type of policy underwriting is based on it?

Answer 22

It is the length of
time someone is likely to live. Life assurance is based on the study of mortality

Question 23

What is morbidity and which type of policy underwriting is based on it?

Answer 23

It is the rate of incidence
of disease or medical problems. Income protection is based on the study of morbidity

Question 24

List 4 differences between personal accident and sickness and income protection insurance:

Answer 24

• may also pay a one-off lump sum
• will pay benefit for maximum of one or two years
• more occupations are likely to be accepted
• regular benefit is likely to be a fixed sum, rather than a percentage of the policyholder’s earnings

Question 25

What is accident, sickness and unemployment (ASU) policy?

Answer 25

ASU is an annual policy with a maximum payout period of one to two years. Premiums will be more expensive due to the addition of unemployment cover, but still less than for income protection

Question 26

What is a critical illness (CI) cover?

Answer 26

Thid cover will pay a lump-sum benefit on the diagnosis of one of a specified list of illnesses, or on the permanent total disability of the insured

Question 27

List 5 CI cover needs:

Answer 27

• private treatment
• Alterations to the insured’s home
• Purchasing of special medical equipment
• Income replacement (limited by the capital sum)
• Repayment of a mortgage or other loans

Question 28

** Private medical insurance (PMI)**:
What is the difference between full medical underwriting basis and moratorium basis?

Answer 28

• Full medical underwriting - conditions of the cover will be based on the clients medical history
• Moratorium - provider doesn’t ask any health questions but will automatically exclude any health conditions the client suffered from in the last five years

Question 29

What is Long-term care insurance (LTCI)?

Answer 29

This policy covers the client’s needs for a long term care (illness or old age). This is when they have difficulties with daily tasks such as: washing, dressing or eating. These are calles ‘activities of daily living’ or ADLs).

Question 30

What are the two types of long-term care insurance (LTCI)?

Answer 30

• Immediate care LTCI – bought when care is actually needed. This can be at any age. Bought with a lump sum. The plan pays out a regular income
  for the rest of the client’s life, which is used to pay for the care.
• Pre-funded LTCI – bought in advance, in case care is needed in the future. Pays for the care in return for a single premium

Question 31

What is Payment protection insurance (PPI)?

Answer 31

Policies which pay benefits if an insured person is made redundant (available in connection with mortgages and loans,

Question 32

What is the purpose for which payment protection is offered by insurance companies?

Answer 32

Protection for mortgages and loans