C6 - Life Insurance

Question 1

Life insurance products and benefits

Answer 1

Term assurance (level) – protection for dependents on death
Term assurance (decreasing) – loan repayments, family income benefit
Term assurance (renewable) – cheap life cover with option to renew without further medical evidence
Term assurance (convertible) – cheap life cover with option to convert to whole life or endowment
Endowment – loan repayment on death/survival, savings
Pure endowment – loan repayment on survival, savings
Whole life assurance – funeral costs, protection for dependents, wealth transfer/inheritance 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

Question 2

Without Profit

Answer 2

Benefits are fixed at outset.
Insurer bears risk of experience not being as expected but also receives the profits.
Typically used for protection products

Question 3

With-Profit

Answer 3

Profits and risks are shared between the policyholder and insurer.
Both guaranteed and discretionary benefits.
Typically used for savings products but also used for protection.

Question 4

Index-Linked

Answer 4

Gives a benefit that is linked to the performance of an economic or investment index.
Premiums may move in line with the same index or may be fixed in monetary terms.

Question 5

Unit-linked

Answer 5

Benefits depend on performance of underlying assets.
Enables policyholder to obtain a higher expected level of benefit than under a comparable non-linked version
Experience risks are generally borne by the policyholder unless there is a minimum guaranteed benefit
Used for both savings and protection products.