CH 4: Intro to financial products and customer needs Flashcards
Social Security Benefits
1,5
- Low level means tested benefits offered by state.
Types:
* Retirement pension
* Medical care
* Income support due to unemployment, illness or disability. UIF
* Child support
* Housing
Financial product categories
6
- insurance contracts
- reinsurance contracts
- pension schemes
- benefit schemes
- investment schemes
- derivatives
Insurance contracts
1
Provider will pay a benefit to PH/Beneficiaries in return for single/regular premiums on the occurence of a pre-specified event.
Reinsurance contracts
1
Insurers pass some of the risk they are taking on to a third party at a specific reinsurance premium
Pension scheme
1
Involves accumulation of funds paid out on a later date, for example, retirement, death or withdrawal from the scheme.
Benefit Schemes
1
Similar legal and tax structure as a pension scheme. Provides protection against events such as medical expenses or unemployment
Investment schemes
1
Involve an individual paying a single payment or series of payments to a provider with the expectation that a higher amount will be paid back at a later date.
Derivatives
2
- A financial instrument whose value depends on the value of other investments or variables.
- Can be used by providers of financial products to pass on risks to 3rd parties.
Microinsurance
1
insurance products that offer coverage to low-income households
What are the 3 main principles of insurance and pensions
3
- Insurable interest - Person taking out the contract has a financial interest in the insured event, to prevent moral hazard, fraud and other crime.
- Pre-funding - Putting money aside in advance of an uncertain risk event (in timing, occurrence and size)
- Pooling of risk - Protects a group of individuals who pool their finances, against uncertainty in financial costs, which then leads to more cost-efficient provision.
Stakeholder needs
2,2,1,1
Logical :
* Systematic working out, fit product to needs.
* eg maintain lifestyle,protyection benefits etc.
Emotional:
* Based on what feel is needed.
* eg generate investment income, extra death benefit
Current needs:Immediate affect on circumstances
Future: Develop later on.
- Current and future needs
Stakeholder risk appetite and vulnerability
3
- Risk averse: Prefer protection against future events over lifestyle
- Risk seeking: Enhance lifestyle assume rare events won’t happen
- Vulnerability: Someone who due to circumstances is unable to represent interests and is more likely to suffer. TCF
