CH:4 Introduction to financial products & customer needs

Question 1

What is meant by means-tested

Answer 1

Earnings have to be below a certain to level to qualify

Question 2

Examples of social security (state benefits)

(5)

Answer 2

• Retirement pension
• Medical care
• Income support due to unemployment, illness or disability
• Housing support due to low income
• Child support
• Long-term care support

Question 3

What are the 3 main principles of insurance and pensions

Answer 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.

Question 4

What needs does a pension scheme meet?

Answer 4

• accumulate assets to provide income in retirement
• increase the income in real terms in order to maintain standard of living
• protect against financial impact of death of the member (before and after retirement)
• accumulate assets for other reasons (paying mortgage)