Chapter 2 (3 marks): Protection Planning Needs Flashcards
One of the key principles for a valid life assurance contract is that there must be ‘insurable interest’.
What is this?
You can only insure someone if the loss of that person causes you some form of loss/disadvantage
For example, you cant insure against a stranger’s death
There are six situations where insurable interest is automatic (it doesn’t need to be proven):
What are they?
When insuring own life
When insuring spouse/civil partner
An employer insuring their employee
A mortgagee insuring a mortgagor
A creditor on a debtor
Between business partners
For any other situations, evidence must be provided at the point of application to prove insurable interest. However, sometimes Instead of being proven at the point of the application some insurers check once a claim is made (but this much less common)
For understanding
Summary of life assurance and IPI
Summary of Personal Accident & Sickness Cover (PAS) and Mortgage Payment Protection Insurance (MPPI)
Summary of Critical Illness Cover and Private Medical Insurance
Summary of Long Term Care Cover, Payment Protection Insurance (PPI), and Accident Sickness and Unemployment Cover (ASU)
QUESTION
What can courts do in relation to existing protection policies during divorce proceedings.
Courts can order policies to be assigned, transferred, or maintained depending on the family circumstances
Obvs a divorce or something similar to this will likely require the individual to review the adequacy of their protection
As life changes become more varied and complex, insurers have developed a range of features and options that the consumer can choose. For existing financial protection plans this could be:
Splitting a policy
Putting an existing policy in trust
Transferring a policy
Retaining or surrendering existing cover
Taking out fresh cover
Tell me about each:
Splitting a policy
Where the policy is split into two, for example after a couple divorces. Neither new policy would require underwriting
Putting an existing policy in trust
Where an existing policy is put into a separate legal trust, so ‘gifted away’. There could be tax implications for this.
Transferring a policy
A policy has two parties: Usually where the assured (policyholder) is changed to someone else. The life assured can also be changed but this is less common.
Retaining existing cover
There may be valid reasons for retaining a policy, such as beneficial terms or a cost-effective premium. Retaining a policy must always be the preferred route unless the policy is either clearly unsuitable, or expensive in the current market.
Surrendering existing cover:
Before surrendering any existing cover, the adviser must ensure that all the implications of surrender are explained to the individual(s) and that cover is maintained until the new contract goes ‘on risk’. (ie, there is no gap in cover)
Taking out fresh cover:
A new policy must be closely examined to ensure the cover is appropriate for the individual, and that there are few or no negative implications of surrendering existing cover for a new policy.
Financial protection support usually comes from 3 sources. What
-The state.
-Employer-sponsored benefits.
-Private provision.
How does the state provide financial protection?
The Department for Work and Pensions (DWP) provides a variety of state benefits to ensure individuals and their dependants are not ‘on the breadline’ if they are ill, disabled, or die. They are designed to provide a basic standard of living only
How do employer-sponsored benefits provide financial protection?
If an individual is an employee, they may benefit from some employer-sponsored benefits, such as:
- Income if they are off sick
- life cover through ‘death in service’
- critical illness cover
- pension income through a Registered Pension Scheme
- private medical insurance
The drawbacks to these benefits are linked to the individual’s employment, so may cease if they leave employment, whatever the reason.
