Chapter 2 - Financial Protection Flashcards
Reason people ignore protection
Reliance on the state for support
Failure too forecast adverse events
Affordability
Trends effecting protection
Longevity and mortality - people living longer meaning state service isn’t as good
Employment - less job security and more people being self employed means workplace protection is less common.
Product design - design is limited
Target market
Under FCA rules when developing an insurance product you must develop and target market and there must be a need. You must consider
Type of clients
And who it’s is not for.
Family protection
Factors must be considered when looking at this
Are the under ideal employed or self employed
Are there savings
Current outgoings
Any state benefit entitlement
Protection in mortgage and debt
Establishing the level of cover needed in relation to the mortgage and any other debt. Covering either the monthly payments or the debt itself.
This can be done with life cover. This is a lump sum paid out on death. Either sole life or joint life.
Giles of life cover
Pay for funeral costs
Mortgages
IHT bills
Education
If a policy is written into trust then the proceeds are tax free.
Other types of insurance
Business protection
Key person insurance
Shareholder and partnership protection
State benefits
Universal credit
Job seekers allowance
Employment support
Maternity leave
Support on mortgage interest
Bereavement support payment
Income support
This is support when income is low and you cannot have more that 16k in savings and cannot be in full time education and support.
Employment and support allowance
This is for when due to health you cannot work full time and based off your contributions you can claim
Contribution based
Income related
Employment and support allowance
This is for when due to health you cannot work full time and based off your contributions you can claim
Contribution based
Income related
Statutory maternity pay
To be electable you must earn at least 123£ a week and have worked for 26 weeks.
If met you get 39 weeks
90% of salary for 6 weeks and then 172£ for next 33 weeks
Bearevment support payment
Partner dies after April 6 2017
Under SPA
Who partner paid 25 weeks of NIC
Higher rate = 3500 then 350
Lower 2500 then 100
Payment made for 21 months.
Life insurance types
Term
Whole of life
Either joint life first death or second death of sole life
Term insurance
Amount guaranteed over a fixed term, after this not insured anymore.
Increasing term
Amount insured goes up usually yearly at an agreeed percentage usually inline with inflation.
Renewable term insurance
This is where you can take out a further term policy with same rates and now new information when yours is expirering.
Convertible term
You can convert the policy to whole of life or an endowment policy.
Decreasing term
This is where the sum insured decreases over time usually inline with what the insurance is covering ie mortgage.
FIB family income benefit
This is a tax free regular income protection product. No fees and cgt.
Whole of life policy
Nonprofit - guaranteed amount and no growth/ reward form investment performance
With profit - these have an investment element that can grow and provide additions cover / benefit
Unit linked - you buy units to cover the cost of the premiums then some are sold to cover and the rest are invested.
Assignments
This is where a policy is assigned to another beneficiary
Paid up policy
This is where you cannot afford the policy anymore and then if there is a surrender value you can stop paying and be covered for a lower amount still.
Taxation is dependant of if it is qualifying or not
To qualify then
At least ten years
Payable at least annually
Premiums under 3,600 a year
Can’t be less than 75% of payout
DAMES
Death
Assignment
Maturity
Excess withdrawal
Surrender
Offshore bond
Benefits from grow roll up so no tax within the bond
CGT on life insurance
Gains made under are not subject to CGT unless it has been sold on the secondary market.
Income protection
Long term policy that pays regular income if you are no longer earning
They usually have a benefit limit to a % of the insured currant salary
Also have a delayed period where you must be unemployed for a certain amount of time.
There are benefits based if you can work again but in reduced amount due to the illness and capacity issues.
Toes of premiums
Reviewable - cheap but are reviewed and the older you are the more expensive.
Renewable - short term but can be extended
Guaranteed -
Taxiation of income protection
If taken out personally then it will be tax free if through an employer then it will be taxed.
Group income protection
Employers set up for employees if they are off for long time due to illness and sickness
Who should consider income protection
Self employed people -
People that have lifestyle reliant on income
CIC
Critical illness cover
Pages put regular income if you cannot work due to illness or injury
Care cost
People will have to pay the full amount is their capital is more than
23250 £
Less that 14250 completely free and in between charge varies. Local authority decides level.
State Assitance with care
Support in at a min but can receive 72 or 108 to help cover cost of addition disabilities paid weekly.
Paying for care
Assets are based off ownership ie 50% then only half the value is taken into account.
You cannot be forced to sell house but if that is the only means then sometimes legal action to push this may be taken.
Long term care insurance
Immediate care - taken out when care is needed ( pays income until death)
Pre-funded - purchased in advance and only used when care is needed. (Not currently availed in the uk)
Deprivation of assets
If a local authority believes you have given assets away purposely to get state funding for care then they will they may try and claim the care fees back.
Mental capacity act
In place since 2007
Covers 5 main points
Presumption of capacity
Individuals supported to make decisions
Unwise decisions
Best interests
Less restrictive
Office of the public guardian
Helps people stay in control of their health and assets
Court of protection
Helps people make decisions on financial and welfare matters
Court of protection deputy
These are people that can help manage assets for people if they want, you apply for one if you cannot do it yourself.
Equity release
This is where you release capital form your property. Can be done in two way
Life time mortgage or home reversion plan
Life time mortgage - loan secured against the property interest can be rolled up or payed dependant on choice and then when they die or sell the property the loan is payed by the beneficiaries.
Reversion plan - instead of interest being charged part of the property is sold or all of it is. This will be at less than current market value in a tax free lump sum. And then the owner remains a tennent paying no rent. Min age 55.
Equity release
This is where you release capital form your property. Can be done in two way
Life time mortgage or home reversion plan
Life time mortgage - loan secured against the property interest can be rolled up or payed dependant on choice and then when they die or sell the property the loan is payed by the beneficiaries.
Reversion plan - instead of interest being charged part of the property is sold or all of it is. This will be at less than current market value in a tax free lump sum. And then the owner remains a tennent paying no rent. Min age 55.
T&C
Training and competence - this is what advisors need to be able to give comprehensive advice.
This is needed for long term care advice.
PPI
Payment protection insurance - insurance that covers monthly payments if you cannot work or have illness.
PPI
Payment protection insurance - insurance that covers monthly payments if you cannot work or have illness.
Principles of estate planning
This is about the planning during life for the disposable of their assets after death
What needs to be considered
Own needs
Preferred beneficiaries
Tax situation
Trusts
Pension
Intestancy
I his is where you don’t have a will
Order of beneficiaries
Spouse - 322k + half of remainder
Children half of what’s left after spouse
Parents
Brothers or sisters
Life time gifts rates
0-3 100%
3-4 80%
4-5 60%
5-6 40%
6-7 20%
7+ 0%
Addition not chargeable gifts
3000£ per annum annual allowance
250£ indervidula gift per year to as many people as you like
Gifts out of disposable income - unlimited value but must be regular cannot impact standards of life.
Gifts for marriage 5000 from parents and 2500 for grandchildren
Education - unlimited providing its for education of a dependant relative.
Recommending protection you need
What their needs are
What the current situation is
Mention underwriting
Planning protection.
Have they covered their income
Capital needs met
Then decide is there a need. Is their a shortfall or liability they could be exposed to.
Key person insurance
Either done by
Multiple of salary or
Proportion of profits ( looks at salary number of years there profits and how long to replace
