Chapter 2 - Financial Protection Needs Flashcards
Fred is concerned about the effect being sick, would have on his ability to meet his ongoing monthly bills. To protect himself, he could consider.
Personal accident and sickness insurance
Which type of financial protection will typically only pay a lump-sum benefit
Critical illness cover
When an employer offers a group life insurance plan for employees, the scheme will usually provide a degree of free cover. This refers to the
Amount of insured benefit allowed without the need for medical underwriting
What does critical illness typically cover?
The policy will cover conditions that are generally considered to be life-threatening
When a new employee joins their employers private medical insurance scheme, typically they will benefit from
The employee a meeting, some or all of the cost
If a client needs to protect the long-term income in the event of ill health, what type of protection policy would be most suitable?
Income protection insurance
John dies, leaving in a state of £500,000. He left £200,000 to his civil partner, James , and the remainder to his nephew. How much inheritance tax if any is payable on Jones estate.
Nil
Patrick has a mortgage of £200,000, unsecured debts of £30,000 and a credit card debts of £15,000.
He also has a death in service benefits of £125,000. If Patrick has no other protection, what would be the minimum some assured an advisor would typically recommend
£120,000
Roger, who is considering affecting key person insurance for his top performing sales executive, should be aware that cover can only be taken out for what type of policies
Life assurance, critical illness, and income protection
Stuart works for an employer who provides death in service protection. Despite this, he is still insistent that he should arrange his own personal protection. In addition, what is the most likely reason for this?
He may move jobs
Define life insurance
Providing a lump sum on death of the life assured
Define income protection insurance
Providing a regular income when the insured is unable to work due to accidents or illness
Define critical illness cover
Providing a lump sum if the insured is diagnosed as suffering from one of the listed critical illness is
Define long-term care insurance
Providing cover towards the cost of long-term care due to old age or infirmary
Define payment protection insurance
Providing a regular income, like MPPI, to cover the loan or credit card, repayments, if the insured is unable to work due to illness, accident, redundancy, or unemployment.
Define personal accident and sickness insurance
Providing a lump sum or income benefits, if the insured suffers an accident or falls ill
Define accident, sickness and unemployment insurance
Providing a lump sum or income benefits, if the insured suffers an accident or able to work due to sickness, redundancy or unemployment
Define private medical insurance
Providing cover towards the cost of private medical treatment
Define health, cash plans
Providing a small lump sum benefits for a number of medical treatments or on a per day basis for hospital stay
What are the main areas of need protection?
Health, incapacity or accidents
Income, mortgage and other debt
Death
Assess protection
Business protection
What is usually the most appropriate insurance for a single person without dependence who is buying the first home
Income protection, as the person has no dependence, the most important cover is one to enable them to continue to make their mortgage payments
Why might a child be dependent on their parents long after age 21
Disability
How is the state managed after death tax wise?
If an individual dies within the states over the nil rate band which is up to £325,000, they can be an IHT bill of up to 40% of the access. Transfers between spouses are generally exempt from IHT and unused allowances can be transferred between them.
B.O.B dies, leaving a cash only a state of £500,000 to his son, he had made no lifetime gifts. What is the IHT payable
500,000 - 325,000 = 175,000
175,000 x 0.4 = IHT payable
£70,000
Briefly summarise the advantages and disadvantages of an employer provide benefits
Positives are the employer pays some or all of the cost and the employer may be able to negotiate better terms and cheaper premiums
The downside is that the benefit will cease if the employee leaves, and the employer may withdraw or reduce the benefits
Why is insurance against unemployment usually limited to the repayments on a mortgage or loan
Unemployment is very difficult to predict and the effects are even more difficult to quantify, so cover is usually limited to the extent of the loan. This is so that the underwriters can both assess and limit the risk.
Financial advisor is reviewing the clients portfolio protection needs. One of the main concerns were looking at the clients current assets verse the need for protection should be what
Are the clients current assets liquid as this will alter his protection recommendations?
Describe how potentially exempt transfers and chargeable lifetime transfers work
A lifetime gift into an absolute there or disabled trust is a potentially exempt transfer and so no tax is due immediately. Gifts into other trust types are known as chargeable lifetime. Transfers, inheritance tax is due at 20% on the amount of the gift which exceeds the available nill rate band
How is statutory sick pay tax?
Like regular income with income tax and national insurance
Following a divorce when wood splitting a policy be beneficial
When the health of one has it deteriorated since the policy has taken out
Do the courts have the power to vary the terms of any existing trust during a divorce?
Yes
What are the main protection products
Life assurance, income protection, critical illness, long-term care insurance, accident sickness and unemployment insurance, private medical insurance and health care plans
What are the main areas for protection
Health, income, debts(mortgages), death and assets & business
Describe what employee benefits are
Usually all it mostly paid for by employer and often doesn’t require much underwriting as part of a larger group policy. Must be considered when reviewing protection needs, fill in gaps the policies leave. Also be aware that the protection may cease if the client leaves the employment or the employer decides to cancel it
