Chapter 2 - Financial Protection Needs

Question 1

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.

Answer 1

Personal accident and sickness insurance

Question 2

Which type of financial protection will typically only pay a lump-sum benefit

Answer 2

Critical illness cover

Question 3

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

Answer 3

Amount of insured benefit allowed without the need for medical underwriting

Question 4

What does critical illness typically cover?

Answer 4

The policy will cover conditions that are generally considered to be life-threatening

Question 5

When a new employee joins their employers private medical insurance scheme, typically they will benefit from

Answer 5

The employee a meeting, some or all of the cost

Question 6

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?

Answer 6

Income protection insurance

Question 7

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.

Answer 7

Nil

Question 8

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

Answer 8

£120,000

Question 9

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

Answer 9

Life assurance, critical illness, and income protection

Question 10

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?

Answer 10

He may move jobs

Question 11

Define life insurance

Answer 11

Providing a lump sum on death of the life assured

Question 12

Define income protection insurance

Answer 12

Providing a regular income when the insured is unable to work due to accidents or illness

Question 13

Define critical illness cover

Answer 13

Providing a lump sum if the insured is diagnosed as suffering from one of the listed critical illness is

Question 14

Define long-term care insurance

Answer 14

Providing cover towards the cost of long-term care due to old age or infirmary

Question 15

Define payment protection insurance

Answer 15

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.

Question 16

Define personal accident and sickness insurance

Answer 16

Providing a lump sum or income benefits, if the insured suffers an accident or falls ill

Question 17

Define accident, sickness and unemployment insurance

Answer 17

Providing a lump sum or income benefits, if the insured suffers an accident or able to work due to sickness, redundancy or unemployment

Question 18

Define private medical insurance

Answer 18

Providing cover towards the cost of private medical treatment

Question 19

Define health, cash plans

Answer 19

Providing a small lump sum benefits for a number of medical treatments or on a per day basis for hospital stay

Question 20

What are the main areas of need protection?

Answer 20

Health, incapacity or accidents

Income, mortgage and other debt

Death

Assess protection

Business protection

Question 21

What is usually the most appropriate insurance for a single person without dependence who is buying the first home

Answer 21

Income protection, as the person has no dependence, the most important cover is one to enable them to continue to make their mortgage payments

Question 22

Why might a child be dependent on their parents long after age 21

Answer 22

Disability

Question 23

How is the state managed after death tax wise?

Answer 23

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.

Question 24

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

Answer 24

500,000 - 325,000 = 175,000

175,000 x 0.4 = IHT payable

£70,000

Question 25

Briefly summarise the advantages and disadvantages of an employer provide benefits

Answer 25

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

Question 26

Why is insurance against unemployment usually limited to the repayments on a mortgage or loan

Answer 26

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.

Question 27

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

Answer 27

Are the clients current assets liquid as this will alter his protection recommendations?

Question 28

Describe how potentially exempt transfers and chargeable lifetime transfers work

Answer 28

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

Question 29

How is statutory sick pay tax?

Answer 29

Like regular income with income tax and national insurance

Question 30

Following a divorce when wood splitting a policy be beneficial

Answer 30

When the health of one has it deteriorated since the policy has taken out

Question 31

Do the courts have the power to vary the terms of any existing trust during a divorce?

Answer 31

Yes

Question 32

What are the main protection products

Answer 32

Life assurance, income protection, critical illness, long-term care insurance, accident sickness and unemployment insurance, private medical insurance and health care plans

Question 33

What are the main areas for protection

Answer 33

Health, income, debts(mortgages), death and assets & business

Question 34

Describe what employee benefits are

Answer 34

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