Chapter 2 - Protection needs

Question 1

What are the main types of protection cover?

Answer 1

Life Assurance
Income Protection (PHI)
Critical Illness (CIC)
Long Term Care Insurance
Mortgage Payment Protection Insurance (MPPI)
Payment Protection Insurance (PPI)
Personal Accident and Sickness (PAS)
Accident sickness and unemployment (ASU)
Private Medical Insurance (PMI)
Health cash plans

Question 2

What policies could you use to cover illness, incapacity or accident?

Answer 2

Income Protection
Critical Illness
Personal Accident and Sickness
Accident sickness and unemployment 
Private Medical Insurance

Question 3

What policies could you use to cover income, mortgage or death?

Answer 3

Life Assurance
Income Protection
Critical Illness
Mortgage Payment Protection Insurance
Personal Accident and Sickness
Accident sickness and unemployment

Question 4

What policies could you use to cover death?

Answer 4

Life Assurance

Question 5

What policies could you use to cover asset protection?

Answer 5

Life Assurance

Question 6

What policies could you use to cover business protection?

Answer 6

Life Assurance
Income Protection
Critical Illness

Question 7

What are the benefits of splitting protection policies on divorce?

Answer 7

No need to be underwritten again
As the client is older the premiums will be cheaper
There could have been changes to the clients health

Question 8

Why must existing assets and policies be considered before putting any new protection policies in force?

Answer 8

Saves insuring a need that might not need insuring due to existing policies or substantial assets

Question 9

Its important to remember with regard to the effect of divorce on protection policies that;

Answer 9

it will have no impact unless ordered by a court

Question 10

What is the rate of IHT?

Answer 10

40%

Question 11

What is the current Nil Rate Band (NRB)?

Answer 11

£325,000

Question 12

What IHT is due on the current estate if the individual is single, has made no previous gifts and dies leaving an estate of £815,000?

Answer 12

£196,000

£815,000 - £325,000 x 40% = £196,000

Question 13

A Potentially Exempt Transfer (PET) is?

Answer 13

A lifetime gift from one person to another or a gift into a Bare/Absolute Trust

Question 14

A Chargeable Lifetime Transfer (CLT) is?

Answer 14

A gift into trust (excluding Bare/Absolute Trust)

Question 15

The main difference between a PET and CLT is?

Answer 15

There is an immediate IHT charge of 20% on any CLTs made in excess of the available NRB

Question 16

The main type of business insurance is?

Answer 16

Key Person Insurance

Question 17

A disadvantage of employer provided protection cover is?

Answer 17

Its very likely this will cease if the employee leaves

Question 18

What rate of tax is applied on Chargeable Lifetime Transfers made in excess of the NRB?

Answer 18

20%

Question 19

How long does a donor need to survive after making a gift for it to have no IHT implications?

Answer 19

7 years

Question 20

What would be the impact of a failed PET?

Answer 20

It would fall back into the estate and use up that element of the NRB.

If the PET is in excess of the NRB the amount above the NRB will attract IHT at 40%

Question 21

Who is responsible for paying any IHT due?

Answer 21

The executors of the estate