Chapter 2 - Serving the retail consumer

Question 1

What are the three types of spending and some examples?

Answer 1

Essential - housing costs, insurance, council tax, utilities.
Everyday - food, cleaning, travel.
Occasional/ Non essential - clothing, entertainment, birthdays.

Question 2

What are the two methods of interest repayment

Answer 2

Capital and interest repayment

Interest only

Question 3

What are the key features of the ‘vulnerable years’

Answer 3

Low income, need high protection and high emergency fund. 20-40, protection needs are highest.

Question 4

What are the key features of the ‘relaxed years’

Answer 4

Increased income protection, savings and pensions. Generally in 40’s.

Question 5

What are the key features of the ‘anxious years’

Answer 5

Children independent, mortgage paid off, protection now focuses on healthcare/ long-term care + IHT planning.

Question 6

Budgeting and Managing Debt Pneumonic

This is the priority for financial needs for a client.

Answer 6

PIPSI
Protection of Life
Income protection
Pensions
Savings and Investments

Question 7

Protection of Life - Level Term Assurance

Answer 7

• Fixed amount of cover
• Fixed term
• Fixed Premium

Question 8

Protection of Life - Decreasing Term Assurance

Answer 8

• Cover decreases over term
• Premium remains level

Usually taken out with Capital and Interest mortgage, at end of mortgage term you owe nothing.

Question 9

Protection of Life - Increasing Term Assurance

Answer 9

• Cover increases over the term
• Premiums may increase

Policy maintains value in line with inflation

Question 10

Protection of Life - Convertible Term Assurance

Answer 10

• Built in option to convert to either a whole of life policy or endowment policy.
Just an LTA, but can convert without supplying further medical evidence

Question 11

Protection of Life - Renewable Term Assurance

Answer 11

Option before expiration to renew.
• You have to renew for the same amount of sum assured as well as the same term.
No further medical evidence, premium will increase as older.

Question 12

Protection of Life - Family Income Benefit (FIB)

Answer 12

• No lump sum of money

Paid out in installments. Maintains money coming in.

TAX FREE

Question 13

Protection of Life - Whole of Life

Answer 13

• No fixed term
• Amount of cover is dependent on individual circumstances - Mortality rates, underwriting
• Guarantees to pay out benefits.
More expensive than term assurance.

Question 14

Protection of Life - Non-Profit Whole of Life

Answer 14

Guarantees a fixed amount no matter when you die, may accumulate a small surrender value.

Question 15

Protection of Life - With-Profit Whole of Life

Answer 15

• Set amount of cover
• Bonuses, reversionary (annual) and terminal (on death).
Guarantees to pay out, as well as any added reversionary bonuses.

Question 16

Protection of Life - Flexible Whole of Life

Answer 16

• Set amount of cover, policyholder chooses between a minimum and maximum level of life cover.
The policy grows as the number of units held in the policy accumulates.
Life cover and costs paid for by cancellation units.

Question 17

Income Protection - Expensive

PODULES

Answer 17

Permanent - Cannot be cancelled and claimed as many times.
Occupation - Risky job?
Deferred Periods - 4,13,26,52 or 104 weeks.
Underwriting - Strict, hobbies taken into account
Long Term - Up to retirement
Earnings - 50-60% of gross earnings, less state benefits
Single life - not joint

Question 18

Accident, Sickness and Unemployment

ASU

Answer 18

Same as income protection but cheaper. 
Annually renewable
Short term - Max benefit is 2 years.
Shorter deferred periods
Less underwriting
All occupations covered 
Single or Joint