Chapter 3 Flashcards
What is an UNDERWRITER?
An industry professional whose job it is to assess the risk a customer poses to the insurance company.
What are MORTALITY TABLES?
MORTALITY TABLES show us the average age at which people die. When a customer applies for a life insurance policy the underwriter uses mortality tables to predict whether they are likely to have to pay out on the policy.
What is LEVEL TERM INSURANCE?
LEVEL TERM INSURANCE pays out a lump sum if the insured party dies during the term of the policy.
What is INCREASING TERM INSURANCE?
Like the Level Term, INCREASING TERM INSURANCE also pays out a lump sum if the insured party dies during the term of the policy - however the amount increases every year - useful if you are worried about inflation or you fear your needs will be more costly in a few years’ time.
What is MORTGAGE PROTECTION INSURANCE (MPI)?
This is the most cost-effective solution to protecting a repayment mortgage. It is a form of DECREASING TERM INSURANCE. The sum insured starts at the level of the amount borrowed, and then reduces each year in line with the amount owed.
When might a FAMILY INCOME BENEFIT (FIB) policy be a suitable alternative to an increasing term insurance policy?
When affordability is an issue. Instead of paying a lump sum on death, an FIB policy pays out a tax-free income to replace the salary that the life insured would have provided for their family had they lived. The income is paid each year from the death of the life insured until the policy expires.
What is an EXECUTOR?
An EXECUTOR is the person responsible for paying any Inheritance Tax (IHT) due on an estate after its original owner dies.
What is a WHOLE OF LIFE policy?
A term insurance is only a temporary policy, but inheritance tax is due whenever a person dies, so a WHOLE OF LIFE policy is needed to provide permanent protection against the financial consequences of death and pays out a tax-free sum insured whenever the life insured dies.
Complete the following: IHT is charged at _____% on any amount over ____.
IHT is charged at 40% on any amount over £325,000.
Why would a whole of life policy be written under a TRUST?
To avoid having to pay any further IHT - having a policy under a TRUST means that the sum insured is not added to the estate.
What is INCOME PROTECTION INSURANCE?
An IPI policy pays out a regular tax-free monthly income when the insured becomes unable to work because of long-term illness or incapacity.
What is ASU?
ASU (ACCIDENT, SICKNESS & UNEMPLOYMENT COVER) is similar to IPI in that it will pay out if a customer is unable to work through illness. It will also pay out if a customer is made unemployed through no fault of their own. It may also pay out a small lump sum for accidents leading to the loss of sight or a limb.
What is the main difference between IPI and ASU?
IPI (INCOME PROTECTION INSURANCE) is a permanent insurance policy - once a customer is accepted, as long as they keep paying their premiums, they are covered for the term of their policy no matter how many claims they make.
ASU (ACCIDENT, SICKNESS & UNEMPLOYMENT COVER) is an annual policy - at the end of each year the customer has to reapply. This should not cause a problem so long as the customer is fit and healthy, but if they become ill they may find that the insurer will not renew their policy.
Also, whereas the maximum payout on an IPI policy is the length of its term, the maximum payout on an ASU policy is typically one or two years.
IPI - tax-free (individual) or taxed PAYE (group)
ASU - tax-free (individual) or taxed Benefits In Kind (group)
What are the four critical illnesses that all life insurers cover?
Heart attacks, strokes, coronary heart disease, certain types of cancer.
What is KEY PERSON INSURANCE?
A type of business protection insurance which protects the livelihood of a business against financial losses that might arise as a result of the death or illness of a key person in that business.
