Chapter 3- Life assurance products Flashcards
What are the main financial protection needs?
Health
income, mortgage, debt
event of death
asset protection
business protection
What State Benefits are offered by GOV
Unemployed/low earner= Universal Credit
Sickness/illness/low capacity= Statutory Sick Pay, Personal Independence Payment, Attendance Allowance
Raising a family= Child Benefit
Caring for others= Carers Allowance
Death= Bereavement Support Payment
What are employer benefits?
Sick pay income replacement
Life cover and CIC
access to pension arrangement
Private Medical Insurance (with benefit-in-kind benefit)
Which cover provides lump sum on death of the life insured?
Income Protection
Which cover provides lump sum if life insured is diagnosed as suffering from one of the illness mentioned in the policy?
Critical Illness Cover
Which cover provides lump sum OR income benefits if insured suffers an accident or falls ill?
Personal Accident Insurance
Which cover funds towards the private medical treatment?
Private Medical Insurance
Which cover provides income if insured suffers an accident or is unable to work due to sickness, redundancy and unemployment?
Accident, sickness and unemployment
Which cover provides income to cover mortgage or loan repayments if insured suffers an accident or is unable to work due to sickness, redundancy and unemployment?
PPI (discontinued)
What is a Whole of Life Assurance policy?
Long term policy which pays out on death
highest level of cover AND element of interest. Can be non-profit (fixed amount of life cover on death), with-profit (guaranteed to pay minimum amount of cover and amount increasing with annual bonuses)
What is surrender value?
Amount payable if policy holder decides to exit a flexible WOL policy
What is a flexible Whole of Life policy?
A mixture of life cover and investment AKA UNIT LINKED WOL plans
premiums buy units, policy value will depend on performance of the fund
cost averaging
What is a maximum cover plan?
Fixed premium for a set period
investment element
most expensive option over time
What is a standard cover?
Fixed premium over time
investment element
cost of cover rises over time but premiums stay same
What is a guaranteed cover?
Life in return for guaranteed level of premium
NO INVESTMENT ELEMENT
Most expensive option initially, NO CASH IN VALUE
What is a Term Assurance?
Pays out cash on death during the term of the policy
What type of Term Assurance is it if the sum assured is fixed throughout the term?
Level term assurance
What type of Term Assurance is it if the sum assured increases throughout the term on a fixed % or in line with RPI or National Average Earning Index (NAEI)
Increasing term assurance
What type of Term Assurance is it if the policy is written to age 100
Term 100
What type of Term Assurance is it sum assured falls each year to usually 0 by end of term
Decreasing Term Assurance
Example of Decreasing Term Assurance?
Mortgage Protection
GIFT- avoiding IHT liability on Potentially Exempt Transfers and CLTs
Family Income Benefits
what are Mortality tables?
What actuaries use to calculate premiums based on mortality rates e.g. number of people living at a specified age, dying at that specified age etc…
What risk class do customers fall into if the underwriter determined that they have a better than average risk and be offered lower rates?
Preferred
What risk class do customers fall into if they pay standard rate for meeting typical risk requirements?
Standard
What risk class do customers fall into if they have an above average risk and premiums are higher?
Rated
What risk class do customers fall into if underwriter postpones assessment temporarily and may require more info?
Postponed
What risk class do customers fall into if they pose an uninsurable risk
Declined
must wait 2 years to reapply to the same company
What is Terminal Illness Benefit (TIB)
Additional benefit added to a term or WOL policy
if life assured becomes terminally ill and life expectancy is less than 12 months= the sum assured is paid, once paid the policy ends
if life insured survives over expiry date of the policy-no refund is required
What are the QUALIFYING policies?
Qualifying policies are not taxable.
term= needs to be at least 10 years
frequency of premium= annually
level of premiums paid in 12 months= shouldn’t exceed:
- twice the value of premiums paid in 12 months
-1/8 of total premiums payable over contract
maximum premium p.a.= £3,600
sum assured= no less than 75% of premiums payable over term of contract
What are the NON-QUALIFYING policies?
Gains on non qualifying policies are subject to income tax
Corporate tax applies to investment returns at 20%. Basic rate income tax is treated as paid on gains realised by policyholder.
Basic rate=no further liability to tax
Higher rate= liable at 40%, can
deduct the basic rate tax that is treated as having
been paid, leaving them
with a further liability of 20%
Additional rate= liable at 45% with further liability of 25%
What is ‘Top Slicing Relief’?
Reducing rate of tax charged by applying a spreading mechanism
What is a claims departments responsibility
Pay claims as efficiently as possible and make sure claim is valid and amount goes to the right person
What is the claimant’s duty?
To prove the title and show documents required to prove ownership
executors/administrators of estate- will write to life office informing death and requesting amount payable (obtaining death certificate)
Who will get paid if policy is life of another policy?
Ownership of benefits will be with assured/policyholder
Who will get paid if policy is joint life 1st death?
Ownership of benefits will go to surviving life and policy will confirm title
Who will get paid if policy is own life or joint life 2nd death?
Appropriate Grant of Representation document is needed to prove who is acting on behalf of estate
What is a Grant of Probate?
If there is a valid will that named the individuals as executors
What is a Grant of Letters of administration?
If there is no will the official document is required
small estate- life office may agree to dispense with production of a grant, will require claimant to sign an INDEMNITY agreeing to repay amount in event of subsequent claim
Who is a Settlor in a Trust?
A person who creates a trust and transfers legal ownership of money/assets to Trustees
Who are the Trustees in a Trust?
Appointed by Settlor to look after assets. Must act in the best interests of beneficiaries. Trustees become legal owners of the asset
Who are the beneficiaries in a Trust?
People identified by settlor to benefit from the assets and can be categorised in the trust deed. Trust deed will show when and how they can access the assets.
What happens when placing insurance policy in Trust?
Most insurers offer their own trust wordings and forms to the clients legal advisers
Suitable trust working is included as part of insurers full application form OR instruct solicitor to prepare trust document
What can happen if Trustee breaches any duties?
Beneficiaries can sue them
What is an absolute/bare Trust?
A defined beneficiary is absolutely entitled to assets of the trust
e.g. a child able to own the assets once they reach 18 years of age
What is an interest in possession Trust?
Requires Trustees to pay all income from the trust to a beneficiary (life tenant) for their lifetime or specified period.
Separate beneficiary (remainderman) will be entitled to capital of the trust on the life tenants death
What is a Discretionary Trust?
Settlor give Trustee discretion over who trust fund pass to and where. Provides flexibility over decision as to who is to benefit & when. Settlor sets out class of beneficiaries from which trustees choose
PROVIDES HIGHEST LEVEL OF ASSET PROTECTION
What is a ‘Letter of Wishes’?
Settlor providing guidance to Trustees about their wishes after their death
What are the advantages of using trusts with life policies?
can:
-speed up distribution of money to beneficiaries on death
-build up a fund that is FREE OF IHT
-provides flexibility over who receives money from trust.
