Chapter 4- Life Assurance Flashcards
Does Whole of Life usually have a surrender value?
No
What is Unit-linked Whole of Life?
A mix of life assurance and investment
How does Unit-linked Whole of Life work?
The level of cover determines the scope for value growth.
Premiums are set on an assumed investment return, allocated as units which are cancelled each month to pay for the life cover.
How often are Unit-linked Whole of Life policies usually reviewed?
Every 10 years
What is the difference between a Max Cover and a Standard cover Unit-linked Whole of Life policy?
- Max cover have set premiums for 5-10 years then increase with age
- Standard cover set the premium so it needn’t increase if the investment performs as expected
What is an Assurance Bond?
An insurance contract designed specifically for investment
How are Bonds usually written?
Single premium, non-qualifying, Whole of Life contracts with no specific maturity date.
What are the 3 different types of Bond?
Standard Unit-linked/With-profits
Guaranteed income
Guaranteed growth
What is a term 100 term assurance policy?
It is written to age 100
How does a return of premium term insurance work?
It is effectively an endowment equal to the premium value to return value of premiums on maturity if still alive at end of policy or pays out on death.
What is Family Income Benefit?
Term assurance where sum assured is expressed as £X payable from death yearly until Y.
What are the conditions that need to be met for a relevant life policy?
- Capital sum payable on death of a person below age 75
- No surrender value
- No sums or benefits paid except those prescribed
- Sum payable to/for an individual or charity
What are Multiplans also known as?
Menu plans or universal life plans
What are Multiplans?
Usually combine different types of cover, offering lower charges, less overlap and more flexibility
What are the main potential reasons for needing life cover?
- Mortgage/loans
- Income for surviving spouse
- Cost of children/school/uni fees/young adult kids
- Funeral costs
- IHT
- Business liability
What needs to be assessed to determine the amount of cover needed?
- Who needs to be insured? Joint, single, business.
- How much cover is needed, taking existing cover into account
- Term of cover
- Type of benefit needed
- Who should receive the benefits.
- Should policy be in trust?
Capital vs income needs
Short and long term needs
What are the 3 ways to increase insurance levels to keep up with inflation and earnings increases?
- Index linking (RPI or AWE)
- Guaranteed insurability option where sum can be increased at certain life events
- Regularly review the clients need for cover
What is the natural premium?
Uses mortality tables to determine mortality rate at any given age.
Why are natural premiums not very successful?
Cost of cover. Increases steeply later in life when needed most.
How do level premiums work?
Higher premium, creating an excess at the start creates a reserve based on calculations on groups of policies of similar age, sum assured and divide by number in group for single premium
What is the pattern for the level of reserve created with a level premium system?
For the group it increases at start, peaks and then steadily falls to nil when the last life dies
How do life offices gain interest on premiums?
They invest Invest them
What are the major loadings on a life policy?
Cover costs and expenses
Commission
Safety margin
Profit margin
What is frequency loading
Added to premiums paid monthly as there is less to invest, charge slightly more to make up for the annual premium not being all paid at once.
What are the advantages of putting life assurance in a trust?
- You do not need to wait for probate
- It may not be subject to IHT
- Ensures benefits are distributed according to wishes
- Protection against creditors in the event of bankruptcy
Which type of trust is most commonly used for life assurance?
Discretionary Trust as you can decide who should benefit without restriction
What evidence may be required for underwriting?
GP report Paramedical Medical examination Additional health questionnaire Health screening
Which act sets out the rules regarding non disclosure?
Consumer Insurance (Disclosure and Representations) Act 2012
Under what circumstances of non disclosure can an insurer void a contract for non disclosure?
Where there has been deliberate or reckless behaviour.
If an agent fails to disclose, and they’re an agent of the insurer can the insurer void the contract?
No
What is Terminal Illness Benefit?
Often added to Whole Of Life and accelerated sum is paid upon diagnosis of advanced or rapidly progressing incurable and disabling terminal illness at which point the policy ceases (Less than 12 months life expec.)
What is an assignment?
Transfer of ownership from one person to another
Which act regulates assignment of life policies?
Policies of Assurance Act 1876
What is needed for an assignee to claim on the assigned policy in their own name?
Production of policy document and deed of assignment
What does section 3 of the policies of assurance act state in relation to notice?
Priority of notice regulates priority of claim
What is the effect of assignment?
The assignee can surrender, alter or continue the policy and raise a loan on its security
What are the usual conditions for a claim to be made?
- Payment of all due premiums
- Production of the policy
- Proof of title
- Proof of death
- Proof of age on a death claim
If a policy matures in trust what is needed to release the benefit?
All trustee must sign the discharge. If any trustees have died, death certificates must be produced.
Can a copy of a death certificate be used to prove death?
No must be original
How long must someone have disappeared for before presumption of death is made?
7 years
If both owners of a joint life policy die in the same incident if they can’t tell who died first, how do they decide who died first for title purposes?
The law of property act 1925 provides that they sill be presumed to have died in order of seniority (age - oldest first).
What is needed if policies are lost?
Execute a Statutory Declaration setting out the circumstances of loss and stating that the policy has not been assigned or charged
What is a characteristic of Guaranteed cover Unit-linked Whole of Life?
No investment
Poss. Surrender Value
Guaranteed level of cover (small sum assured)
Guaranteed Premiums
