Chapter 9 - (6 exam questions) Other Financial Protection Insurance Policies

Question 1

What is Personal Accident and Sickness Cover (PAS) and what is it typically used for?

Can it be its own standalone policy?

How are the benefits paid?

Is there a deferred period and what is the max term of the policy (how long will benefits be payable for) ?

Answer 1

PAS gives the individual some protection against sickness and accidents.

Usually annual policies but can shorter periods such as to cover a holiday or business trip.

Cover is fixed so NOT related to earnings like it is with IPI

How are benefits paid: SEE IMAGE.

Summed up:

Regular fixed payments for a max of 2 years - if sickness or temporary disablement occurs. E.g, £250 a week

Lump sum - If significant injury or death occurs.

Medical Expenses - Covers up to a certain percentage of medical fees, for example 50%

There is normally a deferred period of 4 weeks

Benefits are normally payable for a max of 2 years (this contrasts with IPI)

NOTE: You can have group (employer) PAS

Question 2

How is Personal Accident and Sickness Cover (PAS) taxed?

Answer 2

individual policies: NO TAX ON BOTH PREMIUMS OR PROCEEDS

Individual policies where premiums are paid by the individual have no taxation applied to either premiums or proceeds.

Employer-sponsored group policies: PREMIUMS ARE TAXED, PROCEEDS ARNT

Premiums paid will be offset as a business expense against income or corporation tax by the employer

These premiums will be treated as a ‘benefit in kind’ for employees. Their taxable value will be added to the individual’s taxable income and will lead to a higher income tax liability.

NOTE: Benefits will be paid tax-free whether they originate from a personal or employer-sponsored policy.

Question 3

What are Benefits in Kind?

Answer 3

Benefits in kind (BIK) are non-cash perks or advantages provided by an employer to employees, which are subject to taxation

Question 4

Example of PAS in action

Answer 4

Question 5

What is Accident, Sickness and Unemployment Cover (ASU) and what is it typically used for?

To be eligible for the policy, how long must an individual have been working for?

Can the policy be withdrew by the provider and what is the notice period for this?

How are the benefits paid?

Is there a deferred period and what is the max term of the policy (how long will benefits be payable for)

Answer 5

This type of policy is a form of short-term income protection. It pays income to an individual if they are sick, disabled, or made redundant from their employment.

Eligibility: Be employed/self-employed and have been working minimum 16 hours a week for at-least last 6 months.

it is an annually reviewable policy

BENEFITS:
A weekly/monthly amount. Benefit amount is capped to a certain percentage of earnings like IPI

Benefits payable for a max of 2 years

Has a deferred period

Question 6

For Accident, Sickness and Unemployment Cover does an individual have to choose all 3 elements of protection?

Answer 6

Either accident and sickness or all three elements can be included in a policy, depending on the individual’s circumstances. If all 3 elements are included the policy will be more expensive

Question 7

How is ASU taxed?

Answer 7

Exact same as PAS….

individual policies: NO TAX ON BOTH PREMIUMS OR PROCEEDS

Individual policies where premiums are paid by the individual have no taxation applied to either premiums or proceeds. There is no tax relief on premiums.

Employer-sponsored group policies: PREMIUMS ARE TAXED, PROCEEDS/BENEFITS ARNT

Premiums paid will be offset as a business expense against income or corporation tax by the employer

These premiums will be treated as a ‘benefit in kind’ for employees. Therefore, their taxable value will be added to the individual’s taxable income and will lead to a higher income tax liability.

TO REITERATE: Benefits will be paid tax-free whether they originate from a personal or employer-sponsored policy.

Question 8

What is Mortgage payment protection insurance (MPPI)?

What is required to be eligible for this policy

How are the benefits paid

Are group policies available

How are benefits taxed?

NOTE: This policy is similar to ASU

Answer 8

Works similarly to ASU, but the benefit is linked to an individual’s mortgage and mortgage-related costs (council tax, utility bills etc) rather than income. Benefits payable if the individual is unable to work due to sickness, accident, or unemployment.

To be eligible: aged between 18-64, and employed or self-employed for a minimum 16 hours a week for 6 months

MPPI benefit is 125% of the mortgage and mortgage-related costs.

Payable for a maximum of 2 years

MPPI only offers individual policies, no group.

Benefits are tax free. Premiums are not taxable but no additional tax relief. Same as private PAS/ASU policies.

Question 9

context

Answer 9

Question 10

What is Payment protection insurance (PPI)?

How are benefits payable?

How is it taxed (same as ASU, PAS and MPPI)

Why are firms now only allowed to sell PPI until the later of seven days after the loan has been arranged or the date a personal illustration is provided?

Answer 10

Protects loan repayments if unable to work due to accident, sickness, unemployment, or if they die. Protection is solely for any loan repayments.

Benefits: Upon claim, the individuals loan payments will be paid by the insurer, usually for a max period of two years. If the insured dies the loan will be repaid in full

Tax: Premiums do not qualify for tax relief and any benefits are paid tax-free.

7 day rule = Introduced following PPI scandal

Question 11

SUMMARY OF PPI, MPPI, ASU & PAS

Answer 11

NOTE.

ALL BENEFITS PAID FROM ALL POLCIES ARE TAX FREE

NO PREMIUM TAX RELIEF ON ALL OF THE POLICIES

Question 12

Answer 12

Question 13

Question 14

What is Private Medical Insurance?

Who is it very useful for?

PMI is classed as an indemnity policy. What does this mean?

Are group policies possible?

There are 3 types of PMI policies. What are they?

How is PMI taxed? (It is the same as ASU, PAS, PPI & MPPI

Answer 14

PMI provides financial help with the costs of private medical treatment

Very useful for individuals such as the self-employed, who have little or no sickness cover and need to be treated and back at work as soon as possible, rather than subject to NHS waiting lists and delays.

It means that the insured can only claim up to the value of the costs of any private treatment given.

Both group and individual policies are possible

3 types of PMI policy are:
Basic
Mid-range
Comprehensive

TAX:

Premiums

individual policies premiums: NO TAX APPLIED TO BOTH PREMIUMS (but no tax relief) OR PROCEEDS

Employer-sponsored group policies premiums: PREMIUMS ARE TAXED as a benefit in kind

Premiums paid will be offset as a business expense against income or corporation tax by the employer
These premiums will be treated as a ‘benefit in kind’ for employees. Therefore, their taxable value will be added to the individual’s taxable income and will lead to a higher income tax liability.

Benefits - NO TAX for either group polices or individual polices
Benefits are paid tax-free direct to the care provider, whether they originate from an individual or employer-sponsored policy.
If applicable to the policy, any excess will be deducted from any payment made. This must be paid by the policyholder. (PMI often use excess)

Question 15

Medical conditions are usually split into 2 groups:

Short term and acute

Longer term and chronic

Whats the difference and what type of medical condition is PMI designed for?

Answer 15

Short term, acute conditions are of rapid onset, short duration and can be resolved fully, such as a broken leg

Longer-term, chronic conditions are long lasting and usually incurable, such as asthma or diabetes.

PMI is designed more for Short Term, Acute conditions

Question 16

The Association of British Insurers (ABI) introduced Statement of Best Practice for Sales of Individual and Group PMI

What 4 principles regarding PMI did this introduce?

Answer 16

Question 17

PMI policies will not cover the costs of experimental treatments, nor conditions resulting from the use of recreational drugs.

True or false

Answer 17

True

Question 18

The 3 types of PMI policy are:
Basic
Mid-range
Comprehensive

Tell me about each

Answer 18

Summary

Basic = Low cost. Upper limit of benefits. Only pays private medical costs with no other benefits

Mid range = Greater choice of hospitals etc. More types of costs are covered. Upper limit on benefits but higher than a basic policy

Comprehensive = Most choice, more benefits such as private ambulance

Question 19

How can PMI be arranged?

Answer 19

single policy
joint policy
single parent and dependent children policy
family policy

Question 20

How are PMI polices underwritten?

Answer 20

Private policies will be fully underwritten or accepted subject to a moratorium (Where no underwriting takes place at the application stage BUT pre-existing conditions suffered in the previous 5years will not be covered under the policy for the first 2 years - full underwriting is done at the point of claim.)

Employer policies - Employer-sponsored policies commonly offer reduced or no underwriting to their employees. Remember: it is known as ‘free cover’ if there is no underwriting involved.

For an individual with a poor medical history this can prove very useful.

Question 21

What is the issue with insurance polices being accepted on the basis of the insurer being provided with a moratorium?

Answer 21

This means that no underwriting takes place at application stage, but any pre-existing conditions suffered in the previous five years will not be covered under the policy for the first two years.

This can be bad because If an individual has an annual check-up for a previous condition this is enough to ensure this condition continues to be uncovered under a PMI policy so they may be less protected that they think

A moratorium can also mean that little or no underwriting is done at application, but full underwriting is done at the point of claim which can prove stressful AND the insured may find, at this late stage, the worst possible time, that they have little or no cover under their PMI policy

Question 22

How are PMI benefits paid?

Answer 22

PMI policies pay a benefit, direct to the treatment provider, which covers private care expenses for acute medical conditions, such as:

investigations, including diagnostic test
accommodation costs
costs of meals
costs of nursing care and MUCH MORE depending on the level of cover that you have

NOTE: Comprehensive plans can even cover costs such as:

private nursing
private ambulance use
cash payments for using NHS services (Comprehensive plans may PAY YOU CASH IF YOU HAVE TO USE NHS)

Question 23

For PMI, the policyholder must be a UK resident, and cover is not usually provided for treatment abroad.

Is international PMI available?

Answer 23

Treatment abroad could be covered by a policy such as travel insurance or a Global Health Insurance Card

International PMI policies are also available. These are similar to UK policies but offer a broader range of cover such as payments for GP services. Premiums are based on and affected by the country of residence.

Question 24

To PMI policies require excess?

What is an alternative to this?

Answer 24

PMI policies use excess.

This means that the first £x of treatment claimed in any policy year is paid by the individual, with the remainder paid by the insurer.

Excesses can vary from £50 through to £500 or higher, depending on the policy.

A co-payment is an alternative of this concept, where the policyholder pays a certain amount towards any treatment costs they incur. This is also known as ‘shared responsibility’.

Question 25

Some PMI policies also restrict the amount of care covered.

A classic example of this is physiotherapy treatment. Some policies will pay for a certain number of treatments per policy year. If any more are needed, these will need to be paid for by the policyholder.

Answer 25

EXAMPLE OF THIS:

Question 26

As PMI policies are renewed annually, any claim will lead to an increase in next year’s premium

True or false

Answer 26

True

Question 27

QUESTION ABOUT PMI

Answer 27

NOT C because PMI is reviewable annually

Question 28

PMI employer polices may include a continuation option. What is this?

Answer 28

This is where, on changing employers and jobs, the employee can continue the cover as a private/individual policy, rather than employer-sponsored and funded.

Question 29

What are Hospital Care Plans?

How is it taxed (same as all other mentioned policies)

Answer 29

They pay out a certain amount of cash for each night an individual spends in hospital

Annually renewable and pre-existing conditions will not be covered for an initial two-year period, and no claims can usually be made for the first six months of a policy.

NOTE: A very similar benefit is offered by comprehensive PMI plans. Do not confuse these two things. Hospital Care Plans is its own standalone insurance product

The benefit of this is that premiums are much lower than PMI as the cover is nowhere near as comprehensive. Employers often offer this alongside standard PMI plans, as comprehensive PMI (where a similar benefit is offered as standard) is very expensive

EXAMPLE OF BENEFITS: A cash sum such as £50 will be paid for each night spent in hospital. There may be annual cap for example £1000

Taxation: Premiums do not qualify for tax relief and any benefits are paid tax-free.

Question 30

What are Dental Plans?

What are they also known as?

Answer 30

They pay out a certain amount of cash towards dental treatment. It likely wont provide benefits equivalent to the full costs of the treatment…

They can also provide treatment for optical treatment

Polices are also known as ‘dental capitation schemes’

It is annually renewable

Premiums do not qualify for tax relief and any benefits are paid tax-free.

Question 31

What are dental capitation schemes.

Answer 31

Just another name for dental plans

Question 32

Summary of PMI and Dental plans/Hospital Care Plans

Answer 32

Question 33

Answer 33

Question 34

Kelly is taking out a PMI policy. She wants her policy to cover any experimental treatments, should she require them. The provider has…

accepted her proposal but with a much higher excess.

declined her proposal as this is too risky for them.

accepted her proposal with no benefit cap.

declined her proposal as this is outside ABI guidelines.

Answer 34

declined her proposal as this is too risky for them.

Each provider decides what their policies do and don’t cover. Association of British Insurers (ABI) guidelines are just that – guidelines. Kelly’s request will be declined by the provider as this poses too much risk for them at point of a claim.

Question 35

Chiyou has an employer-sponsored private medical insurance policy. How will any premiums paid by her employer be treated?

Premiums are a benefit in kind (BIK), but proceeds are paid tax-free.

Both premiums and proceeds will be a BIK.

Proceeds will be taxed but premiums will be paid tax-free.

Both premiums and proceeds will be tax-free

Answer 35

Premiums are a benefit in kind (BIK), but proceeds are paid tax-free.

As Chiyou’s employer pays these premiums on her behalf they will be classed as a benefit in kind (BIK) and Nicola will be liable to more income tax.

Question 36

David took out a loan with payment protection insurance. He has now been diagnosed with a long-term illness. He is concerned about his loan repayments because PPI only provides

short term cover.

cover if a specified illness is contracted.

cover on death, not illness.

medium-term cover.

Answer 36

short term cover.

PPI provides cover for loan repayments if the policyholder is ill or disabled for a maximum two-year period.

Question 37

Mohamed is covered for HIV/AIDS, because…

he works in a hospital and is covered only during his job.

he works in a hospital and is covered for during his job, and anyone he comes into contact with.

he is not covered for any blood transfusions in the UK.

he is covered for any blood transfusions in the UK and abroad.

Answer 37

he works in a hospital and is covered only during his job.

Members of the medical profession and emergency services can often have HIV/AIDS cover. This is only where they contract this as part of their occupation, not outside in other aspects of their lives.

Question 38

With regard to PMI, a moratorium is designed to…

avoid successful claims on pre-existing conditions.

avoid valid claims on the policy.

avoid successful claims in the first two years.

avoid valid claims in the first two years.

Answer 38

avoid successful claims on pre-existing conditions.

A moratorium on a PMI policy usually excludes cover for any pre-existing conditions suffered in the five years before the start of the policy, for the first two years the policy is in force. It is not designed to prevent valid claims (as this is illegal), just those on any pre-existing conditions.

Question 39

Clarissa earns £20,000 annually as a speech therapist. In her spare time, she enjoys playing the violin. She wants to take out a sickness policy that would also pay out a lump sum if she lost a finger. Which of the following policies would be MOST suitable?

Income protection insurance (IPI).

Mortgage payment protection insurance (MPPI).

Accident, sickness, and unemployment (ASU).

Personal accident and sickness (PAS).

Answer 39

Personal accident and sickness (PAS).

PAS policies can both pay out fixed levels of short-term sickness payments, and also a lump sum on loss of a limb. This would be the best policy to suit Clarissa’s needs. It also relatively cheap.

Question 40

What is a continuation option with regard to PMI policies for employees?

They can leave and continue benefits as an employer-sponsored policy.

They can extend cover up to a certain date.

They can leave and continue benefits as a private policy.

They can include index linking and other features.

Answer 40

They can leave and continue benefits as a private policy.

A continuation option allows employees to leave an employer and convert their PMI policy to a private policy.

Question 41

Jackie is your client. She is considering taking out a PAS policy. The weekly benefit cover will be…

a fixed sum agreed with Jackie.

a variable sum agreed with Jackie.

linked to Jackie’s earnings.

a set percentage of Jackie’s earnings.

Answer 41

a fixed sum agreed with Jackie.

Weekly/regular PAS policy benefits are expressed as a fixed amount. This should be agreed with Jackie in relation to her needs and budget.