FCRE Structure of Fin Mkts Flashcards
Pass Exam
1
Q
Role of Bank of England
A
Issuer of Bank Notes Banker to Government Banker to Banks Adviser to Government Foreign Exchange - manages Gold Reserves and Foreign Currency Lender of last resort
2
Q
Classification of Financial Markets
A
Maturity or term of borrowing and lending, overnight to long-term Retail and Wholesale business Secured and unsecured business Primary and Secondary business Domestic currency or foreign currency
3
Q
Maturity or term of borrowing and lending
A
Short-term borrowing - overnight Repo lending surplus funds Interbank Bonds Repo
4
Q
Primary Market
A
Raises new capital - new issues section of stockmarket
5
Q
Secondary Market
A
Existing securities are traded after isse
6
Q
Repo markets
A
Sale and Repurchase Agreement
Mostly based on gilts
Like a temporary loan secured by an asset
Borrower puts up security to secure loan
Legal ownership of asset is transferred to lender
Cash is paid to lender to release security(s)
Rate charged depends on rating of the security
7
Q
Interbank Market
A
Unsecured market, banks and large financial institutions borrow and lend wholesale for short periods, overnight to 6 months
Liability management - banks first attract borrowers and then find the money, interbank market is quick source of funds
London interbank offered rate (LIBOR) - interest rate compiled from data submitted by banks based on transactions undertaken.
8
Q
LIBOR
A
Reference rate for most corporate lending
Corporate borrowers pay LIBOR + margin
Rates fixed daily
Vary from overnight to 1 year
$300 trillion affected by these rates around the world
Rate given to financial institution is based on their credit rating.
9
Q
Treasury Bills
A
Government use to raise funds
Short term redeemable securities issued by UK Debt Management Office.
Effectively a short-term gilt.
Issued for less than 1 year, most often 91 days (3 months)
Do not pay interest - zero coupon
Activiely traded in secondary market
10
Q
Certificates of Deposit
A
Negotiable time deposit issued by deposit-taking institutions e.g. banks
Like a savings account but with severe penalties for early withdrawal
Denominated in any currency
Rate fixed for the term
High minimum investment £10,000 to £100,000
Can be traded in money markets
11
Q
Commercial Paper Market
A
Primary and Secondary wholesale market
Brings together large companies that need to borrow or lend short-term loans.
Amounts very large
Most purchasers are Pension Funds, Insurance Companies or large private investors.
“commercial paper” is used for securities issued by companies for up to 1 year
Medium-term notes 1-5 years
Called bonds when > 5 years
Unsecured promissory note
Most commercial paper has maturity of 5 - 45 days
12
Q
Bond Market
A
Collective term for gilts and similar instruments for terms > 5 years.
Government provide continuous flow to cover deficits
Coupon fixed
rates depend on price paid in market
Face value paid on redemption
13
Q
Corporate Bonds
A
Issued by Companies to finance long-term projects
Bonds from 5 - 30 years - most at shorter end
Only large companies with good credit rating are able to issue
New Issues taken up by investors in Primary market then traded in secondary market
Cost of issue is high
Price of Bond determined by credit rating
14
Q
Equity Market
A
Shares in the company
Issued first in Primary Market
No requirement for company to buy-back shares
15
Q
Equity Market New Shares Offered
A
Prospectus issue
Private Placement
Rights issue
16
Q
Prospectus issue
A
shares offered to general public through investment bank
Prospectus gives information on company and shares being offered
Bank administers share applications
Bank may underwrite the issue - it will buy any unsold shares
17
Q
Private Placement
A
new shares placed with institutional investors, investment companies, insurance companies, pension funds etc
Private placement memorandum as opposed to prospectus to general public.
18
Q
Rights issue
A
Done by existing companies wishing to increase capital
New shares offered in proportion to existing sharegolding
Example - one new share for every three held
19
Q
The London Stock Exchange
A
Main market in uk for trading securities Comprises Primary and Secondary Markets Over 400 members 3,000 companies from over 70 countries Offical listing implies company believed to be reputable
20
Q
Stock Broking Services
A
Agency Brokers
Marketmakers
Broker-dealers
21
Q
Agency Brokers
A
Act as client agent
Arranges deals by taking orders and contacting market-maker
22
Q
Marketmaker
A
Hold stock in own name
make profits by correctly anticipating price movements
buying and selling shares accordingly
23
Q
Broker-dealers
A
Purchase shares from clients and sell in market
Can act as agency broker and market-maker
24
Q
Foreign Exchange Markets
A
International trade in goods
international trade in services
Short-term investment
Long-term investment
25
International trade in goods
Companies purchase raw materials, components and finished goods
26
International Trade in Services
companies buy finanical services from banks and insurance companies
send goods on foreign ships
Individuals travel to other countries and need currencies
27
Short-term investment FOREX
company with surplus can deposit money in account or purchase secutities in other countries in foreign currency to earn return
28
Long-term investment
individuals and companies buy shares and make longer term loans to borrowers in other countries
Business may open outlet in another country and will need currency
29
Two opposing groups and compromise needed?
Buyers and sellers
| Compromise - price
30
Purpose of equity markets - company perspective
Issue new shares to raise capital
Rights issue to raise capital
Issue bonds to finance long-term projects
31
Objectives of government economic policy
Price Stability - control inflation
Low unemployment - expand the economy to provide jobs
Balance of payments - balance of payments between imports and exports.
Avoid large deficits and surpluses - equilibrium
Economic growth
32
Fiscal Policy
influence economic activity by spending, taxation and borrowing
local government major spending factor
public services
Borrowing - Public Sector Net Cash Requirement (PSNCR)
Stimulate economy by cutting taxes and increasing public spending
33
Balance of Payments
Calculated in Sterling
Money coming in - credit
Money going out - debit
Current account records visible and invisible trade
Deficits occur when country spends more foreign currency to buy goods than it receives for exports
Foreign currency reserves to cover gap - savings
34
Managing Deficits
Increasing interest rates to encourage overseas investment
imposing tariffs and import quotas making imports expensive
Impose exchange controls - government interferes with free currency by pegging to another currency
35
Capital Account
looks at capital transfers
36
Monetary Policy
Actions by government that affects supply and price of money
Action mainly interest rate policy
Monetary Policy Committee (MPC) - sets interest rates
Target inflation rate 2%
Interest rates changed by changing 14-day gilt repos
37
Quantitive Easing (QE)
Increase money supply to stimulate economy
BOE buys back assets from private sector, banks, insurance companies and pension funds - usually bonds (Gilts).
New money created to buy the assets by sending electronic credits
38
How QE affects economy
Buying assets increases the price - reduce gilt yield so investors seek alternative investments to increase yield
Effect of overall reduces interest rates leading to lower borrowing costs.
Boost business investment and individual spending
When bank buys corporate bonds, capital markets improve making it easier to raise money
New Money going into financial institutions giving more money to lend.
39
Inflation
money price of goods and services rising
peoples incomes rising
money supply rising
40
Disinflation
Falling inflation
Prices still rise, but not by as much
E.G Inflation falls from 3% to 2%
41
Deflation
Sustained price falls across whole economy
| Falls in output and demand
42
Nominal Interest Rates
Rate actually paid - say £3 paid in savings account for every £100.
Inflation not included
43
Real Interest Rates
Nominal rate discounted by inflation rate
| [(1 + Nominal Interest Rate)/ (1 + Inflation Rate)] -1
44
Money Supply
Linked to inflation and interest rates
Amount of money in circulation related to value of transactions in goods and
Money supply exceeds real value of goods and service - inflation ensues - higher prices of goods
45
Money - M0
Narrow money
| Measures Cash Base, notes coins in circulation and operational balances of banks
46
M4
Broad Money
| Measures banks and building society deposits, and new money created by loans and overdrafts
47
Exchange Rates
Price of one curreny against another
Rise in relative rate - strengething
Fall in relative rate - weakening
48
Rise in value of pound against euro
Exporters - goods will be more expensive in euro zone
Reduced sales
Importers - cost of imported goods cost less
Cost of materials will be less in UK
49
Financial Services Regulation
Level 1 - European legislation - regulations and directives
Level 2 - Acts of Parliament - Statutory Instruments
Financial Services Act 200, Bank Act 1987, Building Societies Act 1997
Level 3 - bodies that issue rules and monitor - Prudential Regulation Authority (PRA), Financial Policy Committee (FPC), Financial Conduct Authority (FCO)
Level 4 - Policies and Practices of financial institutions themselves
Level 5 - Arbitration Schemes, Financial Ombudsman Service.
50
Impact of EU on UK Regulation
Free internal market
Treaty of Rome - customs union - 6 founder members of European Economic Community (EEC)
Judgement of European Court 1979 - principal of member states
Article 12 of EC treaty - prohibits discimination on grounds of nationality
51
Single European Act 1987
```
Four main freedoms
Freedom of movement of people
Freedom of movement of goods
Freedom of movement of capital
Freedom to provide services in other states
```
52
Banking Regulation 2012 Summit
Banking Union cross-eurozone to separate financial-sector risks from sovereign debt troubles
Main Elements
Single Supervisory system through European bank Regulator
Responsibility for Regulator rests with European Central Bank
Establishment of European Deposit insurance and Resolution Authority
Began Operating in November 2014
53
Single Supervisory System (SSM)
Main Objectives
Ensure Safety and Soundness of European Banking System
Increase financial Integration and Stability
Consistent Supervision
54
What are two main functions of Government in Financial Markets/
Control Money Supply
| Control Inflation
55
What are main objectives of modern government?
Price stability
Low-unemployment
Balance of payments equilibrium
Economic Growth
56
Three Components of Fiscal Policy?
Spending
Taxation
Borrowing
57
Key Component of Monetary Policy
Interest rate management
58
MPC Inflation Target?
2%
59
Difference between Disinflation and Deflation
Disinflation - reducing inflation, e.g 3% to 2%
| Deflation - sustained period of falling prices
60
Five Tiers of Regulatory System
1st - European legislation and directives
2nd - Acts of Parliament
3rd - regulatory bodies, PRA, FPC, FCA
4th - Policies and Practices of financial institutions
5th - Arbitration - FOS
61
Intermediation
Surplus sector - individuals and companies that are cash-rich - own more liquid funds than they currently need
Deficit Sector - individuals and companies where spending exceeds their liquid funds.
Financial Institution borrows money from surplus sector and lends to deficit sector and makes a margin of profit.
62
Disintermediation
Process of lenders and borrowers, investors and organisations interact directly rather than through an intermediary.
Example company issues shares to raise funds to public
Example peer to peer lending
63
Reasons for Intermediation
Geographic location - matching surplus and deficit across the nation
Aggregation - building larger sums from smaller deposits
Maturity Transformation - matching loan term requirements against varying deposit durations
Risk Transformation - Intermediaries enable lenders to spread risk of defaults
64
Product Sales Intermediaries
Bringing together product providers with potential customers
65
Proprietary and Mutual Organisations
Proprietary - owned by shareholders
Mutual Organisations - do not have shareholders - building societies and friendly societies.
Building Societies members are depositors and borrowers.
Building Society Act 1986 - allows them to de-mutualise
Credit Unions - financial cooperatives.
66
independent Commission on Banking
Established 2010
Considers structural and non-structural reforms to UK banking sector.
Key Recommendations
UK-Retail ring-fencing - depositors money kept separate from wholesale arms
Capital - largest banks to hold equity equivalent to 10% of risk-weighted assets (RWAs). Also hold capital equivalent to 7% to 10% of RWAs in form of primary loss-absorbing capital.
67
independent Commission on Banking cont
Bail-in and depositor preference - opposite of bail-out
Bank's creditors, bondholders are first to lose some or all money to rescue the bank
Competition - improved processes to switch accounts between banks - create opportunities for non-uk banks to compete
Structural Reform - Separate retail banking from wholesale banking functions.
68
Money Transmission and Clearing
ATMs
Telephone Banking
Payment of Bills etc
69
Clearing
Heart of money transactions
Settling of transfers between banks cheques, direct debits, debit cards
Cheques cleared in 23.59 hours
Coordinated by UK Payments Administration - association of banks and building societies
70
Which two groups linked to financial intermediation
Those with surplus and those needing immediate cash
71
How do Credit Unions Operate?
They are usually run for benefit if the members, maybe members of a church, or local club
72
Difference between retail and wholesale banking
Main distinction is wholesale is raising and lending money through the wholesale money market
Retail is mostly deposits of individuals and businesses
73
What level of funding can Building Society Raise on Wholesale market
Up to 50% of their liabilities.
| Treasury can allow up to 75%
74
Industry Obligations to Customers - definitions
Eligible Counterparty - lowest level of investor protection. Includes large financial institutions, banks, insurance companies, investment firms, collective investment funds and governments
Professional Client - includes all bodies that would otherwise be eligable counterparties, but require higher level of service, such as advice.
Retail Client - highest level of investor protection - customers who do not fall into previous two categories
75
FCA Obligation Rules to Customers
```
Act in Best interests of customer
Look after customers assets responsibly
Do not abuse customer trust
Deal in open and honest manner
When things go wrong, investigate and put right promptly, if firm was at fault
Do all you can to make sure customers understand the products and services
Explain fully costs and charges
Be sypathetic when problems occur.
```
76
Money Advice Service (MAS)
Created 2010
Objective 1 - to enhance understanding and knowledge of members of the publin of financial matters
Objective 2 - to enhance the ability of members of the public to manage their own affairs.
77
Pensions Freedom October 2016
Pension Wise, your money, your choice
Pensions Advisory Service - gives free support to aid public, does not give advice on specific course
Being replaced
78
Differing Levels of Advice and Recommendations
Guidance divides sales into two camps
1. without personal recommendation - execution only
2. with advice and personal recommendation
79
Appropriateness test for complex products
Futures, contract for differences, structured products and units in unregulated collective investments. Any investment that cannot be sold frequently.
80
Regulated Advice
When adviser or firm:
Provides advice to investor, or someone acting on their behalf
Advice relates to a specific investment
Relates to merit of investor buying, selling or to an investment (a recommendation)
Advice that does not include these elements is Generic
81
Example Generic Advice
Advise customer to consider buying shares in telecoms sector is not regulated - no specific comapny share
Advising customer to invest in cash rather than shares is not regulated, no specific product
General Financial Planning is not regulated - no specific investment
Providing factual information about a specific product is not regulated unless selected
82
Example Regulated Advice
Advising to buy BT Shares - specific product
83
Regulated Advice Three levels
Focused Advice
Simplified Advice
Basic Advice
84
Focused Advice
Provides advice in limited area or type of product - at the customers request
Customer determines the scope of advice
Adviser must meet requirements of retail investment adviser, be an approved person, and subject to FCA training
85
Simplified Advice
Not separatefly defines in FCA Handbook
firm sets out limited nature of its service, advice focuses on specific area of need and does not take into account of other information.
For those who:
Already met their priority needs - debt reduction, liquid cash and core protection.
Have disposable income, or capital to invest
Do not want holistic assessment
86
Simplified Advice Key Elements
There must be a recommendation
The recommendation must be presented as suitable for the person and circumstances
The recommendation must relate to a specific investment
87
Basic Advice
Not separately defined in FCA Handbook
Offering Stakeholder Products
Pre-scripted questions to assess suitability
88
Amending Definition of Advice - from Jan 2018
Mirror MIFID
Advice is a personal recommendation, to an investor, or someone acting as agent of investor
The recommendation suitable for that person, or based on consideration of circumstances and must be recommendation to
- buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular product
- exercise, or not any right conferred by particular financial instrument to buy, sell, subscibe for, exchange, or redeem a financial instrument
A recommendation is not personal if issued exclusively through a distribution channel or to the Public
89
Customer Types and Needs
```
Personal Customers
Vulnerable Customers
Business Customers
Sole Traders - Partnerships - Ltd Liability Partnerships -
Ltd Companies
Trustees
```
90
Personal Customers
Life-cycle dependent advice
| Experienced or not experienced in Finance
91
Vulnerable Customers
recommend only understandable customers
choose method of communication
give time for understanding
Commonsense
92
Sole Traders
```
Business Banking
Loans and Mortgages
Business Protection
Pensions for Employees
Personal Needs
```
93
Partnerships
Two or more self-employed people working together
Jointly a severally responsible for debts
Borrowing is on personal basis
94
Limited Liability Partnerships
Do not have personal liability for LLP debts
Business Banking
Business loans and Mortgages
Business insurance - to protect premises, lost business
Pensions for Employees
Partnership and loan protection
95
Limited Companies
```
Legal entity in our right
Business Banking
Business Loans and Mortgages
Business protection - loans, director and shareholder
Staff Benefits
Business Insurance
```
96
Financial "Life Cycle"
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School Age
Teenagers and Students
Young Free and Single
Married or Living Together
Established Families
Mature Households
Retirement
```
97
Hierarchy Of Financial Needs
Base - living today
Level 1 - Protection, cover event of breadwinner death or incapacity
Level 2 - Income, protecting family income in event of illness or injury
Level 3 - Pension, build up income for retirement
Level 4 - Savings, regular savings for future needs
Level 5 - Investment, investing lump sums
98
Role Of Adviser
```
Discuss
financial circumstances
personal circumstances
objectives and needs
attitude to risk and capacity to absorb losses
Priorities
Taxation
```
99
Residence
Residence - New April 2013
Individual present in UK for 183 days or more - resident
Individual present in UK less than 183 days - tests
Automatic Overseas tests - any one of three criteria apply - not resident
None of three apply - further two tests
Working Abroad - not resident, if do not spend less than 91 days in UK and
the number of days on which they work for more than 3 hours in UK is less than 31
100
Domicile
Domicile, the place considered to be individuals home.
At birth child acquires domicile of origin.
Child born to married parents takes domicile of father
Domicile of Choice - involves severance of all ties with UK - complex process
Deemed domicile - when someone not UK domiciled but stays a long time in UK.
101
Income Tax
Resident for tax purposes in UK
Non-resident not subject to UK income tax
Resident but not UK-domiciled - pay income only on remittance basis - resident for > 7 years of previous 9 pay tax of £30,000 to £90,000 depending on how long resident
102
Personal Allowances and Tax Rates
Personal Allowance - £11,500 p.a.
Income above £100,000 lose £1 for every £2 above £100,000
First £33,500 taxed at 20%
Next £116,500 (£150,000 - £33,500) taxed at 40%
Income above £150,000 is taxed at 45%
103
Taxation Of Savings Interest
```
April 2017 interest paid gross
Bank and Building Society Accounts
Credit Unions
National Savings and Investment Products
Gilts and Corporate Bonds
Permanent Interest Bearing Shares (PIBS)
Non-equity Unit Trusts
```
104
Dividend Taxation
From April 2016
Dividends paid gross
Investors, including additional rate taxpayers receive dividend allowance - £5,000 per year - not taxed.
Once dividend allowance is used up
- 7.5% on dividends in investors basic rate band
- 32.5 on dividends in investors higher rate band
- 38.1% on dividends in investors additional rate band
105
Calculating Income Tax
Example 1 - gross earning £28,000 - less £11,500 = £17,000 taxable - Tax = £17,000 x 20% = £3,400
Example 2 - gross earning £59,000 less $11,500 = £47,000 taxable - £33,000 @ 20% = £6,700 , £14,000 @ 40% = £5,600 Tax = £12,300
Example 3 gross earning £180,000 - Income above £100,000 allowance is reduced by £1:£2 basis leaving an allowance of nil
First £33,500 @20% = £6,700
Next £116,500 @40% = £46,600
Balance £30,000 @ 45% = £13,500
Tax due = £66,800
106
Capital Gains Tax
CGT applies to "disposals" of relevant assets. Disposal is defined as sale, gifting or assignment for moneys worth, which is singing over ownership of an asset in exchange for money or something of value.
Certain assets are exempt from CGT - main residence, gilts and corporate bonds, ordinary motor vehicles, chattels(personal possessions) if vaue less than £6,000 each. Certain investments are also exempt
Resident and domiciled pay CGT on world-wide assets
Not resident - no CGT
Losses set against profit
Annual exemption £11,500 per individual
Co-owners can each use annual exemption
107
Capital Gains Example - taxable income of £31,500 after allowance - makes gain of £18,000 selling shares. Calculate CGT
```
£18,000 - £11,500 = £6,700 gain
Taxable income plus gain = £38,200
First £2000 @10% = £200
£4,700 @ 20% = £940
CGT = £1,140
```
108
Inheritance Tax (IHT)
Domiciled and Deemed Domicile
Transfers between married couples and civil partners exempt.
Nil Rate Band £325,000
Living partner can inherit unused nil rate band
IHT Rate is 40%
Gifts to Charity - zero
109
Residential Nil-Rate Band (RNRB)
New IHT allowqnce for individual home since 2017
Applies when estate is above nil-rate band and their home forms part of the state.
Amount available for RNRB is lower of value of probabilities after liabilities
Example assume standard £100,000 and property after liabilities £350,000 then £100,000 allowance
If property is valued £125,000 and at time RNRB £150,000 then £125,000 is the allowance
Spouse allowance transfered
110
Gifting
Annual Gift Allowance - £3,000 carried forward for one year
Small gift allowance - as many gifts as you like provided no more than £250 to any one individual
Wedding gifts up to £5,000 each parent
111
potentially Exempt Transfers
```
Death in year after gift
1-3 100% of tax
in year 4 80%
in year 5 60%
in year 6 40%
in year 7 20%
After 7 years nil tax
```
112
individual Savings Accounts (ISAs)
After december 2014
After death surviving partner can:
1. Inherit ISA assets and keep them tax free in their own name without affected their own allowance
2. Increase their own ISA allowance by the value of the deceased ISA fund at time of death
113
ISA Death Example
ISA fund valued at £30,000 on death, spouse allowance for 2017/18 £15,240 + £30,000 = £45,240
114
Chargeable Lifetime Transfers
Lifetime transfers considered cumulative and charged at 20% - like a deposit against IHT
Usually gifts into most types of Trust - "relevant property trusts" - Discretionary Trusts and Interest in Possession Trusts.
Cumulative gifts less than nil-rate band do not pay tax.
115
Stamp Duty
Payable by purchaser of securities and Land
Stamp Duty Reserve - 0.5% on purchase of shares through electronic system CREST. Also payable on Unit Trusts or OEICs
On shares in stockmarket purchases >£1,000 rounded to nearest £5
116
Stamp Duty Land Tax (SDLT)
```
Purchase Price SDLT
Up to £125,000 Nil
£125,001 to £250,000 2%
£250,000 to £925,000 5%
£925,000 to £1.5 million 10%
> £1.5 million 12%
```
117
SDLT Example
Buy Flat £200,000
£125,000 @ 0%
£75,000 @ 2% = £1,500
Buy House £650,000
£125,000 @ 0%
£125,000 @ 2% = £2,500
£400,000 @ 5% = £20,000
Tax £22,500
118
Buy To Let and Second Homes SDLT
Add 3% added to each band including 0% if property price greater than £40,000
119
Commercial and Mixed Use Property SDLT
0% on first £150,000
2% on £150,001 to £250,000
5% on £250,001 and over
120
Life Insurance Underwriting Factors?
Age
Hobbies and Pursuits
Health
Lifestyle - smoking - drinking
121
level of Cover Needed Factors
```
Payoff mortgage
Payoff other debts
Leave sufficient with survivor enough in the bank
Survivor enough to buy house if renting
Income replacement and inflation
```
122
Types of Plan
Single Life - self - money goes to estate
Life of Another - someone else owns policy
insurable interest - spouse - creditor -
employer - business partners
Joint Life First Death - often used for mortgage
Joint Life Second Death - inheritance tax planning
123
Whole of Life Assurance Key Characteristics
Premiums cease at 60 - 65 as long as paid for 10 years
Pays out when not if the life assured dies
Usually for protection
sum assured guaranteed throughout life, or reviewed regularly
investment-linked plans may build up cash reserve
surrender value small
non-profit plans - sum assured and premium fixed for life of assured
124
With Profits Whole of Life
premiums invested in with-profits fund
sum-assured and bonuses already declared stay
some profits are allocated to reserves
expenses are not transparent
guaranteed sum assured at outset - payable on death
premiums fixed and payable for life
reversionary bonus added to guaranteed sum assured and cannot be taken away
death occurs between bonus declarations - pro rata
125
Reversionary Bonus Calculations
One of following ways
as percentage of GSA each time, if GSA = 50,000 and bonus is 2% then £1,000 added as bonus
as percentage of GSA plus previous bonuses
some are split as one percentage of GSA and different percentage on accumulated bonuses
Terminal Bonus - added when policyholder dies, not declared until death
126
Low-cost With-profits Whole of Life
Has lower guaranteed sum assured so profits are lower
127
Unit Linked Whole of Life
Premium buys unit-linked funds
monthly charges cover mortality risk and fees
premium set so fund can sustain level of charges for pre-determined period
the larger the sum-assured the higher the units cashed to meet mortality
128
Flexible Whole of Life
usually three indicative levels of cover
usually can choose between maximum and minimum sum assured.
balanced cover - assuming fund growth, should maintain life cover throughout life
bid-offer spread - often 5%
annual fund management charge 0.5 - 1.5%
guaranteed insurability to increase cover - sometimes
Index of benefits - sum-assured indexed
waiver of premium - small extra charge
129
Universal Whole of Life
```
when added benefits then "universal" used
Income protection
Critical illness cover
accidental death benefit
total disability cover
hospital benefits
flexibility of premiums
```
130
Uses and Benefits of Whole of Life Assurance
protect dependents against loss
tax-free legacy
provide funds for IHT
131
Term Assurance
```
cheapest form of life cover
death benefit only within term
premiums monthly or annually
term can be months - 40 years +
premium and cover same throughout term
cover ceases at end of term
no return of premium
cover ceases if premiums not paid
single life or joint life first death
```
132
Increasing Term
sum-assured increased by fixed amount or percentage of original sum each year
premiums increase in line with sum-assured
underwriting based on final maximum sum-assured
133
Renewable Term
plan renewed at end of term without medical evidence until specified age - usually 65
plan same as original term
134
Convertible Term
During original term can be converted to whole of life or endowment
new premiums will not consider health changes
age is taken into consideration
maximum sum-assured not generally exceeded
135
Life Plans Available
```
level term
increasing term
renewable term
convertible term
renewable convertible term
renewable increasing term
renewable increasing convertible term
```
136
Decreasing Term Assurance
Premiums payable throughout the term
level of life cover reduces to nothing over the term on annual basis
ideal for cheap mortgage protection
137
Family Income Benefit
premium fixed throughout the term
sum-assured takes form of regular income over the term
if death occurs within term premiums cease and income is paid to end of term
income paid free of tax
138
Uses and Benefits of Term Assurance
```
low cost no frills
mortgages
loans
business life
family situations
```
139
State Benefits on Death
Bereavement Payment, one-off £2,000 payable to surviving spouse who is under state pension age. National Insurance payments must have been paid.
Funeral payment - means tested for poor
Bereavement Allowance paid to widows, widowers and surviving civil partners aged between 45 and pension age. NICS must be uptodate. Starts at £34.11 to £113.70 for those over 55.
Widowed Parents Allowance paid to surviving spouse under pension age who claims chil benefit - max £113.70 per week
