Financial Protection Products and their uses Flashcards
What are customer protection needs?
protection against unpredictable events
What unpredictable events can protection policies protect customers from? (3)
death or parent before child grows up
long term ill health
critical illness
Why is insurance cheaper for young people?
Based off mortality tables - older a people is, closer they are to death
When do customer protection needs arise?
Give examples
Should be before the unpredicatble event occurs
E.g.
- one member of family becomes financially dependent on another
- couple financially interdependent
- child is born/adopted
- debt
When does an individuals need for protection start?
When you begin to rely on your own earning to live and not your parents etc
What protection needs do businesses have? (2)
need to protect profits of business from death or ill heath of key employees
need to provide benefits to attract and retain employees
What are the four main areas of customer needs related to financial protections against death? (4)
- family protection
- mortage protection
- inheritance tax planning
- funeral planning
What is the term most commonly used for family protection?
level term insurance
How is the level term insurance paid out?
in a lump sum (known as sum insured) if the life insured dies
Is income tax or capital gains tax payble on level term insurance?
No
Is inheritance tax payable on level term insurance?
No (usually) - when set up under a trust
What is a more accurate way to assess the sum insured requirments?
Use a life insurance calculator
rely on certain assumptions (e.g. £5000 required per child/year, doesnt account for inflation
What is the industrys solution to protecting customers against inflation?
increasing term insurance
How does increasing term insurance work?
a tax-free lump sum on death of life insured
the sum insured increased every year
What is another advantage of increasing term insurance?
enable customers to get extra cover without submitting any more evidence of health
What is a guaranteed insurability option?
the sum insured increases substantially on the events that lead to additional protection needs
What are examples that a guaranteed insurability option is applicable? (3)
- taking out a mortage
- getting married or entering into civil partnership
- having or adopting child
no need for further evidence of health and customer premium is increased
Why should care be taken not to over-insure a customers life?
customer is paying for insurance they dont need - money better meeting other financial needs
What is suitable alternative to level term insurance where increasing term insurance is too expensive?
family income benefit (FIB) policy
How does a FIB work?
family income benefit
pays out tax-free income to replace the earnings that the life insured woudl have provided to the family had they lived
paid each year from the the death of the life insured until the policy expires
What are the advantages of FIB?
family income benefit
- cheap (cover provided decreases over term of policy (premium remains same))
- premium slighter cheaper than increasing term insurance
- provide families with regular income rather than lump sum
When the sum insured under an increasing term insurance goes up, does the premium as well?
Yes
What are the two ways borrowers can repay their mortage loans? (2)
- repayment mortgage
- interest-only mortgage
What are the two parts of a customers monthy payment on a repayment mortgage? (2)
- capital i.e. customer pays back a small amount of money borrowed
- interest
