Insurance and Policies Flashcards
1
Q
Home Income Plan (HIP) - 1990’s
A
- For over 70’s
- They use funds to get an annuity for income
- This was worthwhile in the 90’s as they could receive tax relief on their mortgage payment
- MIRAS - Mortgage interest relief at source
- Would get up to £30,000 of the loan tax free if they were buying an annuity
- The annuity income would pay the interest, this worked because annuity rates were higher then
- It’s only really useful for the over 80’s
2
Q
Life insurance
A
- Set term
- No guaranteed pay out & the life assured may survive the term
- Pure protection with no surrender value
3
Q
Life Assurance
A
- No fixed term
- Policy will pay out at death
- Premiums are paid out at death
- Premiums are usually paid for life, some are stopped when a certain age is reached
- Whole of life policies can have an investment element
4
Q
General Insurance
A
- Pure protection
- The event may or may not happen
- The individual is indemnified - restored to original position
5
Q
Personal Protections
A
- Loans are not cancelled on death
- Loans are paid from the assets in the estate
- Joint borrowers are vulnerable
- Personal protections are there to safeguard joint borrowers or dependants
6
Q
Term Insurance
A
- For a specific term, no surrender value
- If there is a lapse in payments it stops covering after 30 days
- Client can reinstate in 12-months if they make up the missed payments
- Perfect for mortgages as they cover the mortgage term
- Low cost
- The term is dictated by the mortgage term
- The sum assured is equal to the loan
- On the death of the first borrower a tax free lump sum is awarded to the survivor to pay off the mortgage
- For single borrowers they can have a single life, own benefit held in trust. This was they can have the mortgage paid off and leave their estate to a beneficiary
7
Q
Policy Fee
A
- Payable with a premium not related to the sum assured
8
Q
Mortgage Protection Policy - Decreasing Term
A
- Suitable for capital repayment
- The sum assured reduces over time
- The premium stays the same throughout the term
- If they remortgage, a new policy is needed
- The premium is effected by the loan amount and the clients age
9
Q
Mortgage Protection Policy -Level Term
A
- Suitable for interest only mortgage
- Payments remain the same through the policy
- The sum assured remains the same through the entire term of the policy.
10
Q
Convertible Term
A
- The policy starts at level term
- An extra premium of 10-15% allows the client to convert to an endowment policy or whole of life with no medical underwriting
- The sum assured is usually the same as at the start
- They complete the change over by cancelling the level term assurance and starting the new policy before the old one expires
- The new policy can go past maturity but the premiums are based on the new policy and the clients age at the time
11
Q
Pension Term Assurance
A
Added during the 2006 pension reforms
- A form of level term insurance
- If clients opted for this insurance between April & Dec 2006 tax relief was given on premiums
- They could pay insurance premiums out of gross pay
- Some people still have these
- The policy has to cease before the clients 75th birthday
- It’s a single name policy
- Cannot be assigned to a lender
12
Q
Personal Protection - Critical Illness Cover (CIC)
A
- Aid is always excluded unless it is caught at work
- Can be taken in joint names
- Policy should mention the mortgage term and loan size
- Medical underwriting might make this option expensive
- Only pays out once as a lump sum
- Cheaper policies have restricted illnesses
- The policy can be stand alone or attached to a life policy where it can help to be paid out earlier or at death on a short term policy
- Split benefit trust should be established if based on a single life
+ the life claim is paid in trust
+ CIC is paid to the policy holder - Ideal for term assurance for the same amount/duration as the mortgage
+ Policy should be set-up to pay out on the first event
+ This will clear the mortgage on illness or death
13
Q
Income Protection Insurance (IPI)
A
- Tax free income if you can’t work over the long term
- Can be offered until retirement age
- Pays out 60-65% of pre-disability pay, this is an industry set limit and was established to encourage a return to work
- The maximum of 60-65% includes any other benefit or policy
- Pays till death, return to work (at previous levels) or retirement
- Single name basis
- Can be index linked to rise with inflation
- Has a deferral period with a minimum of 4 weeks which is recommended for self employed
- A big underwriting factor is occupation, client must notify the insurance company of any changes
- Class 1 is the lowest risk occupation and class 5 is the highest risk
- Cover is permanent and cannot be cancelled by the insurer for multiple claims etc
- Private policies are paid out tax free
14
Q
IPI structures
A
Reviewable
- Premiums start low and are reviewed in the future
- Premiums may go up every few years
Guaranteed
- More expensive at the onset but guaranteed premiums for full policy length without review
15
Q
Group Schemes
A
- Paid by the employer
- Tax & NIC’s payable on receipt
- Employer is paid directly from the insurer and uses the funds to continue to pay the employee
