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LP2 > Life Assurance Products > Flashcards

Life Assurance Products Flashcards

1
Q

What is a useful saying that expresses how we should approach financial risk?

A

“Some risks are best managed, whilst others are best insured.”

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2
Q

What types of insurance does protection insurance refer to?

A

Contracts that provide financial sums in the event of long-term illness, disability or death.

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3
Q

What are the FIVE main areas for protection needs?

A
  1. Health
  2. Income, mortgage and other debt
  3. The event of death
  4. Asset protection
  5. Business protection
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4
Q

What is a state benefit for unemployment/low earners?

A

Universal credit

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5
Q

Who is universal credit paid to?

A

Individuals who are actively seeking work or are on low incomes.

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6
Q

What are THREE state benefits for sickness/illness/loss of capacity?

A
  1. Statutory sick pay
  2. Personal Independence Payment (PIP)
  3. Attendence allowance
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7
Q

Who is ‘statutory sick pay’ paid to?

A

Employees who pay Class 1 National Insurance Contributions (NICs)

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8
Q

Who is ‘Personal Independence Payment (PIP)’ paid to?

A

Individuals under state pension age who need help with key activities necessary to everyday living.

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9
Q

Who is ‘Attendance allowance’ payable to?

A

Individuals over state pension age who need help with their personal care (often replaces PIP).

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10
Q

What is the state benefit in place to assist with the cost of raising a family?

A

Child benefit.

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11
Q

What is the state benefit in place to assist with the cost of caring for others?

A

Carer’s allowance.

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12
Q

Who is ‘Carer’s allowance’ payable to?

A

Individuals who spend at least 35 hours a week caring for an individual in receipt of PIP or attendance allowance.

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13
Q

How is ‘carer’s allowance’ paid?

A

As a taxable weekly benefit.

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14
Q

What is the state benefit in payment to assist with costs left after death of a spouse/civil partner?

A

Bereavement Support Payment.

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15
Q

How is ‘Bereavement Support Payment’ paid out?

A

A lump sum and temporary monthly income payments.

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16
Q

What THREE things is the amount payable for ‘Bereavement Support Payment’ based on?

A
  1. Age
  2. NICs
  3. Nature of death
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17
Q

Why would an individual require financial insurance when there are state benefits in place to assist with income replacement?

A

Because nearly all state benefits are insufficient to live off alone.

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18
Q

What is a benefit-in-kind?

A

A benefit that an individual receives through their employment that has a monetary value.

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19
Q

Why are employers able to negotiate better terms and cheaper premiums on the benefits they provide to their employees?

A

Because they have higher bargaining power due to bulk buy and the policies are not individually risk-based.

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20
Q

How and when is ‘Life assurance’ paid out?

A

As a lump sum on the death of the life assured.

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21
Q

How and when is ‘Income protection (IP)’ paid out?

A

As regular income when the insured is unable to work due to accident or illness.

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22
Q

When is IP payable until?

A

Retirement.

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23
Q

How and when is ‘Critical illness cover (CIC)’ paid out?

A

As a lump sum if the insured is diagnosed with a critical illness specified in the policy.

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24
Q

How and when is ‘personal accident insurance’ paid out?

A

As a lump sum OR income benefits if the insured suffers an accident or falls ill.

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25
Q

When is Accident, Sickness and Unemployment (ASU) paid out?

A

When the insured suffers an accident or is unable to work due to sickness, redundancy or unemployment.

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26
Q

What does Payment Protection Insurance (PPI) provide an income to cover, and when?

A

Provides an income to cover mortgage or loan payment if the insured suffers an accident or is unable to work due to sickness, redundancy or unemployment.

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27
Q

What is the main purpose of life assurance?

A

To provide a lump sum if the insured dies during the term of the policy.

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28
Q

What TWO categories does Life assurance fall into?

A
  1. Whole of life assurance.

2. Term assurance.

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29
Q

Who is the policyholder?

A

The individual who purchases the policy.

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30
Q

If a Life assurance policy was held in a trust, who would the benefits be paid to upon death?

A

A nominated beneficiary.

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31
Q

If a Life assurance policy was not held in a trust, who would the proceeds be paid to upon death?

A

The estate.

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32
Q

What is a ‘whole life policy’ designed to do?

A

Pay out a cash lump sum upon death.

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33
Q

What is the surrender value?

A

An amount payable if the policyholder decides to exit a flexible whole of life policy.

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34
Q

What are funeral plans?

A

A whole of life contract designed for those over age 50.

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35
Q

What determines the level of annual bonus applied to a with-profit policy?

A

The financial performance of the life company providing the policy.

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36
Q

What is the ‘final/terminal’ bonus on a with-profit policy, a percentage of?

A

A percentage of the original sum assured and any accrued ‘reversionary/annual’ bonuses.

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37
Q

Why should individuals be wary about taking a surrender value with a with-profit policy?

A

Companies can apply a Market Value Reduction (MVR).

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38
Q

Which type of policy presents a higher risk, with-profit or non-profit?

A

With-profit policy.

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39
Q

What are flexible whole of life policies also known as?

A

Unit-linked whole of life policies.

40
Q

What do flexible whole of life policies offer?

A

A mix of life cover and investment.

41
Q

How is the premium set for Maximum cover plans?

A

Fixed for a set period and then revised at the end of this period and increased in account of client’s new age.

42
Q

What is the structure of maximum cover plans?

A

Has an investment element built in, but the majority of the premium pays for life cover.

43
Q

How are the premiums set for Standard cover?

A

Fixed, provided the investment element provides growth at a predetermined level.

44
Q

What is the structure of a standard cover whole of life plan?

A

Has an investment element built in.

45
Q

What is the structure of a guaranteed cover whole of life plan?

A

There is no investment element affecting premiums.

46
Q

Which is likely to be the most expensive whole of life plan out of Maximum cover plans, Standard cover and Guaranteed cover??

A

Guaranteed cover.

47
Q

As Friendly societies are mutual organisations, who are all profits (after expenses) payable to?

A

The policyholders.

48
Q

What is the maximum annual amount allowed to be saved in a Friendly society policy?

A

£270

49
Q

When does term assurance pay out a lump sum?

A

Upon death if the death happens within the policy term.

50
Q

In which type of term assurance is the sum assured fixed throughout the term?

A

Level term assurance

51
Q

What does increasing term assurance increase in line with?

A

An index.

52
Q

In which type of term assurance does the sum assured fall each year in a predetermined way?

A

Decreasing term assurance.

53
Q

What are the examples of decreasing term assurance?

A
  1. Mortgage protection.
  2. Gift inter vivos term assurance.
  3. Family income benefit (FIB)
54
Q

Which type of decreasing term assurance decreases over seven years in line with Inheritance Tax (IHT)?

A

Gift inter vivos term assurance.

55
Q

Who is Family income benefit (FIB) there to protect?

A

A family with young children that requires regular payments.

56
Q

What SIX things should be considered when determining the amount and type of cover an individual needs?

A
  1. Who needs to be insured.
  2. Whether a joint or single life basis is better.
  3. The amount of life cover needed.
  4. Flexibility required.
  5. Reason for cover.
  6. Affordability of premiums
57
Q

Who is the sum assured payed to upon death on an ‘own life’ policy?

A

Their estate.

58
Q

What do life assurance companies use mortality tables to estimate?

A

The amount of claims they can expect each year from lives of a given age.

59
Q

How is the mortality rate calculated?

A

By dividing the number of people dying by the number of people living.

60
Q

Whose job is it to calculate the level of premiums to charge from mortality tables?

A

Actuaries.

61
Q

What is the name of the process that insurance companies use to measure the risk posed by potential clients?

A

Underwriting.

62
Q

What is the aim of underwriters when assessing the risks posed by potential clients?

A

Minimize the losses for their company and remain profitable.

63
Q

What are the FIVE different risk classes an insurance company will designate a client into, following the underwriting process.

A
  1. Preferred
  2. Standard
  3. Rated
  4. Postponed
  5. Declined`
64
Q

What is the name of the risk class that represents clients who have an above average risk and subsequently attract higher premiums?

A

Rated.

65
Q

What are the THREE stages of the underwriting process?

A
  1. Collect information
  2. Analyse information
  3. Identify options
66
Q

During what stage of the underwriting process is the client placed into one of the five risk classes?

A

Stage 3 - Identify options

67
Q

What SIX aspects of an individual are gauged from medical underwriting?

A
  1. Personal details including age
  2. Current state of health
  3. Medical history
  4. Occupation
  5. Hazardous pursuits
  6. Lifestyle
68
Q

What is the name of the mandatary code introduced by the Association of British Insurers (ABI) the required insurers to pay out in the event of innocent misrepresentation during underwriting?

A

Consumer Insurance (Disclosure and Representations) Act 2012

69
Q

Misrepresentation be deemed to be what THREE classes?

A
  1. Innocent
  2. Negligent
  3. Deliberate
70
Q

What does being a qualifying or non-qualifying policy determine?

A

The tax treatment of then policy.

71
Q

What is the difference in the tax treatments of qualifying and non-qualifying policies?

A

Gains on qualifying policies are not taxable whereas a non-qualifying policy could be subject to income tax.

72
Q

What must the minimum policy term be for a qualifying policy?

A

At least 10 years.

73
Q

What is the maximum premium payable per annum on a qualifying policy?

A

£3,600

74
Q

The sum assured for a qualifying policy must be no less than what percentage of the premiums payable over the contract?

A

75%

75
Q

Chargeable gains made on life policies are subject to income tax with which type of policy?

A

Non-qualifying.

76
Q

How is the amount of tax payable on a chargeable gain for a non-qualifying policy determined?

A

Based on the individual’s income tax rates.

77
Q

What is the name of the relief that may be considered if a gain pushes a taxpayer into a higher rate of income tax than usual?

A

Top-slicing relief.

78
Q

What TWO things must a claimant do before receiving payment, once the life office has confirmed it is satisfied that the claim is valid?

A
  1. Prove their title (legal ownership of the monies).

2. Sign a form of discharge.

79
Q

Where will the proceeds be paid if the policyholder of an own life policy dies?

A

To their estate.

80
Q

What can be done with a life assurance policy to control the ownership of assets and mitigate tax liabilities?

A

Write the policy into a trust.

81
Q

Who creates a trust deed?

A

The settlor.

82
Q

Who does the trust deed outline the rights and duties of?

A

The trustees.

83
Q

Who should the trustees act in the best interest of?

A

The beneficiaries.

84
Q

What are the THREE main parties of a trust?

A
  1. Settlor
  2. Beneficiaries
  3. Trustees
85
Q

Who is the person that creates a trust and transfers legal ownership of money and assets to the Trustees?

A

The settlor.

86
Q

If a trust is going through financial difficulties and the assets in the trust are unable to meet the trust’s liabilities, who could have personal liability to meet any shortfalls?

A

The trustees.

87
Q

What are the THREE main types of trust?

A
  1. Absolute or bare trusts.
  2. Interest in possession trusts.
  3. Discretionary trusts
88
Q

With an absolute or bare trust, who is completely entitled to the assets of the trust?

A

The beneficiaries.

89
Q

What is another name for the beneficiary who will receive income from an ‘interest in possession trust’ throughout their lifetime?

A

A life tenant.

90
Q

Who is the remainderman in relation to an Interest in possession trust?

A

A separate beneficiary who will be entitled to the capital of the trust on the life tenant’s death.

91
Q

What is the name of the type of trust where the settlor gives the trustee discretion over whom the trust funds pass to and when?

A

A discretionary trust.

92
Q

What is the primary advantage of an absolute trust?

A

They are the least complex trusts to set up and administrator.

93
Q

What is the primary disadvantage of an absolute trust?

A

They provide little flexibility and protection.

94
Q

What is the name of the trust that provides the most flexibility for making changes to the beneficiaries of the trust, and the highest level of asset protection?

A

A discretionary trust.

95
Q

What are THREE advantages of using trusts with life policies?

A
  1. Speeding up distribution of money to beneficiaries upon death.
  2. The fund is free of IHT.
  3. Flexibility over who receives the money from the trust.

LP2 (6 decks)

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