Life Insurance - Term Assurance

Question 1

Can FIB policies be arranged with an increasing benefit?

Answer 1

Yes, they can be linked to an index or increased by a set amount (max of 5% pa)

This may continue to end of the term or only up to the time of death, depending on the company

Question 2

What is Commutation in respect of Family Income Benefit?

Answer 2

Where beneficiaries exchange the income from a FIB policy for a lump sum, if this would be more suited to their circumstances at the time of death

The lump sum would be less than the sum of the remaining payments, to compensate the provider for having to pay it all out at once

Question 3

Is a Family Income Benefit plan dearer or cheaper than an equivalent Term Assurance plan, and why?

Answer 3

Cheaper because the cover, in effect, decreases during the term, and the fewer instalments would need to be paid out

Question 4

What is the purpose of Family Income Benefit?

Answer 4

To replace the income lost on the death of the life assured

Question 5

Which policy type is Family Income Benefit plans similar to, and what is the main difference?

Answer 5

They are similar to Term Assurance plans, but the sum assured is paid out in instalments rather than a lump sum

Question 6

Is the income from a Family Income Benefit policy taxable or tax free, and why?

Answer 6

Tax free as the income is instalments of a capital sum

Question 7

When is the income from a Family Income Benefit policy paid out and when does it end?

Answer 7

It’s paid out from the death of the life assured until the policy expiry date

Question 8

What basis is a Family Income Benefit policy usually written on?

Answer 8

Joint life

Question 9

What term should be chosen when effecting a Family Income Benefit policy?

Answer 9

The term should be related to a need, e.g. until the youngest child reaches 18

Question 10

What may happen on an Increasing Term Assurance plan if the policyholder doesn’t exercise their right to increase the cover?

Answer 10

The sum assured could be frozen and future index-linking may not be allowed

Question 11

What are the 3 index’s an Increasing Term Assurance plan may be linked to?

Answer 11

1. Retail Prices Index (RPI)
2. Consumer Price Index (CPI)
3. Average Weekly Earnings Index (AWE)

Question 12

What is a guaranteed insurability option?

Answer 12

This allows the sum assured to be increased on events such as marriage, birth of a child, or an
increase to the mortgage

Question 13

What is the main purpose of an Increasing Term Assurance policy?

Answer 13

To offset the effects of inflation

Question 14

What are the 3 ways the sum assured on an Increasing Term Assurance policy may be increased?

Answer 14

1. Linking it to an index
2. Increasing it by a set amount
3. Including a guaranteed insurability option

Question 15

For an Increasing Term Assurance policy, when do the increase options end?

Answer 15

On reaching state pension age

Question 16

For an Increasing Term Assurance policy, would the life company require evidence of current health of the life assured to increase the sum assured?

Answer 16

No

Question 17

What is the main reason people take out a Decreasing Term Assurance policy?

Answer 17

To cover a repayment mortgage liability

Question 18

What happens to the sum assured on a Decreasing Term Assurance policy?

Answer 18

It gradually reduces to zero by the end of the term

Question 19

With a Decreasing Term Assurance policy, do the premiums increase, decrease or stay the same?

Answer 19

They stay the same

Question 20

Why might insurers set the premiums for a Decreasing Term Assurance policy over a shorter period than the term?

Answer 20

So people aren’t inclined to let their policy lapse when the amount of cover is low

Question 21

With a Decreasing Term Assurance policy, what is the maximum sum assured that can be converted if there’s a convertible option on the plan?

Answer 21

The decreased sum assured amount at the date of conversion

Question 22

Are Decreasing Term Assurance policies cheaper or more expensive than other Term Assurance policies and why?

Answer 22

Cheaper because the sum assured gradually decreases to zero over the term

Question 23

What 2 types of plan can a Convertible Term Assurance be converted to?

Answer 23

1. An endowment
2. A whole of life policy

Question 24

For a Convertible Term Assurance policy, when can the sum assured be converted?

Answer 24

At any time during the policy term

Question 25

For a Convertible Term Assurance policy, how much of the sum assured can be converted?

Answer 25

Fully or partially by any amount

Question 26

If a Convertible Term Assurance policy is partially converted, what happens to the initial reduced sum assured?

Answer 26

The original policy will continue with the reduced sum assured

Question 27

Can the sum assured be increased on a Convertible Term Assurance policy?

Answer 27

No

Question 28

Can a life company refuse to convert a Convertible Term Assurance policy?

Answer 28

No, even if the life assured is seriously ill

Question 29

When should a Renewable Term Assurance policy be used?

Answer 29

When it’s not known how long the need for protection will last

Question 30

When can a a Renewable Term Assurance policy be renewed?

Answer 30

At the expiry date

Question 31

Will the health of the life assured by reassessed upon renewal of a Renewable Term Assurance policy?

Answer 31

No, the renewal is guaranteed, irrespective of health

Question 32

Upon renewal of a Renewable Term Assurance policy, will the sum assured decrease, increase or stay the same?

Answer 32

It will stay the same

Question 33

Upon renewal of a Renewable Term Assurance policy, will the premiums decrease, increase or stay the same?

Answer 33

They will increase to reflect the policyholder’s new age

Question 34

For a Renewable Term Assurance policy, when will the option to renew expire?

Answer 34

At age 60 or 65

Question 35

Will the sum assured on a Level Term Assurance policy increase, decrease or stay the same throughout the policy term?

Answer 35

It will stay the same

Question 36

What happens to a Level Term Assurance policy if the premium is missed?

Answer 36

The policy will lapse

Question 37

What is the main purpose of a Level Term Assurance policy?

Answer 37

To provide protection to a family on the death of the main earner

Question 38

What are the 2 ways term assurance can be provided by employers?

Answer 38

1. As ‘death in service’ cover under an occupational pension scheme
2. As a stand-alone benefit

Question 39

What are the 2 main benefits of group life assurance schemes?

Answer 39

1. Discounted premium
2. Simplified underwriting