Life Insurance - Term Assurance Flashcards
Level, Renewable, Convertible, Decreasing, Increasing, Family Income Benefit, Group Life Assurance
Can FIB policies be arranged with an increasing benefit?
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
What is Commutation in respect of Family Income Benefit?
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
Is a Family Income Benefit plan dearer or cheaper than an equivalent Term Assurance plan, and why?
Cheaper because the cover, in effect, decreases during the term, and the fewer instalments would need to be paid out
What is the purpose of Family Income Benefit?
To replace the income lost on the death of the life assured
Which policy type is Family Income Benefit plans similar to, and what is the main difference?
They are similar to Term Assurance plans, but the sum assured is paid out in instalments rather than a lump sum
Is the income from a Family Income Benefit policy taxable or tax free, and why?
Tax free as the income is instalments of a capital sum
When is the income from a Family Income Benefit policy paid out and when does it end?
It’s paid out from the death of the life assured until the policy expiry date
What basis is a Family Income Benefit policy usually written on?
Joint life
What term should be chosen when effecting a Family Income Benefit policy?
The term should be related to a need, e.g. until the youngest child reaches 18
What may happen on an Increasing Term Assurance plan if the policyholder doesn’t exercise their right to increase the cover?
The sum assured could be frozen and future index-linking may not be allowed
What are the 3 index’s an Increasing Term Assurance plan may be linked to?
- Retail Prices Index (RPI)
- Consumer Price Index (CPI)
- Average Weekly Earnings Index (AWE)
What is a guaranteed insurability option?
This allows the sum assured to be increased on events such as marriage, birth of a child, or an
increase to the mortgage
What is the main purpose of an Increasing Term Assurance policy?
To offset the effects of inflation
What are the 3 ways the sum assured on an Increasing Term Assurance policy may be increased?
- Linking it to an index
- Increasing it by a set amount
- Including a guaranteed insurability option
For an Increasing Term Assurance policy, when do the increase options end?
On reaching state pension age
For an Increasing Term Assurance policy, would the life company require evidence of current health of the life assured to increase the sum assured?
No
What is the main reason people take out a Decreasing Term Assurance policy?
To cover a repayment mortgage liability
What happens to the sum assured on a Decreasing Term Assurance policy?
It gradually reduces to zero by the end of the term
With a Decreasing Term Assurance policy, do the premiums increase, decrease or stay the same?
They stay the same
Why might insurers set the premiums for a Decreasing Term Assurance policy over a shorter period than the term?
So people aren’t inclined to let their policy lapse when the amount of cover is low
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?
The decreased sum assured amount at the date of conversion
Are Decreasing Term Assurance policies cheaper or more expensive than other Term Assurance policies and why?
Cheaper because the sum assured gradually decreases to zero over the term
What 2 types of plan can a Convertible Term Assurance be converted to?
- An endowment
- A whole of life policy
For a Convertible Term Assurance policy, when can the sum assured be converted?
At any time during the policy term
For a Convertible Term Assurance policy, how much of the sum assured can be converted?
Fully or partially by any amount
If a Convertible Term Assurance policy is partially converted, what happens to the initial reduced sum assured?
The original policy will continue with the reduced sum assured
Can the sum assured be increased on a Convertible Term Assurance policy?
No
Can a life company refuse to convert a Convertible Term Assurance policy?
No, even if the life assured is seriously ill
When should a Renewable Term Assurance policy be used?
When it’s not known how long the need for protection will last
When can a a Renewable Term Assurance policy be renewed?
At the expiry date
Will the health of the life assured by reassessed upon renewal of a Renewable Term Assurance policy?
No, the renewal is guaranteed, irrespective of health
Upon renewal of a Renewable Term Assurance policy, will the sum assured decrease, increase or stay the same?
It will stay the same
Upon renewal of a Renewable Term Assurance policy, will the premiums decrease, increase or stay the same?
They will increase to reflect the policyholder’s new age
For a Renewable Term Assurance policy, when will the option to renew expire?
At age 60 or 65
Will the sum assured on a Level Term Assurance policy increase, decrease or stay the same throughout the policy term?
It will stay the same
What happens to a Level Term Assurance policy if the premium is missed?
The policy will lapse
What is the main purpose of a Level Term Assurance policy?
To provide protection to a family on the death of the main earner
What are the 2 ways term assurance can be provided by employers?
- As ‘death in service’ cover under an occupational pension scheme
- As a stand-alone benefit
What are the 2 main benefits of group life assurance schemes?
- Discounted premium
- Simplified underwriting
