Protection Flashcards
To ensure the family has sufficient financial protection in place
Comment on Alan and Lydia’s current situation and identify any weaknesses in their protection arrangements if either of them were to die, or suffer from a long-term illness or disability
• They have an outstanding repayment mortgage of £200,000
• They have a decreasing term assurance policy in place which protects this in the event of either
death
• But there is no critical illness cover in place
• Which creates a shortfall in this area
• They have two young children but no other protection in the event of death
• They have no protection in the event of either of them contracting a serious illness
• They run their limited company on a joint basis and will be reliant on this income source / they
have no other source of income
• They have no protection in the event of long-term disability / inability to work through accident
or illness
• Protection benefits can be arranged through AQ Pack Ltd, which may be more cost effective
• They have no private medical insurance
• They have investable assets / cash assets
• Their pensions funds can provide a lump sum on death
• It is not known if the relevant death benefit nomination forms have been completed
• Which would ensure the funds are distributed in accordance with their wishes
• They have mirror Wills in place and have arranged guardianships for their children
• They have no power of attorneys in place
• They may be eligible for State Benefits
Recommend and justify a suitable life protection policy for Alan and Lydia to provide a regular income to ensure funds are available to maintain their standard of living whilst their children are financially dependent
- Family Income Benefit (FIB)
- Pays out regular tax-free income on death
- Joint life first death / two single lives / life of another
- Sum assured sufficient to maintain standard of living
- Term to cover until children are financially independent
- Can be written in Trust / policy pays to survivor
- To pay promptly / remain outside of estate
- Include waiver of premium for both of them
- So premiums continue in the event of long-term incapacity to work
- Indexed to protect against inflation
- Guaranteed premiums for affordability / known cost
- Both are in good health / young
- Simple underwriting process / cheap premiums
Recommend and justify a suitable insurance policy to provide a regular income in the event of Alan or Lydia suffering a long-term illness and being unable to continue to work.
You should assume income is being taken from AQ Pack Ltd and that they take out the policy on a personal basis
- Income Protection insurance for Alan and Lydia
- As allows multiple claims / cannot be cancelled by the insurer if premiums are maintained
- Provides a regular tax-free income
- That will allow them to maintain their lifestyle
- Sum assured based on salary
- And should be for the maximum possible
- Term to intended retirement age / 60
- Cover on an own occupation basis to maximise the chances of a pay-out / successful claim
- Deferred period should be a minimum of three months to help minimise the cost of cover
- As they have sufficient assets to self-insure for a short time
- Premiums should be set up on a guaranteed basis
- So they have a known cost
- Cover should be indexed to keep pace with inflation
- And should include partial payment / rehabilitation payment
- To enable Alan and Lydia to return to work in some form if possible
Recommend and justify a suitable plan for Alan and Lydia’s mortgage protection needs in the event of serious Illness (5)
Recommendation
- Decreasing CIC cover
- Joint life, first event
- for £200,000
- 18-year term to match mortgage
- Waiver included
Recommend and justify a suitable plan for Alan and Lydia’s mortgage protection needs in the event of serious Illness
Justification
Justification
• Repays mortgage on first / pays tax-free lump sum, on
• diagnosis of
• specified illness after a
• survival period / 14-30 days
• Decreasing sum assured to suit repayment mortgage.
• Waiver of premium to ensure premiums are protected in the event of Alan or Lydia being
unable to work due to sickness or accident /
Detail and justify the recommendations you would make in respect of the following objective: To provide financial security for each other and their children in the event of serious illness
• Alan and Lydia should set up a critical illness policy each that will cover the costs of any lifestyle changes required
• Term to retirement / age 60
• To pay out a tax-free lump sum, on the diagnosis of a specified critical illness after a survival
period / 14-30 days
• Guaranteed premiums
• To ensure ongoing affordability / known cost
• Include waiver of premium for both of them so premiums continue in the event of long-term
incapacity to work
• Indexation to protect benefit from inflation
Explain to Alan and Lydia how their shares in AQ Pack Ltd will be treated in the event of either of their deaths
• Mirror Wills in place
• So shares will automatically pass to the survivor
• Resulting in the survivor owning 100% of the shares / share ownership and control retained
by the survivor
• Unless a separate agreement has been drawn up / their Memorandum and Articles of
Association indicate otherwise
• The value of the shares will be included in the estate for Inheritance Tax purposes
• Until they have been held for two years
• At which time Business Relief will apply
• Meaning they will be exempt from Inheritance Tax
• The current value of the shares is zero
Describe the benefits to Alan and Lydia if they each set up Lasting Powers of Attorney
• They can ensure their wishes are known / avoids disputes
• They can choose who will cat as their attorneys
• And can also select replacement attorneys
• In case an original attorney is unable to act
• They can set up Health and Welfare LPAs to provide guidance on how they wish to be cared for
• Although these cannot be used until they have lost mental capacity
• They can also set up Property and Financial affairs LPAs to allow an attorney to help with
their finances
• And these can be used before they lose capacity
• If they chose to allow this
• Having these set up saves the cost
• And complexity
• And lengthy amount of time that would otherwise be spent dealing with the Court of
Protection
State three benefits and three drawbacks of Private Medical Insurance (PMI) for Alan and Lydia
Benefits
Benefits:
• Fast track NHS waiting lists
• Treatment times and location chosen by them
• Private room available
• Most payments made direct from provider to private hospital / reduce medical bills
• Could cover entire family
State three benefits and three drawbacks of Private Medical Insurance (PMI) for Alan and Lydia
Drawbacks
Drawbacks:
• Acute illnesses only, not chronic
• Cover has many restrictions / excess payable / moratorium
• Expensive in comparison to other higher priority protection needs
• Premiums will be classed as a benefit in kind / P11D benefit if paid for by AQ Pack Ltd
