Protection Flashcards
What is a waiver of premiums?
An option where premiums will be paid by the provider if the policyholder is ill for longer than the deferred period.
Give 3 benefits and 3 drawbacks of employer PMI policies compared to a private policy
3 benefits of an employer PMI policy:
No underwriting required
Could obtain cover for pre existing conditions
Cost likely to be less than a private individual policy
3 drawbacks of an employer PMI policy:
Cover is dependant on employment
Classed as a benefit in kind, with income tax due as a result
Less likely to tailor cover to specific requirements
Name 4 areas where IPI and CIC differ
Payments: IPI pays out taxable regular payments via PAYE, whereas CIC pays out a tax free lump sum
Payment amount: IPI linked to Alex’s salary, 65% of salary. CIC has no maximum cover, purely on clients affordability of premiums
Claims: IPI allows for multiple claims, CIC ceases after one claim
Waiting for payments: Alex’s IPI will has a deferred period of 6 months, but his employer will pay him full pay for these 6 months to cover the shortfall. CIC payments won’t start until the end of a survival period of usually 14-30 days
Additional life cover: IPI cannot be added to a WOL policy. CIC could be added to a WOL policy
What are the two elements that can be included in an LPA?
Health and welfare
Property and financial
Name 3 features of Family Income Benefit for Alex (remember in planet CII FIB doesn’t pay on critical illness)
1.Essentially a term assurance policy for Alex
2.Main benefit for Alex is the policy will pay out regular income payments to his kids to help cover childcare costs
3.Generally lower premiums and simpler underwriting than IPI
4.Would probably want the policy term to last until the youngest kid, Cameron, turns 18 or 21
5.Can also be written into trust to speed up payments should a claim be made
Factors to consider for Alex before cancelling the term assurance policy
Affordability, premiums currently £30pm and could be higher if he looks for a new policy (additional childcare costs to stretch his monthly income too, so make savings where possible)
His employment status, will he reduce his hours
Is the £150,000 sum assured needed now the mortgage is covered and he already has an employer policy
Would he prefer the kids to receive regular income payments as opposed to a lump sum
The term, only has 11 years remaining
Tanya still named as a beneficiary of the policy
If Alex becomes unemployed and claims child benefit, what would a key benefit be? (Aside from the monetary amount)
Claiming Child Benefit will make sure you get credits towards your state pension, as an NI substitute
How long does Alex have to claim for Bereavement Support payments?
To receive the full amount he only has one month left to claim, as anyone has 3 months from the date of death and Tanya died 2 months ago
5 benefits of Alex retaining the term assurance policy
Already underwritten
Current policy is cheap, £30 pm
Reinsurance risk that premiums could rise given he is now 9 years older if he were to switch
Higher premiums could eat into his stretched monthly income
Alex has recently lost Tanya, perhaps not the best time emotionally to be making such a decision
No new set up/adviser costs
Currently written in trust and sum assured paid tax free
Which policy would you recommend Alex purchases to cover the family from death or serious illness of Alex?
P - single life level term assurance policy with critical illness cover (CIC)
A - lives assured will just be Alex
S - sum assured would be agreed with Alex, enough to maintain their standard of living
T - as a minimum until Cameron turns 18/21
E - childrens cover also added
T - policy to be put into split trust, allows Alex to receive the CIC payments directly and death payments paid to family/estate
W - waiver of premium to be included
I - indexation included to protect against inflation erosion
G - guaranteed premiums to give peace of mind that premiums won’t increase
Comment on the current situation of Alex’s will and power of attorney
Wills
Mirror will is still valid after Tanya’s death
Alex has the right to revoke and write a new will or change his current will as required
New executor may need to be appointed if Tanya was an executor
Wills should be updated following Tanya’s death to reflect Alex’s new wishes and circumstances
Could include a bereaved minors trust via a deed of variation
POA
POA would have lapsed as there was no replacement attorney
Alex needs to write a new LPA for both health and financial affairs
