Protection Policies

Question 1

Key features of a life assurance product

Answer 1

Provide a lump sum upon death
Can be whole of life or a term policy

Question 2

What is the difference between a non profit, with profit and unit linked whole of life policies?

Answer 2

Non profit: Guarantees to pay a fixed amount upon death
With profit: Guarantees a minimum level of cover, though this amount increases each year with revisionary bonuses, higher premiums than non profit
Unit linked: Premiums buy units in the fund of the investors choice, could be run by life company or by another investment manager, very flexible policy

Question 3

3 types of term assurance policies

Answer 3

Increasing term assurance: Where the sum assured increases throughout the term, either fixed or linked to RPI or National Average Earnings Index (NAEI)
Decreasing Term Assurance: Sum assured falls each year in a pre-determined way, usually to zero by the end of the term
Term 100: Term assurance written to age 100

Question 4

Give two examples of decreasing term assurance policies

Answer 4

Mortgage Protection or Family Income Benefit

Question 5

What are the 5 types of underwriting risk classes?

Answer 5

Preferred
Standard
Rated
Postponed
Declined

Question 6

What are the 5 features of a qualifying policy?

Answer 6

Policy term: Must be at least 10 years
Frequency of premiums: Must be payable at least annually
Levels of premiums paid in any 12 month period: Must not exceed twice the value of premiums in any other 12 month period, or over one eighth of total premiums
Max premium: £3,600 P/A
Sum assured: Must be no less than 75% of premiums payable over the contract

Question 7

Basic definition of a Bare, Interest in possession and Discretionary trusts

Answer 7

Bare: Where a defined beneficiary is absolutely entitled to the trust assets
Interest in possession: Requires the trustees to pay all the income from the trust to beneficiaries for a specified period
Discretionary: Where the settlor gives the trustees discretion to whom the trust funds are passed to and when they should be passed, though the settlor usually sets these details out

Question 8

What is a remainderman within an interest in possession trust?

Answer 8

It is a separate beneficiary who is entitled to the capital upon the life tenant’s death

Question 9

3 reasons to use trusts with life policies:

Answer 9

1) Speeding up the distribution of money upon death
2) Building up a fund that is free of IHT
3) Builds flexibility over who receives money from the trust

Question 10

A seven year term assurance policy taken out for the purpose of paying potential inheritance tax on death following a lifetime gift is called a:

Answer 10

Gift inter vivos policy

Question 11

Bethan has a critical illness policy and she has been told that she will NOT be subject to a survival period in the event of a claim. This is because:

Answer 11

It is a joint critical illness and death policy

Question 12

With an increasing term assurance product the sum assured increases in line with?

Answer 12

RPI or the NAEI

Question 13

How do group schemes work when distributing payments from income protection policies?

Answer 13

The insurer pays the employer, who then pays the insured as a salary net of tax and NIC’s

Question 14

What % of income do employers pay in a group Income Protection scheme?

Answer 14

75%

Question 15

How often is a renewable Critical Illness Cover policy reviewed?

Answer 15

Every 5/10 years

Question 16

How often are Private Medical Insurance policies reviewed?

Answer 16

Annually

Question 17

How are unit linked WOL policies flexible?

Answer 17

The level of cover is flexible, and can be altered as needs change. The flexible nature of the policy can offer the policyholder an opportunity to obtain high levels of cover at very low cost

Question 18

What are the key features of the premiums and costs of a Maximum Cover WOL policy?

Answer 18

Premiums: fixed for an initial period, say 5 or 10 years. Then the premiums are usually increased after this period to reflect the increase in the clients age.
Cost: Not expensive initially, then over time as premiums increase it becomes an expensive policy

Question 19

What are the key features of the premiums and costs of a Guaranteed Cover WOL policy?

Answer 19

Premiums: Guaranteed premium level throughout life, in return for a guaranteed level of cover
Cost: Most expensive initially as there is no investment element, the lack of investment element also means there is no “cash in” value

Question 20

What happens upon the first death of the “joint life first death policy”?

Answer 20

On the death of either one of the lives the policy will pay out and then cease

Question 21

What is a terminal illness benefit? (TIB)

Answer 21

An optional addition to a WOL or term assurance policy, if the insured becomes terminally ill and the life office belief their life expectancy is less than 12 months, then the sum assured is paid

Question 22

What is the document called that proves an executors title?

Answer 22

Grant of Probate