Protection Products Flashcards
Areas to comment on protection cover for clients
-Is there a will in place. Impact of not having a will. Laws of intestacy. Funeral arrangements etc
-Mortgage-is it protected in the event of death on first death, in event of sickness, critical illness
-is there family income benefit in place that would pay income on death to replace
-Sick pay-is there sick pay. If not DWP. And its means tested. Would they qualify?
-PMI-does family have PMI? If not, should they need urgent surgery they may need to wait and risk losing more income
-Impact of long term sickness on their financial aims-who is the breadwinner
What is level term assurance and what does it generally cover? (1))
To cover a debt or liability. Death during term triggers. Eg mortgage
What is decreasing term assurance?
For debts that are reducing (eg repayment mortgage)
Last for term of debt
What are the features whole of life assurance? (7)
Life cover and investment mix
Normally on JLFD/JLSD own life joint life
Used often for iht/ mortgages
Lump sum
Can have CI bolt on
Inflation proofed through range of equities
Unit linked
What is critical illness? (4)
-Pays out a lump sum on survival to assist with CI
-14-30 days survival
-standalone or as bolt on to life cover
-can be term, WOL, endowment
What is income protection (6)
-for long term illness/sickness/accident
-tax free
-to chosen retirment age
-own profession
-once taken out cannot be cancelled
-based on current health
What is LTC (2)
-Long term care fees for those who cannot complete daily task
-Can be immediate or pre funded
What is PPI
Illness accident
To cover debts
Set term
Max 2 years
What is ASU
Income for set term
Max 2 years
What is personal accident and sickenss? (4)
Short term income/smaller lump sums
For illness, accident, disability
Set terms
Max two year pay out
What is PMI?(6)
Covers medical bills/hosp bills
For treatment
Annual fee
Allows to go private/helps get back to work esp self employed
Pre existing normally excluded
Underwriting at application
How do the premiums work for WOL assurance? (5)
-paid monthly/annually
-buy units
-Premiums cancelled for life cover
-set based on assumed investment return
-If underperforming policyholder can increase premiums or reduce cover
What levels of cover are there for WOL assurance and when is it set? (3)
-can be on a maximum cover, standard or guaranteed cover basis
-set initially so you dont need to increase
What is maximum cover for WOL?(4)
-Fixed for set term the jumps up
-Client can increase premiums or reduce cover for sum assured
-small surrender value may build up
-good if want reduced initial payments eg. Wife on maternity
What is guaranteed cover for WOL?(3)
-No investment element
-guaranteed premiums
-More costly from outset but doesnt increase
What is standard cover for WOL?(2)
-set so it doesnt increase
-remains as long as fund meets return
Why is own life WOL used? (3)
When benefitting own life
Goes into estate (not to beneficiary)
Endowments
What is the downside of JLFD?(3)
Survivor will need to continue premiums
Doesn’t cover if both die
Creates estate problem for survivor
What is JLSD typically used for? (5)
-Normally put under trust
-Less tax
-Quicker payout as does not go to probate
-Legally owned by trustees
-Used to pay IHT charge
What are the cover plans for WOL assurance (3)
-Maximum cover
-Standard cover
-Guaranteed cover
What is an assurance bond? (5)
Alrernative to life insurance
Single premium(unlike life)
Non qualifying WOL
Benefit is sum assured from inv vehicle on death
No term-pays out on death to beneficiaries
What are the features of term assurance? (5)
-Cash lump sum on death within the term
-Can be index linked (increasing term assurance)
-Can be taking out to cover age 100 (Term 100)
-can be decreasing term (good for Iht)
-Can have renewable-option to extend when come to end (good if ill health and cant get another provider to insure)
-can have a convertible option (converts at end of term without need for new health assessment)
What is family income benefit? (5)
-pays out tax free regular income to family on death during the term
-no lump sum
-generally the most affordable life insurance
-can include CI
-cost based on mortality
What would you need to consider when choosing a suitable policy for a client? (4)
-the purpose
-affordability
-investment element wanted?
Desirability to have guaranteed or flexible premiums
Features of IP
standard cover-deferred 50-60 of salary, pay until return or die
limited-short term,
day one-for self employed-from day one
WOP-waiver or premium feature ensure policy continues-based on morbidity
What are the benefits of IP?
-Linked periods of illness-no need for double deferred periods
-Unlimited amount of claims
-works with sick pay
-tax free
Describe group ips FPB
Features
paid to employer to distribute to staff if get sick
Paid to all staff (non selective)
Simplified underwriting (no medical underwriting needed for limited payout)
Not a benefit in kind
Premiums
Paid by employer
Can be reduced if cover reduced to term
Deducted as business expense
Benefits
Often higher than normal ip-c75%
Taxed as income
Normaly deferred for 20weeks (SSP IS 28 weeks)
Taxable for employee (as they havent paid tax on this yet)
FPB of CI (f=8,p=3, b=3)
Features
Based on morbidity
Standalone or combined with life cover
Can be held in trust-split benefit w/Li (retain some benefit for self eg.Ci and some others in trust)
14-30 day survival required
Index link available (premium increase and need higher amount possible)
Life cover buy back option (feature that allows you to continue the life cover once claimed. (CI policy is over once claimed)
-Exclusions exists eg. Types of activity etc
-reinstatement cover (reinstates after divorse)
Premiums
-Guaranteed or reviewable
-WOP available
-based on age, medical history, med, history of family, lifestyle factors
Benefits
Cash LS on survival
Reduced sum assured may be paid for some CI’s
Non taxable
FPB OF LTCI (5,4,2)
Required when can no longer do ADL (eg. Keep safe, clean)
Your contribution to long term care is means tested by the gov
Features
Pays an income until death
Deffered care-own care for x years
Immediate needs-ls paid based on perceived life span
Pre-funded policies-paid for before care needed
equity release-Lifetime mortgages (paid back when die) or home reversion plan (sell part/all of home)
Premiums
As lump sum-for immediate of future
By regular premiums (pre funded build up)
Whole life-policies pay out on need
Equity release-money from
House
Benefits
Paid for all/part of period policyholder cannot live without assistance
Annuity pays for life
How is long term care means tested?
On savings
Describe PMI (8)
-Covers acute conditions(urgent/short term care)
-Basic, standard or comprehensive plans
-Excess fee available-higher the excess the lower the cover
-non taxable
-annually reviewable
-increases with claims
-if group-taxed as BIK, allowable business expense
-monthly/annual premiums
Describe Personal Accident and Sickness insurance (5)
-covers medical expenses
-on accident/sickness
-Annual contract
-weekly sickness payment after deferred period
-Max 2 years payout
When do you review WOL cover?
Typically after 5-10 years
What is normally the four outcomes of a WOL policy review? (4)
-premiums increased to maintain cover. (If on maximum cover -reduced
Premiums at start)
-cover decreased if premium not affordable
-no action-remain same
-do nothing-policy may cease
What is family protection? (2)
Level term
Often on interest only mortgages
What is family income benefit?
Pays regular income if dies
Sum assured reduced
Lowest cost-simply
Three type of life covef
WOL
TERM
ENDOWMent
What are the features of an endowment policy? (7)
Life cover and investment
Can have bolt on CI
Unit linked-cancelled units pay for cover
Pays out on death or provide investment return at end of term
-can be taken out of sinlge or joint life
-wop
-Guaranteed/renewable
What is WOL maximum
Cover? (5)
Premium fixed for 5-10 years
Likely to go up
Or sum assured reduced
Highest protection for given premium
Suits low initial with less care for premiums increasing in future eg. If finances better
What is WOL standard cover? (3)
Where dont want hikes-consistent
Can build up a investment value
Investment/protection mix more even than maximum cover
Features of term assurance (4)
Cheap
Used for fib/IHT lifetime gifts
Single/joint life first death
JLSD irrelevant coz its term
What is level term assurance?(4)
Payment on death during term
Fixed premium and sum assured
Policy lapses if not paid
Interest only mortgage use
What is renewable term assurance? (3)
No health evidence required on exercising option
Often used for key person insurance
Normally expire age 65
What is convertible term assurance? (4)
No further health evidence required
Convertible at end or during or to WOL or endowment
Premiums
Recalculated at conversion
Often used for key person ins
What is decreasing term assurance (2)
-Premium and sum assured decreases each year
-Often used as gift intervivos (for pets) or mortgage policy with repayment
Why is increasing term assurance used? (4)
-keeps line with inflation
-cover increases by set % or index linked
-no health evidence required for this
-premiums increase with age (eg 65)
What is a FIB and when used? (12)
-Suits families with young children
Often used to cover the financial dependancy of children
Indexed to keep pace with inflation
Cheap so good for tight budget
Term decided at outset
Pays out until the end of the term
If claim made later in term payout will be less
Can be level, decreasing or increasing payments
monthly, quarterly, annual LS instalments after death of assured within terms
Tax free income
Simple underwriting
Can be placed in trust
Known cost/affordability
Why does ATR come into consideration for those with no protection in place?
No cover means a much higher ATR
May not be in line with client
May not be consistent
Does it match their aims
What is mortgage payment protection insurance? (5)
-pays mortage and assoc bills
-Only pays out for 12-24 months
-max payout 125% of mortgage
-cheap-for when affordability an issue
-special criteria for self employed to claim
What is the purpose of WOL cover? (2)
-to pay out a sum of money to ‘someone’ on death.
-can be used to protect family, for IHT,
Why does guaranteed WOL cover has no investment element?(2)
-So premiums can be guaranteed.
-If investment underperforms on WOL premiums need to be adjusted or sum assured reduced
What is special events in relation to life
Cover? (4)
Feature often automatically included
No underwriting needed
Allows policyholder to increase sum assured, eg on marriage
Within age 20-55
What would client need to do if no cover is in place and unexpected happens stopping them from
Working? (5)
Reduce outgoings-less imcome
Deplete savings
Approach family and friends
Claim DWP benefits-low amount-admin
Put future plans on hold
What is waiver of premium in relation to protection policies and pension (5)
On protection products and pension as bolt on
Kicks in after deferred period and lasta until retirement
Premiums must be paid in deferred period
Inexpensive
Paid on pension as increase in contribution that gets no tax relief
What are the four underwriter outcomes when asessing a policy application?
Exclusion-exclude condition
Deferral-eg for two years
Decline-no cover
Apply rating-spend more on cover or reduce cover in line with their affordability
What policies have no cancellation rights? (4)
Traded life policies
Policies that are less than <6 months
Non UK res and some pension linked benefits
Travel ins<1 month
What cancellation period for OEICS, ISAs, EIS/CTF/GI have?
14 days
When cancellation period for life, pension, annuities, OEICS and EIS that are part of life policy wrapper
30 days
From what point can you request a right to cancel?
Once you’ve received the right to cancel documentation
You must request right to cancel
What is the purpose of a reflection
Period?
30 days before product commensement as often non reversible
What is a shortfall clause
A clause whereby a firm may have already bought investments so will be the
value of the original investment or underlying value of investment (lowest)
Features of critical illness cover (14)
Pays lump sum on diagnosis of ci
14-30 days survival
Severity based cover-on likelihood that will die in term
Useful to pay off mortgage. Adapt house, adapt vehicles, school fees etc
Guaranteed/reviewable policies -x2 higher cost of review in 5-10
Underwriting required-stricter than basic life cover
Term-limited or wol
Premiums-lump sum or regular
Bolt on to life cover
In trust-with life cover as split benefit trust-ci goes to settlor, life cover to beneficiaries
Child cover as extra-ci for child
Index linked/guarantees-sum assured increases in line with inflation so counter changes to life even
Buy back feature-once claimed on can be hard to get cover. Buy back allows a restricted level of cover
WOP-waives after deferred period of sickness
What is a qualifying v non qualifying endowment policy
Qualifying is totally free of income tax on withdrawal-5% can be withdrawn each year
10 years hold or 3/4 of term
Non qualifying is taxed at individuals marginal rate
What does a life policy need to be in order to be ‘qualifying’ (5)
10+ years
Premiums yearly or more frequent
Premiums no more than twice the year previous (smooth premiums)
Life cover min 75% of premiums paid
Doesnt give rise to a chargeable gain on encashment
What happens when a life policy is ‘qualifying’
Doesnt give rise to a chargeable gain on encashment
Why is an onshore and offshore bond non qualifying?
As often single premium
5 Benefits and 5 db of group PMI (5/5)
Treated as a business expense
Faster treatment/return to work
Choice of hospital/doctor
Likely cheaper than personal cover
Could cancel other plans
Could lose cover if leave employer
May not cover wider family
May not have choice of cover
Taxable as BIK
Higher rate tax paid on premiums when salary increases
