Protection Topic 1 - Financial Protection In The Event of Death

Question 1

Protection in 2 broad categories and what do they offer:

Answer 1

Personal

• Replace income
• Repay debts
• Meet additional living expenses
• Ensure existing plans are completed
• Provide treatment or care
• Settling IHT liabilities

Business

• Protection of key employee whose death will have serious impact on business
• Protection for shareholders/business partners death
• Protection for the self-employed

Question 2

Young, single person typical protection needs

Answer 2

• Protection for illness or accident
• Protection against financial effects of critical illness or unemployment
• Typically not many assets here so not many liabilities

Question 3

Younger couples without children typical protection needs

Answer 3

• Income protection
• Private medical insurance
• Illness protection
• Main protection here is protecting income

Question 4

Younger couples with children typical protection needs

Answer 4

• Income protection
• Private medical insurance
• Illness and death protection

Question 5

Middle aged couple children have left home typical protection needs

Answer 5

• Income protection still there but not as needed
• Mortgage payments paid off or reduced substantially so no protection for that
• Private medical care
• Long-term care
• IHT planning

Question 6

Retirement typical protection needs

Answer 6

• Ensuring spouse and dependants are adequately protected
• No need for income protection
• IHT planning
• Care provision

Question 7

When calculating the rough amount of money from protection required in the event of death, the shortfall can be calculated as the difference between

Answer 7

the amount of protection that would actually be needed if the risk event happened and the amount of protection that the client currently has.

Question 8

What assurance is typically taken out for a repayment mortgage

Answer 8

decreasing term assurance

Question 9

What assurance is typically taken out for the capital on the mortgage

Answer 9

endowment assurance which includes life cover

Question 10

What assurance is typically taken out for an interest only mortgage

Answer 10

level term assurance

Question 11

Churning

Answer 11

when an existing policy is cancelled to take out a new policy of the same area. This is frowned upon by regulators and should not be done. If proven to be completely beneficial, this can be done

Question 12

State provisions for death

Answer 12

• Bereavement payment – main payment for deaths after 6 April 2017
• Widowed Parent’s allowance
• Bereavement allowance

Question 13

Pension provisions for death

Answer 13

• Now more choice with drawdowns
• Annuities can have benefits now to provide some protection
• Individually underwritten annuities – where a pension provider will personally assess a clients status, including where they live, their health etc. and their annuity payments can be more if they are in worse health for example.

Question 14

Pension funds can reduce the amount paid out if the holder

Answer 14

dies before pension age, so these incomes must be protected accordingly as young families can really feel the effects of this.

Question 15

Loan repayments must also be protected as this can lead to

Answer 15

being in debt, assets being repossessed and even bankruptcy

Question 16

Factors affecting the scale of need for those who require cover after death of income earner:

Answer 16

• Number and ages of children/dependants
• Ability of spouse to create new income
• Entitlement of state benefits
• Amount and duration of any employer benefits
• Availability of family or other helpers for childcare
• Amount and accessibility of savings
• Amount of any financial liabilities
• Level of income earned