Protection Topic 4 – The range and application of life assurance Flashcards
WOL premiums can be paid in 2 ways
- Payable throughout life
- Limited to a fixed term (e.g. 20 years) or to a specified age
Different investment bases that a WOL policy can have:
- Non-profit – fixed premiums for fixed sum assured
- With-profit – offers potential to receive extras through bonuses
- Unit-linked – sum assured will depend on value of underlying investments
- Unitised with-profit – combines unit-linked and with-profit
- Low-cost – sum assured is made up of decreasing term and a with-profits element
When WOL policies are issued on a unit-linked basis, they are referred to as
flexible. This is because the policies offer a mix of life cover and investment content. The reason this is flexible is because you can pay for the life cover by cashing units at the bid price.
Steps of how a flexible WOL policy works:
- Holder pays premiums they can afford
- Premiums are used to by units in funds
- Holder selects benefits they wish to have
- If a higher level of cover is needed, more units are cashed each month
- If a low level of cover is needed, premiums remain in the units
3 main levels of cover for flexible WOL policies:
- Maximum cover
- Minimum cover
- Balanced cover
To calculate the cover needed, the company makes assumptions on
future growth rate of unit prices.
Universal WOL assurance allows for the adding of other benefits. Benefits that can be added are:
- Income protection
- Critical illness cover
- Accidental death benefit
- Total and permanent disability cover
- Hospital income benefits or other medical cover
- Guaranteed insurability
- Indexation of benefits
- Flexibility of premium levels
When the different types of WOL policies would be used:
- Non-profit – suitable when there is an absolute fixed amount required
- With-profits – suitable for when there is a cautious approach to the provision of lifetime cover but still want growth
- Unit-linked – when you would like both cover and growth, also more flexible
- Universal WOL – similar needs to unit-linked but may require more benefits
Key points of term assurance:
- Can be anywhere from a few months to 40 years or more
- If life assured survives the term, plan is ceased
- No cash value or surrender value
- If premiums are not paid within a period after the due date, policy is ceased
- Premiums can be paid monthly or annually, but single premiums are also allowed (pay for the whole thing in 1)
- Premiums are normally level even if sum assured varies each year
Term assurance can be used for personal reasons (xxxxxx) or business reasons (xxxxxxx).
Mortgage, Key Person Insurance (KPI)
Family income benefits (FIB) policy
- Used to replace main breadwinners income
- Income will reduce over time for the basic plans – making it a DTA
- Policies can be changed to have increasing income but these premiums will cost more
Convertible term assurance
This is where you are able to convert your term assurance policy into an endowment or WOL policy and no medical or health checks need to take place to convert.
The downside to this is that premiums generally cost 10-15% more than a normal term assurance policy.
Renewable term assurance
where you have an option to renew the policy once it ends with no further medical checks
Rider benefits
additional benefits that can be added to both term and WOL assurances
These are the main rider benefits:
- Waiver of premium – designed to ensure payments and made and benefits preserved if the insured is unable to work from accident, illness or disability
- Terminal illness cover – can allow an accelerated payment of death benefit where there is a short life expectancy – usually less than 12 months
- Accidental death benefit – pays multiple of sum assured following death by accident
- Total and permanent disability cover – provides accelerated sum assured payment if permanently disabled
- Guaranteed insurability options – allows sum assured to be increased without any medical checks
