Protection Topic 9 – Needs and priorities in protection

Question 1

Assessing a client’s protection needs means considering what key issues:

Answer 1

• Protection for death
• Protection for illness/disability
• Protection if unable to work
• Capital and income needs
• Needs of a spouse/partner
• Current and future needs

Question 2

What are the 3 first steps when assessing a client for protection

Answer 2

• Assess needs
• Assess amount of protection required (find shortfall)
• Assess existing provision

Question 3

When assessing current and future capital needs from death, you should consider:

Answer 3

• Current income
• Changes to income/capital on death (existing provisions)
• Current cost of living
• Changes to outgoings on death
• Expected changes to outgoings in the future (end of mortgage)
• Cost of known future plans
• Repayment of debt
• Standard of living that is wanted in future
• The want/need to continue occupational/personal benefits

Question 4

When calculating the value of the lump-sum required, there are 2 main methods:

Answer 4

• Take a multiple of the breadwinner’s income or the income shortfall and multiply by 5 or 10 – this may not be enough
• Multiply the additional annual income required by a factor that is needed by the client – for example the amount of years until the youngest child is 18 or 21.

Question 5

Main categories of types of protection needed for illness or disability are

Answer 5

• Replacement income
• Income to pay other people to do tasks (childcare etc.)
• Income for medical bills
• Lump sum for treatment
• Lump sum to pay for lifestyle changes (e.g. stairlift)
• Lump sum to repay debts

Question 6

When assessing amount of protection needed for illness/disability, you will need to estimate projected expenditure for the future. For this it may be useful to consider:

Answer 6

• Current income
• Changes to income as a result of disability
• Current cost of living
• Changes to cost of living with disability
• Expected changes in cost of living (when mortgage is paid or kids go to school)
• Cost of known future plans
• Repayment of debt
• Standard of living the client requires

Question 7

Ranking of individual financial needs when talking about protection:

Answer 7

1. Protection of dependants from a premature death
2. Protection of self and dependants from inability to work
3. Protection of income later in life if client can’t/won’t work
4. Increase and protection of saved or invested money

Question 8

Other planning considerations around financial protection

Answer 8

• IHT planning
• The use of trusts
• Wills
• Care issues (power of attorney etc.)
• Savings investments – reaching their intended goals even after dying
• Considerations if moving/working overseas (what will happen to their policies and if they would like to make new ones)
• Cancelling plans – cancelling existing plans to buy new ones, you must ensure that the same level of cover is in place

Question 9

For with-profits policies, the policyholder has no control over the

Answer 9

investments in the fund

Question 10

A good indication of a company’s wealth (for when choosing which provider to use) is by using their free asset ratio (FAR). This is the

Answer 10

proportion of assets that are not required to meet existing commitments to policyholders (free assets that they own).