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Paraplanning > R01 Chapter 2 Part 1 > Flashcards

R01 Chapter 2 Part 1 Flashcards

1
Q

What’s a simple exercise to gain better control of finances

A

Budgeting

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2
Q

Essential spending

A

Housing costs
Insurance
Council tax utilities

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3
Q

Everyday spending

A

Food
Cleaning
Travel

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4
Q

Occasional/Non-essential spending

A

Clothing
Entertainment
Birthdays
Holidays

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5
Q

Ways to reduce spending

A

Cut back on non essential spending
Check APR on credit cards and loans

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6
Q

You client may have a debt problem if:

A

-Using credit cards/loans to pay everyday bills
-Considering taking out consolidation loan
-Paying no more than the minimum amount on credit cards
-Using credit card to take out cash
-borrowing money without knowing how they will pay it back

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7
Q

Who can help with debt?

A

Debt management companies

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8
Q

Consolidation loans

A

High fees
May continue to a history of loans
May lead to penalties if don’t pay back loans

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9
Q

Risk of property loans

A

Could lose home

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10
Q

What is a mortgage

A

The security offered in exchange for a residential home loan

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11
Q

What are the two main mortgage types

A

Capital and interest
Interest only

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12
Q

Cap and collar mortgage

A

Interest rate will not rise above a certain level, but it won’t go below a certain level too

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13
Q

Capped

A

Interest rate won’t rise above a certain level for a certain period of time

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14
Q

Discount mortgage

A

The interest rate is reduced to a set percentage below the standard rate for a period of time

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15
Q

Euro mortgage

A

Ideal for those earning abroad. Usually lower interest rates.
This can result in gains or losses due to currency fluctuation

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16
Q

Equity linked mortgage

A

Lender takes a stake in the home. When home is sold, lender takes a percentage back

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17
Q

Fixed interest

A

Interest rate remains fixed for a given period

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18
Q

Flexible mortgage

A

Monthly payments can be varied.
If borrower experiences financial difficulties they can use the reserve.

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19
Q

Green mortgage

A

Rewards borrower for buying an energy efficient home

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20
Q

Offset mortgage

A

Where the mortgage account and current account are linked,

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21
Q

Home revision plan

A

Sells house to company that in return lets them live there for rent till their end of life or go into long term care

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22
Q

A roll up mortgage

A

Client gets a lump sum or regular income, charged a monthly or yearly interest.

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23
Q

Fixed Repayment mortgage payment

A

Client gets a lump sum, but doesn’t have to pay interest
When home is sold, the pay the lender a higher amount than was lent to them.

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24
Q

Home income plan

A

Money borrowed is used to buy a fixed income for life (annuity)

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25
Q

Home purchase plans

A

Ways to purchase a home with no interest.
This is of particular use to Muslims

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26
Q

Ijara

A

Monthly payments are held by the firm, then used to buy the home at the end of the agreement

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27
Q

Diminishing Musharka

A

Each payment buys a slice of the firms share. We the clients share increases, the rent paid gets smaller

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28
Q

Sale and rent

A

Some company’s buy their home and rent it back to them for a fixed period of time.

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29
Q

Consumer buy to let

A

Unintentionally acquired for the purpose of letting it out.
E.G inheriting an unpaid off property and needing to let it out to cover the costs.

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30
Q

Business buy to let

A

Borrowers are entering a contract to be a professional landlord.
Purchasing property with the sole purpose of being used to rent out.

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31
Q

Un-structured loan

A

Mortgages, loans on commercial property.
You can increase loan repayments and reduce outstanding capital.
Can be related at any time.

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32
Q

Structured loan

A

Smaller purchases like a car or a sofa.
Fixed rate of interest .
Higher risk end of the market.
Costs can be higher

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33
Q

What Influences protection needs?

A

Age, dependants, income, financial liabilities, employment status, existing cover

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34
Q

How does age affect protection needs?

A

Young/single - unlikely
Young/couple/child - very likely
Older couple/financially independent child - unlikely

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35
Q

Inheritance tax

A

A tax imposed on people who have inherited an estate worth more than £325,000.

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36
Q

Emergency fund

A

There as a safety net for unexpected bills. Such as, car repair, money to live on in the event of a few weeks unemployment

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37
Q

Term assurance

A

Pays a lump sum on the death of the life assured.
Client decides how long they require cover.
The older the life assured is or the longer the term, the higher the premium will be

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38
Q

Level term assurance

A

Offers a level sum in return for a level premium

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39
Q

Decreasing term assurance

A

As the amount of loan is reduced, the sum assured also reduces.

40
Q

Increasing term assurance

A

Allows the sum assured to increase over the term of the contract without evidence that the life assured is in good health.
Life office will charge higher premiums as the sum assured increases

41
Q

Convertible term assurance

A

Can change the policy to either endowment or whole of life policy.

42
Q

Renewable term assurance

A

Allows a client to affect a term assurance for three or five years. At the end, the can affect a similar policy without having to give the life office evidence of good health

43
Q

Endowment policies

A

Pay a lump sum on the death of the life assured, but the policies are primarily for saving.
Bulk of premium is directed to savings element of the contract.
Little to no surrender values.

If client does within the term, a lump sum gets payed out to the heirs.
If the client survives the term, they get a large lump sum.

44
Q

Whole of life policies

A

Provide substantial life cover, some provide investment element.
Cover for the lifetime of the assured.

45
Q

Non-profit whole of life

A

Guarantees to pay a fixed amount of life cover upon death.

46
Q

With profit whole of life

A

Guarantees to pay a minimum level of life cover on death. Amount increases annually by addition of bonuses.
Bonuses are permanent but not guaranteed

47
Q

Flexible life insurance

A

The policy holder chooses between a minimum and maximum level of cover. It can be changed within these limits at any time.

48
Q

Income protection

A

Replace lost income due to illness or injury and unable to work

49
Q

Personal accident and sickness insurance

A

Pay a regular benefit when people are unable to work due to illness or following accident.

50
Q

Accident, sickness and unemployment cover

A

As well as if you’re sick or had an accident, it’s pays out if you’re made unemployed by no fault of your own

51
Q

Critical illness cover

A

Pays a lump sum
Typically covers
- heart attack
- stroke
- cancer
- surgery for coronary artery disease
- major organ transplant
- kidney failure/transplant

52
Q

Private medical insurance

A

Uses private hospitals to take treatments and usually has the benefit of a quicker and more reliable service.

53
Q

Long term care insurance

A

What a client needs for the foreseeable future as a result of an illness or old age
Provides some of the cost of care

54
Q

Payment protection insurance

A

Pays benefits is an insured person is made redundant.
Usually only available in connection to mortgages and loans m

55
Q

Mortgage payment protection insurance

A

Similar to PPI, but for mortgages only

56
Q

Universal credit

A

Began in 2013
Aims to simplify and streamline the benefit system by bringing together a range of benefits and credits into a single system

57
Q

Child benefit

A

Non taxable - £24pw 1st child
- £15.90pw per extra child
Tax payable if parter earns over £50k

58
Q

Child tax benefit

A

Replaced by universal credit for new claimants.
Integrated into HMRC tax system

59
Q

Statutory adoption pay

A

Helps parents take time off work when adopting.

60
Q

Statutory maternity pay

A

First 6 weeks at 90% earned income before tax.
No upper limit to pay.
33 weeks at 90% or standard rate.

61
Q

Statutory Paternity pay

A

1/2 weeks at 90% pay of income before tax
Must worked at same employed for at least 26 weeks by 15th week before baby is due

62
Q

Income support

A

Non taxable
£67.20pw (single) £133.30pw (couple)
New claims can’t be made anymore
Universal credit has replaced

63
Q

Jobseeker’s Allowance

A

Contribution based.
Taxable.
£67.20 (under 25)
£84.80 (over 25)
New claims can only use ‘new style’

64
Q

Statutory redundancy payments

A

Non taxable
Based on number of years service with employer
There is a maximum payment of £19,290pa
£30k plus payments are subject to income tax and employer NI

65
Q

Working tax credit

A

Non taxable
Up to £2,340 pa
Administered by HMRC
Replaced by universal credit for new claimants

66
Q

Support for mortgage interest

A

It’s a paid loan, must be repaid with interest
No limit on how long it can be claimed

67
Q

Sickness and disability benefit

A

Non taxable
£101.75pw (higher)
£68.10pw (lower)
Help pay extra costs of state pensioners that have a disability and need someone to look after them

68
Q

Careers allowance

A

Taxable
£76.75pw
For those who look after someone disabled
Don’t have to be related to the person you’re looking after

69
Q

Disability living allowance

A

Non taxable
Contains a core component and a mobility component
Core:
£101.75pw
£68.10pw
£26.90pw
Mobility:
£71.00pw
£26.90pw

For disabled people who have difficulty walking and need someone to look after them
Replaced by Personal Independence Payment

70
Q

Personal independence payment

A

For those aged between 16 and 64
Based on assessment of individual need
Face to face consultation upon application
£26.90 - £172.75

71
Q

Employment and support allowance

A

Income related/contribution based
Assessment phase: £84.80pw
Main phase: up to £118.50pw

72
Q

Mobility scheme

A

Disabled people can lease a new car, scooter or powered wheelchair

73
Q

Statutory sick pay

A

Up to £109.40pw
Paid by employers up to 28 weeks

74
Q

New state pension

A

For those who retire on or after 6th April 2016
Taxable, contributions based.
Up to £208.75 pw

75
Q

Basic state pension

A

For those who retired before 6th April 2016
Contributions based, taxable
Up to £156.20pw

76
Q

Additional state pension

A

Before 6th April 2016
Paid in addition to basic state pension

77
Q

State pension credit

A

Up to £201.05pw (single)
Up to £306.85pw (couple)
Guarantees minimum income to those of state pension age by topping up weekly income.

78
Q

Bereavement support payment

A

First payment of £3500
18 months at £350
Claim must be made within 3 months of persons death

79
Q

Cold weather payment

A

Paid to those with SMI to help with extra heating costs.
Must be 7 consecutive days of freezing or below between November and 31st march

80
Q

Council tax reduction

A

Financial help for low income to pay council tax bill

81
Q

Funeral expenses payment

A

Help low income families pay for a family funeral
Paid back from the estate of the deceased

82
Q

Health care travel cost scheme

A

Travel costs for those on low incomes who need NHS treatment at hospitals. NHS centres, private clinics that have been referred by NHS hospitals

83
Q

Health costs

A

For you old and low incomes for health costs

84
Q

Healthy start scheme

A

For pregnant women on low incomes
Get a ‘healthy start’ card to buy fruit, veg, milk + vitamins

85
Q

Local housing allowance

A

Paid to private tenant on low income who is renting property or room from a private landlord

86
Q

Winter fuel payment

A

For those born on or before 1966
Annually £250-£600 to help pay increasing heating bills

87
Q

Annual pension allowance

A

£60,000 current tax year

For every £2 above £260,000 income, £1 is deducted from allowance up to a minimum of £10,000

88
Q

Other methods of finding retirement

A

ISAs
Any investment
Cash reserve

89
Q

Purchased life annuity

A

Separated into income and capital elements.
Interest element is taxed at 20% and then 20-25% by self assessment

90
Q

Compulsory purchase annuity

A

Taxed as earned income
So taxable at 20%, 40% and 45%

91
Q

What are the two main pension types

A

Occupational and Personal

92
Q

Occupational pension

A

Set up by employer
Trustees appointed to oversee

93
Q

Defined benefit

A

Pension is related to their earnings.
Doesn’t usually include earnings from bonuses or commissions.
Usual accrual rates are 1/60th or 1/80th of earnings for each year of pension scheme service.
I.E - if you worked 40 years, and your last salary was 30k, you would do 40 60ths X 30k = £20k per annum

94
Q

Group personal pensions

A

Like a personal pension but done with a group of people

95
Q

Stakeholder pensions

A

Personal pensions which meet additional stake holder product requirements

Paraplanning (5 decks)

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