R05 Flashcards
For which events are insurance policies most effective?
Insurance policies are most effective against low frequency, high impact events, e.g., a family home burning down
Is insurance appropriate for high frequency, high impact events?
Insurance for these types of events will be highly expensive or simply unavailable. This type of risk is best ‘managed’ as opposed to insured
What is a common misconception that insurance policyholders have?
A lot of policyholders overestimate the amount/term of their existing cover and don’t appreciate the gap between what they have versus what they need
Give examples of reasons people give for buying insurance
Part of financial planning
Bought with mortgage
Death/illness of close friend
Life event
Persuaded by adviser/salesperson
Provided by employers
Give examples of reasons people give for not buying insurance
Don’t need it
No mortgage or dependents
Employers provides cover
Prefer to use money for other things
Don’t know how to
Too expensive
According to a 2014 report, why are consumers often not willing to use a financial adviser?
A lack of trust in the adviser
Consumers highlighted concerns about whether the service was unbiased and whether it was good value for money in terms of commission or fees
Name the main drivers of sales of life insurance products
On an individual level, the demand for life assurance is driven by the income, age and life stage of the person
The overall demand for life assurance is driven by affordability, the housing market and income per capita
What is the ‘protection gap’, and what is the current estimate in the UK?
Describes the difference between the amount of cover needed compared with what people actually have, i.e., it is ‘the shortfall in the amount of cover necessary to maintain the current living standards of dependents’
Resources needed – cover already in place = protection gap
Why does a buoyant housing market lead to increased sales of protection policies?
An increase in the amount of house purchases increases demand for mortgage protection via life and critical illness packages
By contrast, increased renters leads to lower protection needs
What is the difference between morbidity and mortality?
Morbidity is defined as the relative incidence of a particular illness, whereas mortality is concerned with life expectancy (death)
How might improved longevity and mortality create protection issues?
This has the effect of creating an ageing population
Creates concerns over the cost of longevity (pensions and long-term care), usually plans have ended when mortgage paid off and close to retirement, but retirement is becoming more flexible and lasting longer
Can insurers offer different premium rates for males and females?
Since 2012, insurers are no longer able to charge different premiums depending on gender
For which events are insurance policies most effective?
Insurance policies are most effective against low frequency, high impact events, e.g., a family home burning down
Is insurance appropriate for high frequency, high impact events?
Insurance for these types of events will be highly expensive or simply unavailable. This type of risk is best ‘managed’ as opposed to insured
What is a common misconception that insurance policyholders have?
A lot of policyholders overestimate the amount/term of their existing cover and don’t appreciate the gap between what they have versus what they need
Give examples of reasons people give for buying insurance
Part of financial planning
Bought with mortgage
Death/illness of close friend
Life event
Persuaded by adviser/salesperson
Provided by employers
Give examples of reasons people give for not buying insurance
Don’t need it need
No mortgage or dependents
Employers provides cover
Prefer to use money for other things
Don’t know how to
Too expensive
According to a 2014 report, why are consumers often not willing to use a financial adviser?
A lack of trust in the adviser
Consumers highlighted concerns about whether the service was unbiased and whether it was good value for money in terms of commission or fees
What is a preferred life policy?
These types of policies offer better rates to applicants who meet strict lifestyle, health and fitness criteria, e.g., are non-smoker and a habitual exerciser
How have trends in underwriting changed the protection market over time?
Improved life expectancy leads to competitive premiums and aggressive underwriting. Life offices are rating more lives and create different groups in their portfolio of insured lives
‘Super-select’ lives pay low premiums and provide a low margin whereas higher premiums are paid by those with health concerns
How has commoditisation changed insurance markets?
Insurance policies are treated like a commodity with many price comparison websites making it easy for consumers to compare policies.
Puts pressure on companies to offer their best possible price.
Why might it be valuable to purchase protection through an adviser?
Advisers can undertake a needs analysis and arrange appropriate features and levels of cover for the client, and if necessary, place the policy in trust.
What is life assurance?
Usually provides a lump sum on the death of life assured
What is income protection insurance (IP)?
Provides a regular income when insured is unable to work through illness or incapacity