RO1: Chapter 2 Flashcards
What are the three main categories for expenditure?
- Essential spending (house, insurance, bills etc)
- Everyday spending (food, travel, cleaning etc)
- Occasional or non-essential spending (Clothing, entertainment, holidays etc)
What are the two main pieces of information you need to determine a clients budget for spending on financial services?
Income and Expenditure
What is Debt Consolidation?
This is where somebody sets up a new loan to repay a existing loan (often with lower interest rates and lower monthly payments)
Why should care be taken when taking out a consolidating loan secured on a family home?
Could potentially come into more debt and lose the property.
What is Life cover?
Protection product which covers loved ones in event of death,
What is income protection?
Protection product which covers income in the event of the individual being unable to work and gain income through sickness.
What is critical illness cover?
Protection product to cover individual with serious illness.
At what age is the greatest need for protection products?
Mid 20’s to early 40’s (In need of protections for children/family, mortgages, death/illness, redundancy etc)
Why must existing cover be taken into account in assessing protection needs?
As you could be provided with more cover than you require (double up on products).
What are Mortgages used for?
A Mortgage is used to provide security in exchange for a loan on a residential property.
What are the two main ways a Mortgage can be repaid?
- Capital and interest repayments
- Interest-only
What is a interest-only mortgage?
This is where only the interest is paid and the outstanding amount of the money remains the same which is paid at the end of the term in a lump-sum.
What is a capital and interest repayment mortgage?
Monthly repayments which include an amount to cover contributions towards the repayment and a amount to cover interest.
What are the two main types of loan?
- Structured loan = This loan has a fixed interest rate and fixed repayment structure.
- Unstructured loan = You can increase the loan repayments to reduce the amount outstanding and therefore the interest is reduced.
What is a equity release product?
This is where a client can release money tied up in their home. They have no fixed term and allow the client to stay in there home for as long as they need.
What are two main equity release products?
- Lifetime mortgage
- Home reversion plan
What is a no negative equity guarantee?
The guarantee promises that the client and their beneficiaries will never have to pay back more than the value of their home (even if the debt is larger than the value of the home).
What is a home reversion plan?
The client can sell all or part of their home in exchange for a cash lump sum, regular income or both. The home or part of which is sold is then owned by the home reversion provider but the client is allowed to carry on living there under lease or until they die.
What is a sale and rent back agreement?
This is where a company may offer to help a client with financial difficulties by buying their home and then renting it back to them for a fixed period of time. (Also known as flash sales as the home can be bought quickly)
What is Term assurance?
Term assurance is a protection product with no investment element, the client decides on the term of the policy and and pays a regular premium until the end of the policy or until they die. A sum assured will be paid by the life office if the client passes away before the end of the policy however if they survive past the term no further premiums are paid and policy expires.
What is level term assurance?
This a protection product which offers a level sum assured in return for a level premium paid throughout the term.
What is decreasing term assurance?
This a protection product designed to meet the needs of clients with a decreasing liability on death, such as loans which are still gradually being repaid.
What is increasable term assurance?
This is a protection product which allows for the sum assured to be increased regularly over the term of the policy (without evidence that the life assured is still in good health). Life office will charge higher premiums which increase as the sum assured increases.
What is convertible term assurance?
This is a protection product which allows the policyholder to change the term of the policy to an endowment or a WOL with the same sum assured before the end of the term.
