Topic 11 Flashcards
What is term assurance
It is the most basic form of life assurance pure protection for a limited period With no element of investment for this reason it is also the cheapest
What are the key features of term assurance
The sum assured is payable only if the death of the life assured occurs within a specified period of time (the term)
The term can be anything from a few months to say 40 years or more
If the life assured survives the term the cover ceases and there’s no return of premiums
There is no cash in value or surrender value at any time
If premiums are not paid within a certain period After the due date (normally 30 days) cover ceases and the policy lapses with no value most companies will allow reinstatement within 12 months provided all outstanding premiums are paid and evidence of continued good health is provided
Premiums are normally paid monthly or annually although single premiums are allowed
Premiums are normally level the same amount each month or year even if the sum assured varies from year to year
What is surrender value
There’s sum payable by the insurance company to the policyholder if the policyholder chooses to terminate the policy before the end of the term or before the insured event occurs
What is the most common use for a decreasing term assurance policy
To cover the amount outstanding on a repayment mortgage
It is usually known as a mortgage protection policy or mortgage protection assurance
The sum assured is calculated in such a way that is always equal to the amount outstanding on a repayment mortgage of the same term
What is ‘gift inter vivos cover’
This is cover is a term assurance policy designed to cover certain inheritance tax liabilities liabilities
These are gifts made during a person’s lifetime as opposed to on death
Therefore these may potentially be deemed as PET’S
What is a convertible term assurance
This includes an option to convert the policy into a whole of life or endowment assurance at normal premium rates without the life assured having to provide evidence of their state of health at the time of conversion
This option is normally included only on level term assurance policies but there’s no technical reason why it should not be included on decreasing term assurances and others the cost is in addition of typically around 10% of the premium
What rules and restrictions apply to the conversion option of an insurance policy
The conversion is normally carried out by cancelling the term assurance and issuing a new whole of life or endowment policy a new endowment can extend beyond the beyond the end of the original convertible term policy
The option can not only be exercised while the convertible term assurance is in force
The sum assured on the new policy cannot exceed the sum assured of the original convertible term assurance if a higher level of cover is required after conversion the additional sum assured will be subject to normal underwriting
The premium for the new policy is the current standard premium for the new term and for the life assured’s age at the conversion date
What is increasing term assurance
This is where the sum assured increases each year by a fixed amount or by a percentage of the original sum assured
What is a renewable term assurance policy
This includes an option to renew the policy at the end of the initial term for the same sum assured without the need to provide further medical evidence
The new term is the same length as the initial term and the new policy itself includes a further renewal option however there is a maximum age usually around 65 after which the option is no longer available
The premium for the new policy is based on the life assureds age at the date when the renewal option is exercise
What is family income benefit
These policies usually pay a tax free regular income monthly or quarterly from the date of death of the life assured until the end of the chosen term
As an alternative to regular income payments beneficiaries may choose to receive a lump sum payment which is calculated as a discounted value of the outstanding regular instalments due
This policy can be described as a form of decreasing term assurance
What is the whole of life assurance
It covers the life assured for the whole of their lifetime it will pay out the amount of life cover in the event of the death of the life assured whenever that death occurs provided that the policy remains in force
Name 4 useful uses for a whole of life assurance policy
Protect dependence against loss of financial support in the event of death of a breadwinner
Provide a tax free legacy
Cover expenses on death
Provide funds for the payment of inheritance tax
What are the 2 options for premiums on a Whole of life assurance policy
Premiums are payable throughout life for example the full term of the policy whatever that turns out to be
Premiums may be limited to a fixed term for example 20 years or to a specified age such as specified age such as 65
Explain about limited premiums on a whole of life assurance policy
The minimum term is normally 10 years
Because whole of life assurance will definitely pay out sooner or pay out sooner or later life companies build-up a reserve to enable them to pay out when the life assured dies life assured dies this enables companies to offer some police to offer surrender values on whole of life policies all of life policies if the client cancels them during their lifetime
These values are generally small in relation to the sum assured
Name the 7 types of whole of life assurance policies
Non profit
With profits
Unit linked
Unitized with profits
Low cost
Flexible
Universal
Describe nonprofit whole of life assurance policy
Fixed level of life assurance in return for payment of a fixed premium
Describe with profits whole of life assurance policy
Fixed minimum level of cover to which bonuses are added to reflect investment profits
Describe low cost life assurance policy
Promise a certain level of cover which is provided by the combination of with profits and a decreasing term assurance as bonuses are paid to the wheel bonuses are paid to the with profits element the decreasing term element reduces
Describe unit linked Whole of life assurance policies
Units issued to the plan holder a minimum level of cover is set out at outset which is increased when the value of the unit’s held rises above that amount
Describe unitized we have profits whole of life assurance policy
Issue units with a guarantee that unit prices will either never fall below a certain level or will increase by at least a stated minimum amount
What is a flexible whole of life assurance policy
When whole of life policies are issued on A unit linked basis they are generally referred to as a flexible whole of life
Their flexibility lies in the fact that they can offer a variable mix between their life cover and investment content
Briefly describe how a flexible whole of life policy works
The policyholder pays premiums of an amount that they wish to pay or feel that they can afford to pay
The premiums are used by units in the chosen fund or funds and the units are allocated to the policy
The policyholder selects the level of benefits that they wish to have
What are the 3 main levels of cover on a flexible whole of a flexible whole of life policy
Maximum cover
Minimum cover
Balanced cover
To calculate the various levels of cover the company makes an assumption about the future growth rate of unit prices
How long is the initial life cover guaranteed on a flexible whole of life policy
Normally 10 years
Beyond 10 years the company reserves a right to increase the premiums or to reduce the cover The death benefit is then guaranteed until the next review
Further reviews are usually undertaken at 5 yearly intervals
