topic 11 Flashcards
What is term assurance and its key characteristics
Term assurance is a financial product which is an equivalent to life assurance but it is much simpler as there is no investment involved in this type of assurance.
This type of assurance is usually very cost effective for the families as when the terms end they do not offer returns and there is no investment therefore the premium is lower as well as this for personal use it offers a safety blanket for families and for business use it offers support to businesses who lose key employees and profits due to this as well as offering the shares to family members.
What is level term assurance
This is a flat rate assurance where the payout does not change over the whole term of the assurance therefore there is a sure payout families can rely on. This payment can be made either monthly/annually or a single payment.
The use of this can be for a set term where families would like assurance until debts are paid or for children until they become financially responsible, however as it is a fixed payout this can erode its value over time due to inflation.
What is a decreasing assurance
A decreasing assurance is one which is devalued over time meaning the payout will decrease over the term usually slower at the start than will accelerate towards the end.
This is perfect for those using the assurance for mortgage payments as this will be in line with the mortgage repayments as they will decrease over time due to the outstanding balance slowly being payed off. Theses premiums will also be lower due to the decrease in risk over time and will cover the mortgage in case of the death of the assured.
What is convertible term assurance
This is a type of assurance which can be converted into a whole of life assurance from a short term assurance policy which gives the policy holder flexibility in the short term as they have the option to convert but only during the time of the term.
This policy is perfect for those unsure and needing flexibility in their term to increase to a long term without the need to show medical proof however with this assurance the original sum assured cannot be exceeded by the new sum but premiums will increase.
What is an increasing assurance
This is just an assurance which increases over time to counteract inflation. these rises will usually happen annually at an agreed percentage and will have greater premiums that the level term assurance as the risk is higher to the assurer.
This is ideal for those wanting life cover as well as holding onto their purchasing power.
What is renewable term assurance
This is just an assurance policy which can be renewed at the end of the term with a new premium however it must be renewed before the current term ends. The premiums are based on the age of the individual at the time of renewal.
This is perfect for young individuals wanting cover in the short term as well as flexibility to renew and benefit from the safety net.
What is family income benefit
This is for those who rely on the income of the assured, this will allow the family to gain monthly payments to replace that income or a lump some at a discounted price of what remains on the term.
This is ideal for families however the terms monthly payment can heavily depend on the premium and the time of death as if the death happens earlier in the term then there is more that is given to the family monthly but if the death is later the payments are less.
What is gift inter vivos cover
This is a special type of assurance bought by those who would like to be efficient with their inheritance tax especially the potentially exempt transfer. This type of cover will decrease over the term of 7 years along with the tapering tax of the gift and this type of assurance will be terminated at the end of 7 years.
This allows those individuals to benefits from the gift in full value and be certain to have that from when the gift is given.
What is whole life assurance
This is for individuals who need peace of mind in their life to cover all their liabilities for their families when they pass away making sure they know their families are secured in their absence.
This type of assurance offers life time assurance as long as premiums are payed as well the option to withdraw before its maturity which is death however there will be fees involved.
This assurance is usually tax free however if payment is taken before maturity then it will come down to the judgment of if it is qualifying or non qualifying. The payments can be made for a life time or in a fixed term which can be to a certain age.
This type of assurance is useful for all as it offers personal cover or business cover or estate cover.
Name the 5 types of whole assurance
- non profit assurance- this is for those not wanting risk as it offers fixed assurance over a fixed term as there is no investment involved.
- With profit assurance- this offers a guaranteed sum to the insured as well as a chance for bonuses if performance of the investments do well.
3.Low cots assurance- this combines the with profit assurance with decreasing assurance as it will allow the assured to have lower premiums with chance of bonuses with guaranteed payouts.
4.Unit linked assurance- this type of assurance is tied to an investment unit in funds with a guaranteed sum which is set at the start with profits that can increase with bonuses over time depending on the performance.
5.unitised with profit assurances- this is the mix of with profit and the unit linked assurance as it set with minimums which units cannot go below as well as a set increase which is all set at the start.
What is flexible whole of of life policy
This type of policy allows the policy holder to prioritise either the investment or the cover by unit linked covers which include:
minimum cover which is the priority of investment of cover.
maximum cover is the priority of cover over the investment.
balance cover is a healthy mix of both.
What are universal whole of life
This is a policy which is also unit linked that has added benefits such as illness payouts if the holder gets too ill to work as well as premium delays which has payouts or delays if the holder cannot pay the policy. There are also death related benefits which allow the holders family to receive payments in accidental death or increase in payout for adjusted inflation holding purchasing power.
What is a joint life second death policy
This is a policy which secures the family from lower taxes when dealing with inheritance taxes and handling of estates. This policy allows that estates are transfered to a trust with a beneficiary when the second death occurs the policy will help to cover the inheritance tax. On the first death inheritance tax is not payed as its moved to the second partner.
What are the characteristics of a non profit endowment
This is an endowment which is allows the policy holder guaranteed income/payout at fixed rates with fixed premiums. The benefits of this allows the policy holder to not be affected by the market as well as simplicity and assurance of what is to come. The downside of this is that the market upside cannot be exploited by a policy holder as well as an inflation hit.
This policy is not very popular nowadays as there are many other options which can be exploited.
What are the characteristics of a full with profit endowment
This type of endowment is one which provides a payout and added bonuses they have higher premiums as there is greater returns from the investments made.
The type of bonuses are split into two which are reversionary bonuses which are made a percentage of the basic sum or the total sum assured plus bonuses which allows for short term market stability or the second bonus is terminal bonus which is a bonus made from the total investments made and applied at the maturity.
The advantages of this are greater returns on the plans with a safety net for those with basic payments as well. The disadvantages are that the premium will be higher and can be too much for some as well as bonuses not being guaranteed.
