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Cemap Unit 1 > Topic 11 Life Assurance > Flashcards

Topic 11 Life Assurance Flashcards

1
Q

What is term assurance?

A
  • the most basic & cheapest
  • sum assured is payable if death occurs within the term
  • if the life survives the term, cover ceases
  • no cash-in-value or surrender value
  • premiums are normally level
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2
Q

What is level term assurance?

A
  • the sum assured remains constant throughout the term
  • often used for a fixed-term debt such as a bank loan
  • need to bet in mind the effect of inflation in real terms
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3
Q

What is decreasing term assurance?

A
  • the sum assured reduces to nothing over the term of the policy
  • often used to cover a decreasing debt such as a mortgage
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4
Q

What is a gift inter vivos cover?

A

A term assurance policy designed to cover certain IHT liabilities.

Gift inter vivos are gifts made during a person’s life, as opposed to death

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5
Q

What is convertible term assurance?

A

this allows the policy holder to convert the policy to a whole-of -life policy are normal premium rates, without having to provide evidence of health at the time of conversion and no additional underwriting

  • the level of cover has to remain the same
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6
Q

What are increasing and renewable term assurances?

A

Increasing term assurance means the sum assured increases over time.

Renewable term assurance includes an option to renew the policy at the end of the initial term for the same sum assured, without the need to provide extra medical evidence (usually has a max age of 65)

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7
Q

What is family income benefit?

A
  • usually pay a tax free regular monthly/ quarterly income from the date of death to the end of the term
  • beneficiaries may opt to take a discounted value lump sum instead
  • usually a form of decreasing assurance
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8
Q

What is pension term assurance?

A

No longer available

Some policy holders still have active policies

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9
Q

What is whole-of-life assurance?

A
  • covers whole of lifetime
  • provides a tax-free legacy
  • premiums may be payable throughout life
  • premiums may be limited to a fixed term
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10
Q

Why is a joint-life second-death policy sometimes used to provide funds for IHT?

A
  • pays out on the death of 2nd partner/spouse
  • IHT becomes due at this point
  • written into trust to ensure they don’t pass into the estate
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11
Q

What are the key features of flexible whole-of-life policies?

A
  • unit-linked basis

- offers a mix of life cover & investment content

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12
Q

Explain universal whole-of-life assurance

A
  • additional range of benefits

- e.g. hospital/ medical benefits, CIC, income protection, total/permanent disability cover,

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13
Q

Define ‘waiver of premium’

A

A policy provision allowing the policy holder to suspend paying premiums, but keep the cover when unable to work, due to sickness or disability

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14
Q

What is an endowment policy?

A
  • combine life assurance & savings
  • runs over a fixed term
  • an investment is paid out at the end of the term is the policy holder survives
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15
Q

What are the different types of endowment policy?

A
  1. non-profit
  2. full with-profits
  3. low-cost with-profits
  4. unit-linked
  5. unitised with-profits
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16
Q

What is a non-profit endowment?

A
  • fixed sum assured
  • payable on maturity or earlier death
  • rarely used today
17
Q

What is a full-with-profits endowment?

A
  • fixed basic sum assured
  • higher premium
  • entitles policyholder to a share in the profits paid as bonuses
  • reversionary bonuses & terminal bonuses
18
Q

What is the Principles & Practices of Financial Management (PPFM)?

A

A document required by the FCA by the insurance company to certify with with-profit funds have been managed in accordance with the PPFM.

19
Q

What are low-cost with-profits endowments?

A
  • high premiums
  • with profits & decreasing term assurance
  • designed to cover mortgage
20
Q

Define unit-linked endowments

A
  • Premiums are used to purchase units in a chosen fund
  • run by a fund-manager
  • have potential to produce higher returns
  • no guaranteed return
  • if death in term occurs, the mortgage is covered
21
Q

Define unitised-with profits

A
  • Similar to unit-linking policies
  • additional bonuses cannot be taken away
  • unit prices cannot fall
22
Q

Can life policies be legally assigned to a third party?

A

Yes- they are entitled to the benefits in the event of a claim

23
Q

Describe the key features of term assurance

A
  • payable if death occurs within term
  • term is defined
  • at the end of the term cover ceases
  • no return of premiums
  • no cash-in-value or surrender value
  • missed payments = cover ceases
  • monthly/annual payments
24
Q

Describe the key features of whole-of-life assurance

A
  • protects dependents
  • provides tax-free legacy
  • cover expenses on death
  • provides funds for payment of IHT

Cemap Unit 1 (4 decks)

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