Topic 11 - Life Assurance

Question 1

Assurance

Answer 1

Protection against an event that will definitely happen (death)

Question 2

What is term assurance

Answer 2

Cheapest and basic form of life assurance. Protection for a limited period with no investment

Question 3

Sum assured

Answer 3

The amount that will be paid out under the terms policy

Question 4

Surrender value

Answer 4

The sum payable by insurance company if policyholder decides to terminate before end of term

Question 5

Level term assurance

Answer 5

Sum assured remains constant throughout term and premiums paid monthly/annually.

Used when a fixed debt has to be paid off (bank loan)

Question 6

Decreasing term assurance

Answer 6

Sum assured reduced to 0 over the term. Premiums may be payable but limited.

Used to cover decreasing debt (repayment mortgage)

Question 7

What is gift inter vivos cover

Answer 7

Type of term assurance designed to cover IHT liabilities.

Gifts made during someone’s lifetime instead of death

Question 8

What is convertible term assurance

Answer 8

Gives an option to convert policy into a whole of life/endowment assurance at normal rates without providing evidence

Question 9

Increasing term assurance

Answer 9

Sum assured increases each year. Used where cover is effected by inflation/purchase power

Question 10

Renewable term assurance

Answer 10

Includes an option to renew policy at the end of term for the same sum assured without evidence

Question 11

What is family benefit income

Answer 11

An option to pay lump sum as an income

Question 12

What is a whole of life insurance

Answer 12

Covers the life assured for the length of their lifetime.

Question 13

Features of a whole of life assurance policy

Answer 13

Non profit
With profits
Low cost
Unit linked
Unitised with profits

Question 14

What is flexible whole of life

Answer 14

When a whole of life policy is issued Ona unit linked basis. The flexibility is that they can offer mix between life cover and investment content

Question 15

Universal whole of life assurance

Answer 15

When you add a range of benefits to a flexibility whole of life assurance. Most come with additional costs

Question 16

Waiver of premium

Answer 16

Allows policy holder to stop paying premium if unable to work due to sickness/disability

Question 17

What are Endowment policies

Answer 17

Life assurance products that combine life assurance with savings.

Question 18

Non profit endowment

Answer 18

A fix sum assured which is payable at the end of term. Premiums are fixed and so is returns.

protected if stock markets fails and can’t have share in any profits.

Question 19

Full with profits endowment

Answer 19

Same principle as non profit however charges a higher premium which allows policy holder to have share in profits via bonuses.

Reversionary bonus - declared each year and are added to policy

Terminal bonus - added when policy holder dies. Company can change rate.

Question 20

What is a Principles and practices of financial management

Answer 20

FCA required companies to publish document (PPFM) to show how they manage with profits business

Question 21

Low cost with profits endowment

Answer 21

The same principle as with profits but at a lower cost as it’s made up of decreasing term assurance Aswell

Question 22

Unit linked endowment

Answer 22

The premium you pay minus expenses are used to purchase units of chosen fund.

Question 23

Unitised with profits

Answer 23

The same principle as unit linked however has security element of with profits. Which means bonuses are added and can’t be taken away.

If cashed in early, deductions apply to units