Topic 11 Life Assurance Flashcards
What is Assurance?
Protection against events that will happen in the future
What is insurance?
Protection against events that may happen in the future
What is the most basic form of life assurance?
Term Assurance
Why is Term Assurance cheap?
Offers protection for a limited period and it is not invested so tax free because of this
In what situation can Term Assurance be used?
- Person Protection
- Family Protection
- Business Situations (Key Person insurance)
What is the Sum Assured?
The amount to be paid out under policy terms
What is the Life Assured?
The person covered by the policy
Who is the Policyholder?
The person who owns and pays the premium
What happens if the life assured survives the policy?
Cover ceases and no premiums are returned
What happens if payments are missed (30 days or more) what happens to the Term Assurance policy?
Cover ceases and policy lapses
What is Level Term Assurance?
When the sum assured remain constant through the policy term
When is Level Assurance paid?
Annually or Monthly
Why would Level Term be used to provide family cover?
It may be used to cover a child’s time in education
What is Decreasing Term Assurance?
Sum assured reduces to nothing over policy term
Would payments in a Decreasing Term Assurance Policy remain the same?
Maybe but can also be reduced to shorter period
Where are Decreasing Term Assurance Policies most commonly used?
Capital Repayment Mortgages
What is Gift Inter Vivos Policy?
Term assurance policy that covers IHT liability from a PET
At the beginning of a Gift Inter Vivos Policy what is the sum assured set against?
IHT that is due
True or False
The Gift Inter Vivos Policy reduces along with the taper relief system?
True
What is Convertible Term Assurance (CTA)?
Allows CTA policy to be changed to a whole-or-life or an endowment policy
How much of the premium is charged on Convertible Term Assurance Policies to change them?
10%
The sum assured on a new policy is allowed to change exceed the sum assured on the Convertible Term Assurance policy.
True or False
False. Any extra is subject to normal underwriting
What is Increasing Term Assurance?
Is where the sum assured increases by a fixed amount or percentage each year
When is Increasing Term Assurance likely to be used?
When temporary cover of a fixed amount is required
What is Renewable Term Assurance?
Option to renew a policy at the end of the initial term
Is a Renewable Term Assurance policy for a different amount assured to the original policy?
No it is for the same amount assured & term
If a policy is renewed using Renewable Term Assurance the customer needs to provide new medical information.
True or False?
False. They do not need to provide new medical information
What is the usual maximum age limit for a renewable term assurance?
65
How is the premium for a renewable term assurance calculated?
It is based on the life assured’s age at renewal
What percentage do Renewable & Increasing policies normally allow?
50% or 100% of the previous sum assured amount
What is Family Income Benefit (FIB)?
A policy that replaces replaces the income of the deceased with a regular income
Is Family Income Benefit (FIB) taxable?
No it is tax free
When is Family Income Benefit (FIB) paid?
Monthly or Quarterly from the date of death until the policy ends
What is a Whole-of-Life Assurance Policy?
A policy that covers the life assured during the whole of their lifetime
These benefits are linked to which type of policy?
- Protect dependants from financial loss
- Provide tax free legacy
- Cover death expenses
- Funds provided in the event of IHT
Whole-of-Life Policy
What are the premiums for Whole-of-Life policies?
- Payable for the whole policy term
- Limited to fixed term
- Limited to a specified age (60 or 65)
If somebody chooses a limited premium for a Whole-of-Life Policy what is the minimum term?
10 years
Why are companies who offer Whole-of-Life policies able to offer surrender values?
They will have to pay out eventually so they can build up a reserve so a policy can be cancelled at any time (saving money if policy is cancelled)
What is a Joint-Life Second-Death Policy (Last Survivor) Policy?
Policy that pays out on the death of the second spouse’s estate
What does “Written Under Trust” mean in relation to a Joint-Life Second-Death Policy
It means that the trustee’s of an estate must ensure policy proceeds pay IHT liabilities
- Non-profit
- With Profits
- Unit Linked
- Unitised with profits
- Low Cost
- Flexible
- Universal
Types of Whole-of-Life Assurance
What whole-of-Life Policy is this?
Fixed Level of Life Assurance for payment of fixed premiums
Non-profit
What whole-of-Life Policy is this?
Fixed minimum level of cover which bonuses are added to reflect investment portfolio
With-Profits
What whole-of-Life Policy is this?
Provide a certain level of cover provided by With-Profits & decreasing term assurance
Low Cost
What whole-of-Life Policy is this?
Unit issued to plan holder. Cover increases when value of units increase above that amount
Unit-Linked
What whole-of-Life Policy is this?
Issued units with guarantee that unit prices will never fall below a state amount or will increase by at least a stated minimum amount
Unitised with profits
What is a Flexible Whole-of-Life Policy?
A unit linked policy that offers a balance between life cover and investments
If a person requires a high level of cover on a Flexible Whole-of-Life policy what do they need to do?
Sell more units linked to the policy to increase life cover
If a person requires a lower level of cover on a Flexible Whole-of-Life policy what do they need to do?
Sell less units to keep unit linked funds invested
What are the 3 main levels of Flexible whole-of-life cover
- Balanced Cover
- Minimum Cover
- Maximum Cover
What other options Flexible Whole-of-Life cover offer?
- Take Income
- Indexation of Benefits (for death benefits)
- Add another life assured to Policy
How long is the initial life cover guaranteed for on a Flexible Whole-of-Life Policy?
10 years
How often are reviews conducted on a Flexible Whole-of-Life Policy?
5 year Intervals
What is Universal Whole-of-Life Assurance?
The extension of Unit-Linked Policies by adding other benefits
- Critical Illness Cover
- Income Protection Insurance
- Accidental Death Benefit
- Total & Permanent Disability Cover
- Hospital benefits & Other Medical Cover
- Guaranteed Insurability (Increase Cover)
- Indexation of Benefits
- Flexible Premiums
- Waiver of Premium
Types of Universal Whole-of-Life Assurance
What is a Waiver of Premium?
Allow a person who can’t work through sickness/disability to suspend paying premiums & retain policy cover
What is an Endowment Policy?
A policy that combines Life Assurance & Savings
How is an Endowment Policy different from a Whole of Life Policy?
An Endowment Policy runs over an agreed term
What happens if death occurs on an Endowment Policy?
The policy pays out
What happens if the term is complete on a Endowment Policy?
An investment is paid out
Term Assurance premiums are normally level.
True or False?
True (depending on the type of assurance)
What is a Non-profit Endowment?
A policy that covers a fixed sum assured for the policy term but can’t share any profits the company makes
The premiums for an Non-profit Endowment are fixed.
True or False
True
Why is Family Income Benefit (FIB) classed as a decreasing term assurance?
Because the policy is done over a set term & reduces closer to the policy being completed.
Whole-of-Life Policies are fixed term policies.
True or False
False they are open and can be cancelled at any time (think Surrender values)
What is a Full With-Profits Endowments?
A policy that pays out the profits of a life assurance company to a Policy holder
How are Non-profit & Full With-Profits Endowments similar?
- Both have a fixed sum assured
- Both have a fixed regular premium
What does the “Bonus Loading” premium in relation to a Full With-Profits Endowments do?
Allows the policy holder to share in the life assurance company’s profits
What are the 2 Bonuses of a Full-with Profits endowment?
- Reversionary Bonus
- Terminal Bonus
When is a Reversionary bonus paid?
- Paid Annually
- Cannot be removed by the company
What is a “Simple Bonus” in relation to a Full With-Profits Endowment’s Reversionary Bonus payments?
A bonus that is calculated as a percentage of the sum assured
What is a “Compound Bonus” in relation to a Full With-Profits Endowment’s Reversionary Bonus payments?
A bonus calculated on the sum assured & previous declared bonuses
When is a Terminal bonus paid?
- At death or maturity
- Can be changed by the life assurance company
Is a Full with Profits set up with a sum assured equal to the mortgage dept?
Yes
It will either pay out the mortgage in the event of death or create a sum over the mortgage balance at the end of the policy term
What is a Principles & Practices of Financial Management (PPFM) Document?
A document issued by the FCA to insurance companies. It must detail how an insurance company manages it’s With-Profits business
What is a Low-Cost with Profits Endowment?
A policy that consists of:
- With-Profits
- Decreasing Term Assurance
Why would somebody use a Low-Cost with Profits Endowment?
The premiums are less than the Full With-Profits Endowments
True or False
The With-Profits sum of a Low-Cost with Profits Endowment policy is more or equal to the mortgage balance?
False
The balance is less. Interest from the With-Profits element will reduce the decrease term assurance element until the mortgage amount is surpassed
How can an insurance company help a policy holder who may have been miss-sold an Endowment Policy?
- Conduct regular reviews of mortgage related Endowments
- Recommend an increase in premiums
- Suggest other ways of repaying the mortgage
What are Unit-Linked Endowments?
A pool of units that uses the premium to buy units in a chosen fund
What happens if the Unit-Linked Endowments policy reaches maturity?
The policy holder receives a sum equal to the value of the units allocated to the policy
What is the role of an investment manager in a Unit-Linked Endowments?
To select funds invest in to receive high investment retunrs
A policy holder can select which fund they wish to invest in for a Unit-Linked Endowments?
True or False
True
In the death of a policy holder how is the mortgage of a Unit-Linked Endowments repaid?
By adding in an element of variable term assurance
Is it the responsibility of the policy provider to ensure that the Unit-Linked Endowment policy has enough funds to repay the mortgage?
No it is the responsibility of the borrower/policy holder
Would a provider allow a fund to be switch to a cash fund on a Unit-Linked Endowment policy?
Yes if the market dropped before the end of the term
What is Variable Term Assurance?
Term Assurance that compensates for the rising & falling of investment values
What is a Unitised With-Profits Endowment?
A policy that combines With-Profits security with the Unit-Linked style of risk/reward
What makes a Unitised With-Profits Endowment different from a Unit-Linked Endowment?
A Unitised With-Profits Endowment prices increase by the bonuses added
What features do Unitised With-Profits Endowments & With-Profits Endowments (Revisionary Bonus) have in common?
The both have a bonus added that cannot be taken away once applied
What advantage does having bonuses that cannot be taken away do to a policy holder who has a Unitised With-Profits Endowment?
Value of policy is guaranteed
If a Unitised With-Profits Endowment is surrendered early what is the name of the deduction from the units called?
Market Value Reduction (MVR)
True or False
A Life Policy/ Endowment can be legally assigned to a third party (such a mortgage provider)?
True
Are Whole of Life Policies investments or Protection policies?
Protection policies
A Low-Cost With-Profits Endowment Policy is not guaranteed to be paid at the end of the term?
True or False
True
It is dependant on being repaid by the bonuses being paid to increase the sum assured before maturity
During the lifetime of a Full with- Profits Endowment policy the death benefit decreases.
True or False
False
Bonuses are added to the policy increasing the death benefit.
If a person has a maximum level of cover on a Flexible Whole-of-Life they will need to pay an increased premium after 10 years.
True or False
True
