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CeMAP Unit 1 > Topic 11 Life Assurance > Flashcards

Topic 11 Life Assurance Flashcards

1
Q

What is Assurance?

A

Protection against events that will happen in the future

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2
Q

What is insurance?

A

Protection against events that may happen in the future

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3
Q

What is the most basic form of life assurance?

A

Term Assurance

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4
Q

Why is Term Assurance cheap?

A

Offers protection for a limited period and it is not invested so tax free because of this

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5
Q

In what situation can Term Assurance be used?

A
  • Person Protection
  • Family Protection
  • Business Situations (Key Person insurance)
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6
Q

What is the Sum Assured?

A

The amount to be paid out under policy terms

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7
Q

What is the Life Assured?

A

The person covered by the policy

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8
Q

Who is the Policyholder?

A

The person who owns and pays the premium

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9
Q

What happens if the life assured survives the policy?

A

Cover ceases and no premiums are returned

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10
Q

What happens if payments are missed (30 days or more) what happens to the Term Assurance policy?

A

Cover ceases and policy lapses

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11
Q

What is Level Term Assurance?

A

When the sum assured remain constant through the policy term

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12
Q

When is Level Assurance paid?

A

Annually or Monthly

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13
Q

Why would Level Term be used to provide family cover?

A

It may be used to cover a child’s time in education

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14
Q

What is Decreasing Term Assurance?

A

Sum assured reduces to nothing over policy term

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15
Q

Would payments in a Decreasing Term Assurance Policy remain the same?

A

Maybe but can also be reduced to shorter period

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16
Q

Where are Decreasing Term Assurance Policies most commonly used?

A

Capital Repayment Mortgages

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17
Q

What is Gift Inter Vivos Policy?

A

Term assurance policy that covers IHT liability from a PET

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18
Q

At the beginning of a Gift Inter Vivos Policy what is the sum assured set against?

A

IHT that is due

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19
Q

True or False

The Gift Inter Vivos Policy reduces along with the taper relief system?

A

True

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20
Q

What is Convertible Term Assurance (CTA)?

A

Allows CTA policy to be changed to a whole-or-life or an endowment policy

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21
Q

How much of the premium is charged on Convertible Term Assurance Policies to change them?

A

10%

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22
Q

The sum assured on a new policy is allowed to change exceed the sum assured on the Convertible Term Assurance policy.

True or False

A

False. Any extra is subject to normal underwriting

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23
Q

What is Increasing Term Assurance?

A

Is where the sum assured increases by a fixed amount or percentage each year

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24
Q

When is Increasing Term Assurance likely to be used?

A

When temporary cover of a fixed amount is required

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25
Q

What is Renewable Term Assurance?

A

Option to renew a policy at the end of the initial term

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26
Q

Is a Renewable Term Assurance policy for a different amount assured to the original policy?

A

No it is for the same amount assured & term

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27
Q

If a policy is renewed using Renewable Term Assurance the customer needs to provide new medical information.

True or False?

A

False. They do not need to provide new medical information

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28
Q

What is the usual maximum age limit for a renewable term assurance?

A

65

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29
Q

How is the premium for a renewable term assurance calculated?

A

It is based on the life assured’s age at renewal

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30
Q

What percentage do Renewable & Increasing policies normally allow?

A

50% or 100% of the previous sum assured amount

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31
Q

What is Family Income Benefit (FIB)?

A

A policy that replaces replaces the income of the deceased with a regular income

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32
Q

Is Family Income Benefit (FIB) taxable?

A

No it is tax free

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33
Q

When is Family Income Benefit (FIB) paid?

A

Monthly or Quarterly from the date of death until the policy ends

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34
Q

What is a Whole-of-Life Assurance Policy?

A

A policy that covers the life assured during the whole of their lifetime

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35
Q

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
A

Whole-of-Life Policy

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36
Q

What are the premiums for Whole-of-Life policies?

A
  • Payable for the whole policy term
  • Limited to fixed term
  • Limited to a specified age (60 or 65)
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37
Q

If somebody chooses a limited premium for a Whole-of-Life Policy what is the minimum term?

A

10 years

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38
Q

Why are companies who offer Whole-of-Life policies able to offer surrender values?

A

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)

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39
Q

What is a Joint-Life Second-Death Policy (Last Survivor) Policy?

A

Policy that pays out on the death of the second spouse’s estate

40
Q

What does “Written Under Trust” mean in relation to a Joint-Life Second-Death Policy

A

It means that the trustee’s of an estate must ensure policy proceeds pay IHT liabilities

41
Q
  • Non-profit
  • With Profits
  • Unit Linked
  • Unitised with profits
  • Low Cost
  • Flexible
  • Universal
A

Types of Whole-of-Life Assurance

42
Q

What whole-of-Life Policy is this?

Fixed Level of Life Assurance for payment of fixed premiums

A

Non-profit

43
Q

What whole-of-Life Policy is this?

Fixed minimum level of cover which bonuses are added to reflect investment portfolio

A

With-Profits

44
Q

What whole-of-Life Policy is this?

Provide a certain level of cover provided by With-Profits & decreasing term assurance

A

Low Cost

45
Q

What whole-of-Life Policy is this?

Unit issued to plan holder. Cover increases when value of units increase above that amount

A

Unit-Linked

46
Q

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

A

Unitised with profits

47
Q

What is a Flexible Whole-of-Life Policy?

A

A unit linked policy that offers a balance between life cover and investments

48
Q

If a person requires a high level of cover on a Flexible Whole-of-Life policy what do they need to do?

A

Sell more units linked to the policy to increase life cover

49
Q

If a person requires a lower level of cover on a Flexible Whole-of-Life policy what do they need to do?

A

Sell less units to keep unit linked funds invested

50
Q

What are the 3 main levels of Flexible whole-of-life cover

A
  1. Balanced Cover
  2. Minimum Cover
  3. Maximum Cover
51
Q

What other options Flexible Whole-of-Life cover offer?

A
  • Take Income
  • Indexation of Benefits (for death benefits)
  • Add another life assured to Policy
52
Q

How long is the initial life cover guaranteed for on a Flexible Whole-of-Life Policy?

A

10 years

53
Q

How often are reviews conducted on a Flexible Whole-of-Life Policy?

A

5 year Intervals

54
Q

What is Universal Whole-of-Life Assurance?

A

The extension of Unit-Linked Policies by adding other benefits

55
Q
  • 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
A

Types of Universal Whole-of-Life Assurance

56
Q

What is a Waiver of Premium?

A

Allow a person who can’t work through sickness/disability to suspend paying premiums & retain policy cover

57
Q

What is an Endowment Policy?

A

A policy that combines Life Assurance & Savings

58
Q

How is an Endowment Policy different from a Whole of Life Policy?

A

An Endowment Policy runs over an agreed term

59
Q

What happens if death occurs on an Endowment Policy?

A

The policy pays out

60
Q

What happens if the term is complete on a Endowment Policy?

A

An investment is paid out

61
Q

Term Assurance premiums are normally level.

True or False?

A

True (depending on the type of assurance)

62
Q

What is a Non-profit Endowment?

A

A policy that covers a fixed sum assured for the policy term but can’t share any profits the company makes

63
Q

The premiums for an Non-profit Endowment are fixed.

True or False

A

True

64
Q

Why is Family Income Benefit (FIB) classed as a decreasing term assurance?

A

Because the policy is done over a set term & reduces closer to the policy being completed.

65
Q

Whole-of-Life Policies are fixed term policies.

True or False

A

False they are open and can be cancelled at any time (think Surrender values)

66
Q

What is a Full With-Profits Endowments?

A

A policy that pays out the profits of a life assurance company to a Policy holder

67
Q

How are Non-profit & Full With-Profits Endowments similar?

A
  • Both have a fixed sum assured
  • Both have a fixed regular premium
68
Q

What does the “Bonus Loading” premium in relation to a Full With-Profits Endowments do?

A

Allows the policy holder to share in the life assurance company’s profits

69
Q

What are the 2 Bonuses of a Full-with Profits endowment?

A
  1. Reversionary Bonus
  2. Terminal Bonus
70
Q

When is a Reversionary bonus paid?

A
  • Paid Annually
  • Cannot be removed by the company
71
Q

What is a “Simple Bonus” in relation to a Full With-Profits Endowment’s Reversionary Bonus payments?

A

A bonus that is calculated as a percentage of the sum assured

72
Q

What is a “Compound Bonus” in relation to a Full With-Profits Endowment’s Reversionary Bonus payments?

A

A bonus calculated on the sum assured & previous declared bonuses

73
Q

When is a Terminal bonus paid?

A
  • At death or maturity
  • Can be changed by the life assurance company
74
Q

Is a Full with Profits set up with a sum assured equal to the mortgage dept?

A

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

75
Q

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

A

A document issued by the FCA to insurance companies. It must detail how an insurance company manages it’s With-Profits business

76
Q

What is a Low-Cost with Profits Endowment?

A

A policy that consists of:

  • With-Profits
  • Decreasing Term Assurance
77
Q

Why would somebody use a Low-Cost with Profits Endowment?

A

The premiums are less than the Full With-Profits Endowments

78
Q

True or False

The With-Profits sum of a Low-Cost with Profits Endowment policy is more or equal to the mortgage balance?

A

False

The balance is less. Interest from the With-Profits element will reduce the decrease term assurance element until the mortgage amount is surpassed

79
Q

How can an insurance company help a policy holder who may have been miss-sold an Endowment Policy?

A
  • Conduct regular reviews of mortgage related Endowments
  • Recommend an increase in premiums
  • Suggest other ways of repaying the mortgage
80
Q

What are Unit-Linked Endowments?

A

A pool of units that uses the premium to buy units in a chosen fund

81
Q

What happens if the Unit-Linked Endowments policy reaches maturity?

A

The policy holder receives a sum equal to the value of the units allocated to the policy

82
Q

What is the role of an investment manager in a Unit-Linked Endowments?

A

To select funds invest in to receive high investment retunrs

83
Q

A policy holder can select which fund they wish to invest in for a Unit-Linked Endowments?

True or False

A

True

84
Q

In the death of a policy holder how is the mortgage of a Unit-Linked Endowments repaid?

A

By adding in an element of variable term assurance

85
Q

Is it the responsibility of the policy provider to ensure that the Unit-Linked Endowment policy has enough funds to repay the mortgage?

A

No it is the responsibility of the borrower/policy holder

86
Q

Would a provider allow a fund to be switch to a cash fund on a Unit-Linked Endowment policy?

A

Yes if the market dropped before the end of the term

87
Q

What is Variable Term Assurance?

A

Term Assurance that compensates for the rising & falling of investment values

88
Q

What is a Unitised With-Profits Endowment?

A

A policy that combines With-Profits security with the Unit-Linked style of risk/reward

89
Q

What makes a Unitised With-Profits Endowment different from a Unit-Linked Endowment?

A

A Unitised With-Profits Endowment prices increase by the bonuses added

90
Q

What features do Unitised With-Profits Endowments & With-Profits Endowments (Revisionary Bonus) have in common?

A

The both have a bonus added that cannot be taken away once applied

91
Q

What advantage does having bonuses that cannot be taken away do to a policy holder who has a Unitised With-Profits Endowment?

A

Value of policy is guaranteed

92
Q

If a Unitised With-Profits Endowment is surrendered early what is the name of the deduction from the units called?

A

Market Value Reduction (MVR)

93
Q

True or False

A Life Policy/ Endowment can be legally assigned to a third party (such a mortgage provider)?

A

True

94
Q

Are Whole of Life Policies investments or Protection policies?

A

Protection policies

95
Q

A Low-Cost With-Profits Endowment Policy is not guaranteed to be paid at the end of the term?

True or False

A

True

It is dependant on being repaid by the bonuses being paid to increase the sum assured before maturity

96
Q

During the lifetime of a Full with- Profits Endowment policy the death benefit decreases.

True or False

A

False

Bonuses are added to the policy increasing the death benefit.

97
Q

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

A

True

CeMAP Unit 1 (18 decks)

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