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CeMAP 1 (Unit one) > Topic 11 (Life assurance) > Flashcards

Topic 11 (Life assurance) Flashcards

1
Q

What is life Assurance?

A

Products that are designed to provide financial protection when someone dies

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2
Q

What is term assurance?

A

Most basic life assurance that contains no investment element and can be used for personal, family or business protection

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3
Q

What is one characteristic all life assurances have?

A

The sum assured is payable only if the death of the life assured occurs within a specified term

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4
Q

What is meant by ‘sum assured’?

A

The amount that will be paid out under the terms of the policy

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5
Q

What is mean by ‘life assured’?

A

The persons who life is covered by the policy

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6
Q

What is the policyholder?

A

The person who owns the policy and premiums

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7
Q

What is the ‘term’?

A

The period for which cover is provided under the policy

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8
Q

What is the ‘Surrender value’?

A

The sum payable by the insurance company to the policyholder if the policyholder choses to terminate the policy before the end of the term

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9
Q

What is Level Term Assurance?

A

Where the sum assured remains constant throughout the term.

Premiums are normally paid monthly or annually and often used when a fixed amount is needed upon death

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10
Q

What is decreasing Term Assurance?

A

Where the sum assured decreases to nothing over the term of the policy.
The policy can be used to cover outstanding capital

Only pays benefits when the insured dies within the policy term

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11
Q

What is gift inter vivos cover?

A

A plan arranged to cover a special requirement such as a gift

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12
Q

When is family income benefit used?

A

When someone wants to protect family finances and needs regular income

is a form of decreasing term assurance

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13
Q

What is Increasing term assurance?

A

Where the sum assured increases each year by a fixed amount or a % of the original sum assured

It provides a hedge against inflation

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14
Q

What is Renewable term assurance?

A

An option to renew the policy at the end of the initial term for the same sum assured, without the need to provide medical evidence

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15
Q

What is convertible term assurance?

A

Carried out when cancelling term assurance and converting the policy to whole of life or endowment without medical evidence or underwriting

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16
Q

What is pension term assurance?

A

A type of policy people could take out at the time they set up a personal/stakeholder pension plan. It offers tax relief on premiums

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17
Q

What is Whole of life assurance?

A

Designed to offer protection rather than investment to the life assured for the whole of their lifetime

18
Q

Give 2 features of premiums…

A
  1. Premiums may be payable throughout life

2. May be limited to a fixed term or a specified age

19
Q

What is a joint life death policy?

A

A policy that pays out when partner dies and the estate is passed on to the surviving partner free of IHT

20
Q

What is a non profit investment structure?

A

A fixed level of life assurance in return for payment of a fixed premium

21
Q

What is a with profit investment structure?

A

A fixed minimum level of cover to which bonuses are added to reflect investment profits

22
Q

What is a low cost investment structure?

A

Promises a certain level of cover provided by with-profits and decreasing term assurance (bonuses are paid to with-profits so decreasing term reduces)

23
Q

What is a unit linked investment structure?

A

Units issued to the placeholder, a minimum level of cover is set at outset which is increased when the value of units rises

24
Q

What is unitised with profit investment structure?

A

Issues units with a guarantee that unit prices will never fall below a certain level or will increase by at least a stated minimum amount

25
Q

What does tax treatment depend on?

A

Wether it is classed as qualifying (20%) or non-qualifying (20% or 25%)

26
Q

What is flexible whole of assurance?

A

Unit linked policies that offer the client flexibility of being able to change the mix of life cover and investment as circumstances change (best suited as a protection plan with some allowance on savings)

27
Q

What are the 3 levels of cover on flexible whole of life assurance?

A
  1. Maximum cover - maintained for 10 years, increased premiums required for cover to continue
  2. Minimum cover - maximum investment combined with the min. level of cover to keep policy qualifying
  3. Balanced cover - cover should be able to be maintained throughout their life
28
Q

What is a waiver of premium?

A

a policy provision that allows the policyholder to suspend paying premiums but retain their policy cover if they are unable to work due to sickness/disability

29
Q

What are endowment policies?

A

Life assurance products that combine life assurance and savings

30
Q

What is the difference between an endowment and a whole of life plan?

A

Endowment runs over an agreed term and if death occurs life cover is paid out

31
Q

What are the main features of non-profit endowment?

A
  1. Guaranteed sum assured on maturity or death

2. Unable to share in profits the company might make

32
Q

What are the features of a full with-profit endowment?

A
  1. Has a fixed sum assured and a fixed regular income

2. The premiums are higher

33
Q

What is a Reversionary Bonus?

A

A bonus declared each year and once added it can’t be taken away, providing the policy is held until end of term/death

34
Q

What is a terminal bonus?

A

Bonuses that may be added to a with profits policy when death or maturity claim becomes payable

35
Q

The FCA requires life companies that carry out with profit business to publish a document, what is this called?

A

The Principles and Practices of Financial Management (PPFM)

It sets out how the firm has managed it business

36
Q

Give features of a low cost with profit endowment…

A

Has high premiums
This is overcome by having a sum assured payable on death with 2 element:
- with profits
- decreasing term assurance

Doesn’t guarantee full mortgage at end of term

37
Q

What is endowment mis selling and how do we now avoid this situation?

A

Where customers were promised that plans were guaranteed to repay their mortgage in full

Overcome now by including regular progress reviews of mortgage related endowments

38
Q

Why were unit linked endowment developed?

A

Developed for investors who wanted their investment returns to be more directly linked to the stock market

39
Q

What don’t Unit linked policies guarantee?

A

a minimum return at maturity

40
Q

What is variable term assurance?

A

Works by the value rising and falling to compensate for changing investment rules

41
Q

Why were unitised with profits introduced?

A

in an attempt to combine the security of the with-profit policy with he greater potential for reward

The premiums are used to purchase the units in a fund

42
Q

What is meant by Market Value Adjustment? (MVA)

A

If the policy is cashed in early, a deduction may be made from the value of the units. MVA is this deduction

CeMAP 1 (Unit one) (16 decks)

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