Topic 12

Question 1

What is critical illness cover

Answer 1

This provides a tax free lump sum to meet the additional costs that someone may face if they find themselves in this situation the illness need not be terminal

Question 2

What illnesses and conditions are typically covered by critical illnesses cover

Answer 2

Most forms of cancer
Heart attack
Stroke
Coronary artery disease requiring surgery
Major organ transplant
Multiple sclerosis
Kidney failure

Other conditions that are sometimes covered are
Paralysis
Blindness
Loss of limbs

Many policies also make provision for payment of the sum assured in the event of total and permanent disability

Question 3

What is income protection insurance

Answer 3

This pays an income when accident or illness prevents someone from earning a living by carrying out their normal occupation

Question 4

What affects premium rates for income protection insurance

Answer 4

The classification of occupations by an income protection insurance provider

Question 5

What are the 4 classes of occupation for income protection insurance purposes

Answer 5

Class 1 - Lowest risk covering those in clerical, professional or administrative roles

Class 2 - Occupations carrying a low risk of an accident

Class 3 - Occupations carrying a moderate risk of an accident

Class 4 - Occupations with highest risk of a claim because of risk of health problems or accident

Question 6

Excluding class of occupation what other factors will influence the premium rate for income protection insurance

Answer 6

The age of the life insured
The amount of benefits
Current state of health
Past medical history
The length of the deferred period

Question 7

What 2 types of income protection premiums are available

Answer 7

Reviewable premiums - This is where the premiums may start off relatively low but will be reviewed in the future and may go up every few years or so. in some cases the premium may be reviewable every year or every 5 years to take into account changing circumstances

Guaranteed premiums - These tend to be more expensive than the other option but the premiums are guaranteed for the life of the policy which may be 25 years or even longer

Question 8

What is the maximum benefit level payable from an insurance protection income policy

Answer 8

It is normally in the range of 50% to 65% for individual policies

Or 75% for group policies

Question 9

Explain pro rata for income protection insurance

Answer 9

Benefits can be paid pro rata if illness means that a person can work but earns less than they did before they suffered illness or disability

For example they might be up to work only part time or in a lower paid job
The proportion of benefits will be paid until retirement Death or at the end of the policy

Question 10

How is income protection insurance benefits taxed

Answer 10

Individual policies benefits are paid tax free

If the policy is arranged by an employer on a group basis the income is taxable as earned income

The employer pays a premium which is a tax deductible business expense

Question 11

What is accident sickness and unemployment insurance (ASU)

Answer 11

This is typically used to cover mortgage repayments if illness Accident or loss of employment prevents the policyholder from earning a living

A level of income equal to monthly mortgage repayments is paid for a limited period. Usually a maximum of 2 years

Question 12

How long does accident sickness and unemployment insurance normally pay out for

Answer 12

Normally a maximum of 2 years

Question 13

What are the 4 common restrictions on accident sickness and unemployment insurance

Answer 13

The proposee must have been actively and continuously employed for a specified minimum period Prior to starting the plan

Any redundancy that the proposer had reason to believe was pending when they took out the policy will be excluded

No benefit will be payable if redundancy occurs within a specified period of the cover starting

A person May have to have been employed for a minimum period Either before they can take out this type of plan or before the unemployment cover becomes valid

Question 14

How are accident sickness and unemployment benefits taxed

Answer 14

All individual policies are paid tax free

If the scheme is set up on a group basis any employer contribution will be allowed as an expense against corporation tax any employer contribution will be clear the employer contribution will be classed as a benefit in kind

Question 15

What is private medical insurance

Answer 15

This is a pure protection plan designed to provide cover for the cost of private medical treatment thus eliminating the need to be dependent on the nhs

Question 16

What does private medical insurance normally cover

Answer 16

In patient charges - Including nursing fees accommodation operating fees drugs and the cost of a private ambulance

Surgical and medical fees - Including surgeons fees anaesthetists fees pathology and radiology

Outpatient charges - Including consultations pathology radiology and home nursing fees

Question 17

What factors affect the cost of private medical insurance

Answer 17

Location
Type of hospital
Standard of accommodation
Age

Question 18

What is not covered prior to taking out a private medical insurance policy

Answer 18

Any pre existing medical conditions

Other general exclusions are the costs of

Routine optical care
Routine dental treatment
Routine maternity care
Chiropody
The treatment of ailments that are self inflicted for the example the consequences of drug abuse
Cosmetic surgery
Alternative medicine

Question 19

What is long term care insurance

Answer 19

The purpose is to provide the funds to meet the cost of care that may arise in later life

Question 20

Why has the need for long term care insurance plans increased

Answer 20

Families are less able to take care of elderly relatives than they were in earlier generations

People are living longer
Expectations in relation to quality of life in later years are higher
Some people are concerned about the standard of care that the state and the nhs can realistically be relied upon to provide

Question 21

State 6 activities of daily living (ADLs)

Answer 21

Washing
Dressing
Feeding
Using the toilet
Moving from room to room
Preparing food

Question 22

How is the level of benefits determined for long term care insurance plans

Answer 22

The amount of benefit paid is dependent on the degree of care required by the insured

This is established by ascertaining the person’s ability to carry out a number of activities of daily living (ADLs)

The greater number of activities of daily living that cannot be performed without assistance the greater the amount of care required and therefore the higher level of benefit paid

It is normal for insurers to require that the person must be incapable of performing at least 2 or 3 activities of daily living before a claim can be accepted

Question 23

How a long term care plans benefits taxed

Answer 23

If their annuity is purchased for immediate long term care needs benefits will be paid tax free if they are paid direct to the care provider

If the annuity does not qualify as an immediate needs annuity i.e. If its benefits can be paid to the policyholder only the interest element is taxable as savings income tax rates are applicable as follows

Tax at a rate of 20% is deducted at source

None taxpayers or individuals not liable to tax on their savings income can reclaim any overpaid tax

Higher rate taxpayers have a further liability of 20% tax

Additional rate taxpayers have a further liability of 25% tax

Question 24

List 5 categories of general insurance

Answer 24

Property loss - Loss theft or damage to static and movable assets

Liability loss - Resulting from a legal liability to 3rd parties

Personnel loss - due to injury, sickness or death

Pecuniary loss - as a result of defaulting creditors

Interruption loss - When a business is unable to operate due to one of the other losses occurring e.g. Because its premises have suffered fire damage

Question 25

General insurance policies are contracts of indemnity the principle of indimity is that

Answer 25

In the event of a claim insured persons should be restored to yet should be restored to the same financial position after a loss that they were immediately before the loss occurred

Question 26

What are the 4 main methods an insurer uses to restore the claimant to the financial position they were in before the loss occurred

Answer 26

Cash
Repair
Replacement
Reinstatement

Question 27

What is ‘average’ in terms of general insurance policy

Answer 27

This is where a policyholder under insures

For example to insure for a smaller amount than is actually required to replace or repair the lost or damaged property

Question 28

State 3 reasons that policyholders under insure

Answer 28

They are unaware of the appropriate figure

Inflation has increased the amount required

They are deliberately understating the figure in order to keep the premium down

Question 29

What is buildings insurance

Answer 29

Buildings are defined as
Anything on the premises that would normally be left behind if the property were sold

This generally includes sheds swimming pools walls fitted furniture and all fittings and decorations

Question 30

What is buildings insurance cover normally provided against

Answer 30

Fire and lightning strikes
Explosions subsidence and earthquakes
Storms and floods
Damaged by vehicles aircraft and even animals
Damage by falling trees or branches or television aerials

Policies normally also cover the costs of alternative accommodation during repairs

Question 31

What types of cover are subject to the property not being left unoccupied for more than a specified. Typically 30 or 60 days

Answer 31

Riot civil commotion and vandalism
Theft or attempted theft
Burst water pipes or oil leakages

Question 32

What is contents insurance

Answer 32

Contents can be defined as
Anything you would normally take with you if the property were sold

Cover would typically be provided against the same events and circumstances as buildings insurance

Question 33

List free events in which contents insurance may be paid

Answer 33

Accidental damage to goods while being removed by professional removers

Extended contents cover for specified personal property outside the home

Damage to freezer contents due to electricity failure

Question 34

What is all risks cover

Answer 34

The aim of this policy is to indemnify the policyholder for loss damage or theft of items that are regularly taken out of the home

Question 35

What are the 2 categories of all risks cover

Answer 35

Unspecified items - These need not to be Specifically named but each item must have a value below a specified amount

Specified items - These items are above the single item value limit and are individually listed

Question 36

What 3 types of private motor insurance are Available

Answer 36

3rd party
3rd party fire and theft
Comprehensive

Question 37

What does 3rd party cover Typically provide cover for

Answer 37

Death or bodily injury to 3rd parties including passengers hes including passengers in the car hospital charges and but all charges and emergency medical treatment charges are also covered

Damage to property

Legal costs incurred in the defence of a claim

Question 38

What cover is provided by 3rd party fire and theft cover

Answer 38

Fire lightning or explosion damage to the vehicle

Theft of the vehicle including damage caused during theft or attempted theft

Question 39

What cover is provided by comprehensive cover

Answer 39

Accidental damage to the vehicle on an all risk basis

Loss of or damage to personal items in the vehicle

Personal accident benefits

Windscreen damage

Question 40

As the private motor insurance market is extremely competitive it is extremely competitive what additional additional extensions to the cover are offered in order to are offered in order to attract business

Answer 40

Roadside breakdown assistance
Legal protection services
Provision of a courtesy vehicle while repairs are carried out
Out of pocket expenses resulting from an accident

Question 41

What cover does travel insurance provide

Answer 41

Cancellation due to illness or injury of the policyholder or a close relative

Missed flights or sailings to transport failure

Delayed departures

Medical expenses

Personal accident

Loss of personal possessions or of a passport

Personal liability

Legal expenses

Question 42

What is payment protection insurance

Answer 42

This can cover monthly loan repayments if the policyholder’s salary is reduced due to an accident sickness or unemployment the policy will pay out only for a fixed period of time usually 12 months of months