Topic 12 Flashcards
What is critical illness cover
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
What illnesses and conditions are typically covered by critical illnesses cover
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
What is income protection insurance
This pays an income when accident or illness prevents someone from earning a living by carrying out their normal occupation
What affects premium rates for income protection insurance
The classification of occupations by an income protection insurance provider
What are the 4 classes of occupation for income protection insurance purposes
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
Excluding class of occupation what other factors will influence the premium rate for income protection insurance
The age of the life insured
The amount of benefits
Current state of health
Past medical history
The length of the deferred period
What 2 types of income protection premiums are available
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
What is the maximum benefit level payable from an insurance protection income policy
It is normally in the range of 50% to 65% for individual policies
Or 75% for group policies
Explain pro rata for income protection insurance
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
How is income protection insurance benefits taxed
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
What is accident sickness and unemployment insurance (ASU)
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
How long does accident sickness and unemployment insurance normally pay out for
Normally a maximum of 2 years
What are the 4 common restrictions on accident sickness and unemployment insurance
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
How are accident sickness and unemployment benefits taxed
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
What is private medical insurance
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
What does private medical insurance normally cover
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
What factors affect the cost of private medical insurance
Location
Type of hospital
Standard of accommodation
Age
What is not covered prior to taking out a private medical insurance policy
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
What is long term care insurance
The purpose is to provide the funds to meet the cost of care that may arise in later life
Why has the need for long term care insurance plans increased
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
State 6 activities of daily living (ADLs)
Washing
Dressing
Feeding
Using the toilet
Moving from room to room
Preparing food
How is the level of benefits determined for long term care insurance plans
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
How a long term care plans benefits taxed
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
List 5 categories of general insurance
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
