Topic 12: Health and general insurance Flashcards
What is Critical Illness cover?
Life assurance can mitigate the financial impact of someone dying, but serious
illness can also create a significant financial burden. Critical illness cover 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. E.g most forms of cancer, heart attack, stroke etc.
What are 5 typical uses of critical illness cover?
- Long-term care (home or hospital)
- Alterations to living accommodation
- Medical Equipment
- Mortgage repayment
- Enhancing quality of life.
What is Income Protection Insurance?
Income protection insurance (IPI) pays an income when accident or illness prevents someone from earning a living by carrying out their normal occupation. Many insurers also offer IPI to people whose main responsibilities are in the family home, for example looking after children, rather than earning money outside it. This is because, although they may not actually earn an
income, costs may be incurred if they are ill or injured – for example, childcare fees or payment for housekeeping services.
There are two types of income protection premiums available?
- Reviewable premiums – a reviewable premium means that 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 five years, to take into account changing circumstances. - Guaranteed premiums – the nature of guaranteed premiums means that these tend to be more expensive at outset than reviewable premiums, but the premiums are guaranteed for the life of the policy, which may be 25 years or even longer.
How are Income Protection Insurance benefits taxed?
Where income protection insurance (IPI) is taken out on an individual basis the benefits are tax‑free.
IPI can be arranged by an employer on a group basis and in this case the
income is taxable as earned income. The employer pays the premium, which
is a tax‑deductible business expense. From the employee’s point of view, the premium paid by the employer is not taxable as a benefit in kind, ie they do
not have to pay income tax on the premium paid, provided that the employer has discretion as to whether to pay the proceeds to the employee. In practice,
the employer does have such discretion and pays the proceeds to the member concerned. The scheme member pays income tax and National Insurance on the proceeds.
How does Accident, Sickness and Unemployment insurance differ from IPI?
Accident, sickness and unemployment insurance (ASU) plans are a type of general insurance that may be considered as an alternative to income protection insurance (IPI).
ASU insurance 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 two years. Additional cover can sometimes be included to cover other essential outgoings.
As with IPI, there will be a deferred period, normally one month, which must elapse before benefit payments can commence. Lump sums may be paid in
certain situations (death, disablement, and loss of a limb).
In contrast to IPI, these plans should be viewed as short term to protect
mortgage repayments rather than as providing total protection of earned income
How are ASU benefits taxed?
All benefits are tax‑free.
There is no tax relief on contributions to an ASU plan when it is arranged on a personal basis.
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 classed as a benefit in kind
What is Private Medical Insurance?
Private medical insurance (PMI) is a pure protection plan designed to provide cover for the cost of private medical treatment, thus eliminating the need to
be totally dependent on the NHS.
What factors affect the cost of PMI cover?
- Location
- Type of hospital
- Standard of accommodation
How are PMI premiums and benefits taxed?
Premiums are subject to insurance premium tax but the benefits are paid
out tax‑free. Employers who contribute to PMI on behalf of their employees
are able to claim the cost as an allowable deduction against corporation tax.
Contributions paid by an employer are regarded as a benefit in kind as far as the employee is concerned and are taxable.
What is long-term care insurance?
The purpose of long‑term care insurance (LTC) is to provide the funds to meet the costs of care that may arise in later life, when a person is no longer able to perform competently some of the basic activities involved in looking after themselves each day.
What are typical examples of activities of daily living (ADL)?
- washing;
- dressing;
- feeding;
- using the toilet;
- moving from room to room;
- preparing food.
General insurance policies are contracts of indemnity. The
principle of indemnity is that:
in the event of a claim, insured persons should be restored to the same financial position after a loss that they were
in immediately before the loss occurred.
What is building insurance?
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.
What is contents insurance?
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 described above for buildings insurance.
