Topic 17- Mortgage-Related Insurance Products

Question 1

Convertible term insurance:

Answer 1

Level term insurance policy that provides an option to convert it into whole-of-life or endowment insurance without the need for further medical evidence or underwriting.

Question 2

Critical illness cover:

Answer 2

Pays a tax-free lump sum on the diagnosis of a serious illness.

Can be level, decreasing or increasing (index linked to cover inflation)

Can be linked with life cover:

Where both events are laid or on a first claim basis (which can be a problem)

Question 3

Mortgage payment protection insurance (MPPI):

Answer 3

Covers the borrower’s mortgage payments for up to 2 years if they are unable to work due to accident or sickness.

• Pre-existing medical conditions are not covered
• For unemployment cover, the proposer must have been continuously employed for a specified period before the proposal can be accepted

Question 4

Income protection insurance (IPI):

Answer 4

• Monthly tax-free income when the policyholder is unable to work due to accident or sickness. It does not cover redundancy or unemployment
• There are no limit to the number of claims that can be made while the policy is in force
• Payments normally commence after a deferred period. The period chosen depends on how long the employer will continue to pay salary in the event of sickness. A longer deferred period will reduce the premium
• Underwriting takes into account several things
• Different companies have different definitions on sickness , disability and if the person goes into the same or different job.

Question 5

Factors that affect the level of IPI premium payable:

Answer 5

• Occupation
• Hobbies and pastimes
• Medical history

Question 6

Waiver of premium:

Answer 6

• Offered by most protection policies. Takes effect if a policyholder is unable to continue paying premiums because of ill health.
• No premiums will be required until the policyholder returns to work
• It is particularly beneficial for the self-employed
• It increases the premium slightly

Question 7

Standard exclusions of building insurance policies:

Answer 7

• Damage caused by escape of water/oil whilst property is unoccupied
• Damage caused by falling trees/branches to gates, fences and hedges
• Any theft if the property was left unoccupied
• Damage to a heating system caused by rusting, corrosion or wear-and-tear

Question 8

Buy-to-let insurance:

Answer 8

• Also known as ‘landlord insurance’
• Essential for those renting out property
• It provides buildings insurance for structures, fixtures and contents cover for furniture and fittings

Question 9

What are the main means tested state benefits:

Answer 9

„ Universal Credit, which is replacing various other benefits;
„ income-based Jobseeker’s Allowance (JSA), being replaced by Universal Credit;
„ income-based ESA, being replaced by Universal Credit;
„ Income Support, being replaced by Universal Credit;
„ the savings element of Pension Credit (only available to those who reached state pension age before 6 April 2016);
„ Housing Benefit, being replaced by Universal Credit; and
„ Council Tax Reduction.
A calculation is carried out to determine

Question 10

What circumstances may UC claimants get additional payments?

Answer 10

„ responsibilities as a carer;
„ children or disabled children;
„ housing costs;
„ childcare costs;
„ limited capability for work.

Question 11

People may claim UC if they meet what criteria?

Answer 11

„ are on a low income or out of work;
„ are, or have a partner who is, under state pension age;
„ have less than £16,000 in savings
Are 18 or over (16 or 17 in special circumstances)

Question 12

Main features of statutory sick pay:

Answer 12

• Paid by employers to employees who are off sick for four days or longer provided their average weekly earnings are above the level at which NICs are payable.
• Paid for max 28 weeks.
• Subject to tax and NI deductions

Must be 8 weeks between each spell of sickness otherwise it counts as the same spell

Question 13

Attendance allowance is:

Answer 13

Tax free benefit to help people with state pension age who need help with personal care.

Not means tested or reliant on NIC

Higher and lower rate for amount of care needed

Question 14

What is the personal independence payment PIP?

Answer 14

PIP helps people with costs arising from illness or disability, usually where:
„ has had difficulties with daily living or mobility for three months; and „ expects their difficulties to continue for at least another nine months.
The amount of benefit paid depends on how a person’s illness or disability impacts on them.

Made up of a living and mobility component.

Question 15

What is support for mortgage interest SMI and what charge is it.

Answer 15

A loan for mortgage interest from the government for people in receipt of benefits.

It is second charge.

Question 16

What is the waiting period for SMI and what is the 52 week linking rule?

Answer 16

39 weeks or 9 weeks of UC payments.

The linking rule is for someone who has done the waiting period. Stops claiming perhaps for seasonal work and wants to claim again. If they have done the eating period and claim again in 52 weeks they will not have to do another waiting period

Question 17

What is the limit SMI will pay interest on?

Answer 17

First 200000 but those on pension credits 100000

Question 18

When must the SMI loan be repaid m?

Answer 18

„ The SMI loan must be repaid when the property is sold or transferred, or the owner dies, or when it can be repaid voluntarily if the claimant returns to work, with a minimum repayment of £100. If there is insufficient equity in a claimant’s property to repay the whole SMI loan on one of these events, the balance will be written off.

„ The loan is not repayable where the property is transferred to the claimant’s partner on death and they remain in the property, or where the property is transferred based on court orders or a maintenance agreement

Question 19

Why might a lender insist on the assignment of life policies? And how do they do this

Answer 19

To ensure an interest free mortgage is paid off?

The policy holder can sign over the benefits or the lender can be given the policy document.

Question 20

What are the different types of whole of life policies?

Answer 20

„ Non‐profit is suitable where an absolute fixed amount, is needed on death
„ With‐profit is suitable where a cautious approach to the provision of lifetime cover is required, but where an increasing benefit is also needed (eg to allow for inflation).

„ Unit‐linked is suitable where both lifetime cover and an increasing benefit are required. Some of the money is used to buy the life assurance while the rest is invested

„ Universal whole‐of‐life is suitable if the client has needs similar to those fulfilled by a basic unit-linked policy

Question 21

What are the difference between renewable and fixed premiums for CIC

Answer 21

Fixed- same throughout. Good for customer but bad for insurer due to medical science finding things earlier and having to pay out for longer.

Reviewable- typically premiums are reviewed every five years.

The factors the review is based on are:

The insurers claims experience

Their investment returns

Expenses