Topic 17 - Types of financial protection I (UNIT 5)

Question 1

Claims for Universal Credit are made on a per-WHAT basis

Answer 1

Per-household

Question 2

If you are above state pension age can you receive universal credit?

Answer 2

No

Question 3

If a benefit is means tested what does this mean?

Answer 3

The level of benefit received will change depending on the claimants income/savings

Question 4

What is statutory sick pay?

Answer 4

SSP is paid by employers to employees who are off work due to sickness or disability for 4 consecutive days or longer.

Question 5

Statutory Sick Pay is paid by employers to employees who are off work owing to sickness or disability for four consecutive days or longer.

Do the employers pay for the benefit?

Answer 5

Employers pay the benefit on
behalf of DWP and reclaim the amounts paid, so no.

Question 6

How long is Statutory Sick Pay payable for?

Answer 6

SSP is paid for up to a maximum of 28 weeks in any spell of sickness.

Question 7

SSP is paid for up to a maximum of 28 weeks in any spell of sickness.

If someone is sick 2 times in a single month, 1 week each time, will this be treated as 2 or 1 separate spells of sickness?

Answer 7

Spells of sickness with less than eight weeks between them count as a single spell

Question 8

Is statutory sick pay means tested?

Answer 8

No

Question 9

Are the statutory sick pay benefit payments subject to tax and NIC’s

Answer 9

Amounts paid as SSP are subject to tax and to NICs, just as normal earnings would be.

Question 10

What is employment support allowance (ESA)?

What is the eligibility requirement?

Answer 10

For people who have a disability or health condition that affects how much they can work

To be eligible they must’ve paid sufficient amount of NICs and have been an employee/self employed in the past

People cannot claim new style ESA if they claim either JSA or Statutory Sick Pay (SSP)

People can claim Universal credit and ESA at the same time

Question 11

What is Attendance Allowance?

Answer 11

Attendance Allowance is a tax-free benefit for people who have reached state pension age and need help with personal care as a result of sickness or
disability.

It is neither means tested nor dependent on NICs

Lower rate payable for people who need help with personal care either by day or at night;

Higher rate payable for those who need help both by day and at night

Question 12

What is Personal Independence Payment (PIP)

Answer 12

PIP helps people with the additional costs arising from illness or disability

It is not NIC-dependent or means tested

The amount of benefit paid depends on how a person’s illness or disability impacts on them.

Benefits are made up of 2 parts. A mobility component and a daily living components. Claimants can be eligible for 1 or the other, or both.

Question 13

What is Carers Allowance

Answer 13

A benefit paid to someone who is caring for someone else who is seriously ill or disabled, but not in hospital. (not dependant on NIC contributions)

The person being cared for must be eligible for specific benefits such as PIP, Attendance Allowance and others

The carer must be aged over 16, spend at least 35 hours per week as a carer and NOT in fulltime education

Question 14

What is Job Seekers Allowance?

Answer 14

Jobseeker’s Allowance (JSA) is a benefit for those who are:

• Unemployed and actively seeking work;
• Working less than 16 hours per week on average

Two forms:

‘new style’ (Income based) - depends on NIC contributions. Paid for a max of 182 days

Contribution based = same as income based but only eligible if you are entitled to the severe disability premium

Question 15

What is Support for Mortgage Interest (SMI)

Answer 15

Paid as a loan – not as a benefit – to
people who are having problems meeting their mortgage payments

Must be receiving one of the following benefits to be eligible for SMI:

-Universal Credit;
-Income Support;
-Income-based JSA
-income-based ESA; or
-Pension Credit

SMI is paid to cover interest (not capital) on the first £200,000 of a mortgage,
but claimants receiving Pension Credit are generally only covered for interest
on the first £100,000

Question 16

READ UP ON THE MAIN FEATURES OF SMI

Answer 16

17.1.4

Question 17

Some life assurance can be in the form of paid-up policies. What does this mean?

Answer 17

paid-up policy =
All premiums have been paid and the policy remains in force until death or policy termination

Question 18

Mortgage lenders may require assignment of life policies to them. What does this mean ?

Answer 18

Assignment involves the policyholder signing over the benefits of the policy to the lender for the term of the mortgage.

The insurance company pays any policy proceeds to the lender when the policy matures or if there is a death claim

Mortgage lenders do this to ensure
the mortgage is paid off if the borrower dies or to ensure an endowment policy is used to repay an interest-only mortgage

Assignment used to be normal practice among lenders, but it has become increasingly less common.

An alternative is for the borrower to deposit the life assurance policy document with the lender. Although the lender has no legal rights over the policy like with assignment, the fact that the lender has been given the policy creates an ‘equitable right’ for the lender over the policy

Question 19

Define ‘equitable right’

Answer 19

Equitable right = Indicates an agreement between two parties that the policy has been given (assigned) as a form of security

Question 20

What does surrender value mean?

Answer 20

An amount paid when cashing in an investment-linked policy early. This
ends the policy and typically incurs high charges

Question 21

The most common use of decreasing term assurance is to cover the amount
outstanding on a repayment mortgage

What is this also known as?

Answer 21

mortgage
protection assurance

Question 22

What is critical illness cover?

Can you make multiple claims with CIC?

Answer 22

CIC provides a lump-sum payment on diagnosis of one of a specified range of life-threatening or debilitating illnesses or medical conditions.

Typical used for things such as mortgage/debt repayment, purchase of specialised medical equipment and so on

The sum assured is paid on a successful claim following diagnosis of one of the conditions specified in the policy.

The policy ceases on payment of the sum assured meaning you cannot make multiple claims with the policy

Question 23

Why did the Association of British Insurers (ABI) create set definitions for medical conditions for insurance companies who provide critical illness cover?

Answer 23

In the past, many companies covered the same core conditions (ie cancer, stokes etc) but applied very different methods to assess the conditions in the event of a claim and to tackle this issue the ABI created those definitions to give clarity about how each should be assessed in the event of a claim

Question 24

Can third degree burns be covered by Critical illness cover?

Answer 24

Yes it can be

Question 25

Critical Illness Cover can be arranged on the basis of level, decreasing or increasing cover

Tell me about each

Answer 25

Level cover: The cover and premium amounts stay fixed throughout the term

Decreasing cover: The cover amount decreases each month, generally in line with a repayment loan such as a mortgage, while applying a fixed
interest rate chosen at the start.

„ Increasing cover: indexed cover that is suitable where the plan is purely used to cover medical or care costs that typically increase year on year. Cover increases yearly within agreed limits, without the need for further
underwriting. Premiums also increase

Question 26

1= A critical illness plan that provides only critical illness cover is known as
WHAT?

2= A critical illness plan that offers CIC and life cover only is known as WHAT?

Answer 26

1= A standalone plan

2 = A combined plan, often referred to as integrated cover

Question 27

For a standalone critical illness plan (ie, it only offers critical illness cover) how long must the life assured survive after making a claim in order to receive the benefits

What is this period of time known as?

Answer 27

Typically 14 to 28 days (known as
the survival period)

They will not receive anything if they die before the survival period ends

Question 28

What protection does combined Critical Illness cover provide?

Answer 28

Provides protection benefits in
the event of the policyholder:
„dying or suffering one of the defined critical illnesses (ie cancer, stroke etc)

Question 29

True or false, some combined critical illness cover plans pay out on both event

Answer 29

True, some plans will potentially pay out on both events: diagnosis of a critical
illness and on subsequent death during the term

Question 30

For combined Critical Illness plans, does death have to result from a critical illness in order to claim?

Is there any survival period for these plans, like with standalone plans.

Answer 30

No

And no because death is covered as part of the plan

Question 31

Some CIC providers offer a ‘buyback option’ for an additional premium

Explain the purpose and benefit of this

Answer 31

For most combined CIC plans, life cover will cease once claim is paid, which is an issue because life cover will be difficult to secure with a history of critical illness.

A buyback option allows the policyholder to keep their life assurance element running as normal, with a reduced sum assured.

No medical underwriting is required when exercising the option, but there may be a minimum period after the initial claim before a further claim can be made

Question 32

Read over 17.3.1 again

Question 33

What is Income Protection Insurance?

Answer 33

IPI is designed to provide replacement income in the event of an individual
being unable to work owing to illness, disability or accident

Question 34

Income protection is available as a standalone policy and can be either a pure protection plan or WHAT else?

Answer 34

A unit linked basis

(IPI can also be available as an option on a universal whole-of-life plan.)

Question 35

What do IPI providers do to prevent prolonged claims

Answer 35

Companies offer benefits set as a proportion of earnings (typically 50–80 per cent)

Ie, if it was 100% there would be no point in going back to work

Question 36

IPI providers offer benefits set as a proportion of earnings (typically 50–80 per cent)

Ie, if it was 100% there would be no point in going back to work

What prevents someone from simply taking out multiple IPI polices so they receive higher income than their salary?

Answer 36

The max benefit rule providers give where they offer for example 70% of income applies to ALL IPI policies a client may have.

To enforce this rule, clients are asked, both on the proposal form and in the event of a claim, whether they have any other policies or other sources of income. Care must be taken to fairly represent any information provided to the insurer; if a misrepresentation is made, the insurer may refuse to pay a claim

Question 37

Many IPI polices have a proportionate benefit included. What does this mean?

Answer 37

If a client returns to work but at a lower salary than previously, a proportion of the benefit will be paid

Question 38

What is Retail Prices Index (RPI)?

Answer 38

A UK inflation measure of the change in the cost of representative retail
goods and services, including housing costs

Question 39

What is indexation in relation to insurance policies?

Answer 39

Linking the sum assured to an index figure, such as an inflation measure,
so that the sum assured rises year on year in line with the index

Question 40

What are typical terms for IPI?

Answer 40

Clients can generally choose any policy term as long as the policy does not
run beyond their normal retirement date and is in line with the provider’s
rules. However, some providers have minimum terms, for example 5 years,
and maximum terms, such as 40 years

Question 41

What is a deferred period

Question 42

Why do self employed people pick the shortest deferred period that they can afford for their IPI policies?

Answer 42

Self-employed people tend to choose the shortest deferred period they can
afford, as any inability to work will have an almost immediate effect on their
lifestyle

Question 43

Tell me the differences between IPI and CIC policies

Answer 43

CIC is primarily aimed at meeting the additional costs associated with an
illness. It will pay out a lump sum or possibly an income if one of a range of specified illnesses is contracted.

IPI is designed to replace income when the insured suffers an illness or accident that prevents the insured from working. Although the lump sum from CIC can be invested to provide an income, IPI is much more suited to
meet this need

A payout from a CIC plan may be triggered even if the insured has to no time off work. For a payment to be triggered under IPI, the illness or condition must prevent the insured from working for longer than the deferred period agreed at the outset

Benefits from IPI can continue until retirement, whereas CIC will only pay a single lump sum.

Even if the sum paid under CIC proves insufficient to meet the insured’s costs, there will be no more than that payout.

A CIC plan will cease once a claim has been made, whereas IPI plans keep running as long as premiums are paid, meaning multiple claims can be made in the event of successive illnesses

Question 44

Housing Benefit is means tested. True or false?

Answer 44

True

Question 45

SMI is paid as a: WHAT

Answer 45

LOAN

Question 46

When exercising the convert option on convertible term assurance, the new sum assured must not: WHAT

Answer 46

exceed the original sum assured

Question 47

For which of the following traditional exclusions did the ABI revise its CIC guidance in 2018?

a) Self-inflicted injury.

b) Participation in certain high-risk pastimes.

c) HIV not resulting from a blood transfusion, an assault or a work accident

Answer 47

C

Question 48

IPI benefits cease on the earliest of recovery and end of policy term, death or what

Answer 48

Retirement

Question 49

PIP is usually payable where the person has had difficulties with daily living or mobility for ______ months, and expects their difficulties to continue for at least another ______ months.

Answer 49

three months and nine months.

PIP is usually payable where the person has had difficulties with daily living or mobility for three months, and expects their difficulties to continue for at least another nine months.

Question 50

There are two levels of benefit for Attendance Allowance: Tell me about this

Answer 50

There are two levels of benefit for Attendance Allowance: a lower rate for people who need help with personal care by day or at night, and a higher rate for those who need help both by day and at night.

Question 51

SMI payments are calculated using:

A) The borrower’s actual mortgage interest rate.

B) Sonia index.

C) A standard rate of interest.

Answer 51

A standard rate of interest

SMI payments are calculated using a standard rate of interest, rather than the borrower’s actual pay rate

Question 52

Assignment of life policies remains normal practice among lenders. True or false?

Answer 52

False

Assignment used to be normal practice among lenders, but it has become increasingly less common

Assignment is where the rights of benefits of a policy are transferred to another party. For example, a policy holder assigning their life insurance benefits to a bank as collateral for a loan

Question 53

What does collateral for a loan mean ?

Answer 53

The collateral just means the security for the loan

In a mortgage context, the collateral will be the mortgaged property

Question 54

pension term insurance cannot extend beyond the individual’s:

55th birthday.

65th birthday.

75th birthday.

Answer 54

Pension term insurance cannot extend beyond the individual’s 75th birthday, and the policy cannot be held in joint names or assigned to a lender.

Question 55

Which of the following whole-of-life contracts may be suitable where both lifetime cover and an increasing benefit are required?

With-profit.

Unit-linked.

Non-profit.

Answer 55

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. However, whole‑of‑life is primarily a protection policy, so more speculative funds should generally be avoided

Question 56

CIC commonly, but not always, covers aorta graft surgery. True or false?

Answer 56

True

Question 57

A life policy concerns itself with type of risk?

Answer 57

Mortality risk (the risk of death)

Question 58

A critical illness or IPI policy concerns itself with what type of risk?

Answer 58

Mobility risk (the risk of sickness)