Topic 18: Types of financial protection II UNIT 5 Flashcards
What are rider benefits?
Give examples of these
Rider benefits are additional features or coverage options that policy holders can add to their insurance policy . For example, Waiver of Premiums, accidental death cover, a specific illness not covered by the standard policy etc
Rider benefits allow policy holders to alter their policy to better suit their needs
One common type of rider benefits is waiver of premiums (WoP). Tell me about this
WoP ensures that policy payments are
maintained and benefits preserved if the insured is unable to work because of
accident, illness or disability
especially good for the self employed
For understanding. Here is an example of the rider benefit Waiver Of Premiums being used in the real world
Yana falls seriously ill and has to stop working as a teacher.
She hopes this will be temporary, and her employer has a company sick pay scheme that maintains full pay for eight weeks of sickness.
However, Yana has now been ill for ten weeks and has gone
down to half pay. She would be tempted to cancel her life
assurance to make ends meet, but because she chose WoP the
premiums are covered for her
Employers can arrange IPI, CIC or accident and sickness schemes for employees on a group basis
True or false
True
Building insurance includes a list of perils in its T&C’s. What are perils?
Each policy includes a list of perils that are covered by the policy
Perils are either something that causes financial loss or are hazards (which make perils occurring more likely)
For example, if the policy covers storm damage, in the list of perils one of the perils will be storm damage
What is a common way insurance companies keep premiums low, and reduce the number of minor or frivolous claims
Note. Frivolous means non serious or to lack depth (ie, playing on your mobile whilst in work would be classed as a frivolous task)
Insurance companies achieve this by making standard perils carry an excess upon claim
Ie, if theft occurs it may have excess of £50. Therefore, if it is minor theft you are likely not to claim
Lenders have certain rights to ensure buildings cover is maintained by the borrower on the property.
Where are these rights found and what rights do they have?
The rights are found in the mortgage deed
The lender has the right to:
Require the property is insured continuously
Have their interest noted on the insurance policy by the insurer
Secure a right over the proceeds of any claim made by the borrower (to ensure the proceeds are used to either fix the issue of pay down the mortgage debt)
If the borrower chooses their own provider, the lender has the right to be informed if premiums are not paid before any action is taken to cancel the
policy.
The lender may choose to pay the outstanding premiums and add the payments to the mortgage loan (True or false)
TRUE
Specialist buildings insurance policies are available for those undertaking a self-build project, because standard policies would not cover many of the
specific risks. Self-build policies include the following elements
Site insurance
Ten-year structural warranty
Liability cover
Employer’s liability insurance
Tell me briefly about each. Which one is compulsory for developers?
Site insurance = Covers projects during development, from the time when the insured takes responsibility on a plot or property that is to be redeveloped or demolished. The policy covers the whole process such as the planning and when the work is being complete.
Ten-year structural warranty = covers the cost of rebuilding or rectifying work to the housing unit after work is complete, if there is major damage caused by the design, workmanship or materials. For this to be used the issue must be as a result of the defect from design workmanship or materials
Liability cover = insures against risks to the public and any contractors while the work is going on
including negligence claims
Employer’s liability insurance = This is Compulsory!!! Protects the employer against compensation claims from injured workers
Why do lenders not require contents cover like they do buildings cover?
A lenders security is not affected by damage to
contents
What are perils in relation to buildings/content cover?
The thing that the insurance protects against
IE, a standard peril of contents is theft or a standard peril of buildings is storm damage ( standard meaning most policies include it as standard)
What is landlords building insurance?
Landlord’s buildings insurance provides cover against financial loss for those renting out property(s)
Basically it includes a list of standard perils with added extras useful for landlords
The reason this insurance exists is because landlords obviously have a range of issues unique to them, such as tenants causing damage to the property or tenants defaulting on rent payments and so on
What is Accident, sickness and unemployment (ASU) insurance?
Tell me how its different to IPI. Tell me the key difference between the two in terms of annual reviews
ASU is a type of general insurance that may be used as an alternative or in conjunction with IPI. It provides a regular income benefit which is provided if the insured is unable to work owing to accident, illness or unemployment via redundancy
It is less expensive that IPI because it is not underwritten on a personal basis and will pay income benefits for a shorter period
The main difference between the two is: ASU policies are annually renewable at the discretion of the insurer. This means the insurer can increase premiums in light of poor claims experience,
or even withdraw cover that was previously available, Insurers cannot do this with IPI as this provides permanent cover. This is also another reason it is less expensive
Basically it is the same as IPI expect it is cheaper because of the above reasons
What is Payment Protection Insurance (PPI) ?
Are benefits tax free and is the policy annual renewable?
(Do not confuse with IPI!!!)
Payment protection insurance (PPI) is designed to protect repayments to service a loan or debt in the event of death, ill health or redundancy
It is commonly arranged in conjunction with a mortgage, a personal loan or an overdraft
All PPI benefit payments are tax-free. The policy is annually renewable, which means the insurer can decline to renew it
What is Mortgage payment protection insurance (MPPI)
Covers the borrower’s mortgage payments for up to two years if they are unable to work due to accident or sickness.
Although called MPPI, the policy is an ASU policy marketed as mortgage protection. The exclusions and restrictions are broadly the same
All benefit payments are tax-free.
The policy is annually renewable, which means the insurer can decline to renew it
