Topic 19 - Protection Advice (unit 5) Flashcards
What does it mean if an insurance policy is a ‘pure protection’ policy?
The policy is focused only on protection against certain perils, without incorporating savings or investment features
For example, CIC , ASU, MPPI, IPI and term assurance polices are ‘pure protection policies’
Unitised whole of life polices are not.
To offer advice on insurance products, does the firm need to be authorised by the FCA?
YES
Tell me the remedies available to insurance companies upon discovery of misrepresentation from the policyholder
The remedy available depends on the type of misrepresentation
Honest and reasonable misrepresentation =
ie, the consumer took reasonable care but made an honest mistake) = No remedies available: the insurer must pay any claim and the policy continues as normal
Deliberate misrepresentation =
(ie, where the consumer knew they should disclose information but did not ) = REMEDY = Treat the contract as if it never existed. Refuse all claims. Retain all premiums paid if fair.
Reckless misrepresentation
(ie, where the consumer acted without care or regard for the truth of an answer) REMEDY = same as deliberate misrepresentation
careless misrepresentation
(where the consumer made a statement they believed to be true but without sufficient care to check the facts) REMEDY = If the insurer would not have entered into the contract if it knew the information, all claims can be refused but premiums must be returned. If the insurer would have entered into the contract on different terms (eg at a lower level of cover)
the different terms are taken as applying to the contract or if a higher premium would have been charged upon knowing the info, the insurer can make a proportionate reduction to the amount of any claim
To sum up: Remedies can be applied in event of deliberate, reckless or careless misrepresentation only. Reckless or deliberate have the same remedies. The remedy chosen for careless depends on how the contract would differ if the insurer knew all the facts during the pre disclosure stage
Several pieces of documentation are issued to the customer when setting up a protection plan.
Outline them and explain what they are
Key features document (KFD): Also known as an ‘illustration’. It sets out the key features of the specific plan and may be in the form of a brochure.
For a pure protection contract, a policy summary can be used instead to serve a similar purpose
Acceptance letter: issued after the application is underwritten, confirming the exact terms and conditions under which the insurance is offered. These
terms may differ from those specified on the KFD, eg if health issues are discovered during the underwriting process that lead to an increased
premium
Cancellation notice: sent to the customer around the same time as the acceptance letter. It sets out their rights should they decide to cancel the plan.
Policy document: also known as an illustration, confirming the details of the plan, the cover provided and the terms under which the cover is
provided. It serves as a certificate of insurance and the client should keep it safe
Under ICOBS 7 for most insurance contracts there is a short cancellation or ‘cooling-off period’ during which the customer can cancel without penalty
What are the typical cancelation periods?
30 days for life assurance, CIC or IPI, and 14 days for home insurance.
The period starts when the policy begins or when the customer receives their policy documents, whichever is later.
ICOBS 5 states that before an insurance contract is put in place, the insurer must specify WHAT?
The customer’s demands and needs based on information from the customer (can be done with a questionnaire, gathered f2f or with a proposal form)
ICOBS 6 states that a firm must take reasonable steps to ensure a customer is given appropriate information about a policy so that they can make an
informed choice about the arrangements proposed
What information must firms give to satisfy this requirement?
Information that must be
provided is the term, the definition of each benefit and option, means of payment and duration of premiums, tax arrangements of benefits, cancellation information, and complaints-handling procedures.
Other information given varies depending on factors such as the products complexity or knowledge of customer and so on
For insurance that is not payable on death or in the event of injury, sickness or infirmity what must the firm provide the customer with?
An Insurance Product Information Document in a durable medium (ie, allowing the customer to store the information for future reference and to reproduce the information ( so paper, email, PDF file etc)
For insurance that is not payable on death or in the event of injury, sickness or infirmity what must the firm provide the customer with an Insurance Product Information Document in a durable medium
What is a durable medium?
A durable medium is anything that allows the customer to store the info for future reference and to reproduce it if needed
This could therefore be paper, email, PDF
Paper for example can be printed as copies and obvs stored for long periods
What is churning?
Where an adviser recommends cancelling existing policies and replacing them with similar ones without any material benefit. (this is obvs where an advisor is trying to meet their quota etc; Regulators obs do not like this)
If, however, an advisor recommends cancelling an existing policy and replacing it with a similar one but the new policy is far cheaper or it offers much more protection at a similar price, then this wouldn’t be churning but instead good practise
When taking out an insurance policy is it more accurate to base the amount of protection you opt for on loss of income or projected expenditure
projected expenditure because this takes into account more factors
For example, if someone gets a critical illness they may also have medical bills as well as lost income. If you only took into account lost income the medical bills wouldn’t be accounted for meaning the sum assured may not be sufficient
What must normally elapse between the insured event happening and the commencement of WoP?
A deferred period during which nothing is payable
Typically, there is a specified period during which the policyholder must continue to pay premiums even after the insured event occurred. After this period, if the insured’s disability or other qualifying event persists the waiver of premiums (WoP) rider benefit will take effect, relieving the policyholder from paying premiums while still receiving the benefits of the insurance policy
Remember Waiver Of Premiums is typically an optional rider benefit
Under ICOBS 5, firms must:
take reasonable steps to ensure that a customer only buys a policy from which they are BLANK 1
inform the customer if they find that parts of the cover do not apply, so the customer can make an BLANK 2
Fill the blanks
1 = eligible to claim benefits
2 = parts of the cover do not apply
Both these are part of the suitability requirements
What is a pure protection product?
Provides protection against one or more perils but does not contain an investment element
What is the Cooling-off period
A short period under ICOBS 7 during which the customer can cancel a protection policy without penalty.
This is generally 30 days for life assurance, CIC or IPI, and 14 days for home insurance.
