Topic 22 - 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.

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

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