Topic 4

Question 1

What are some features of risk?

Answer 1

• Physical injury or death
• Loss of/or damage to possessions
• A legal liability
• A financial loss

Question 2

What is the relationship between risk and reward?

Answer 2

When someone takes a risk, it’s usually because there is a reason for taking the action (perhaps they’re being offered a higher reward)

Question 3

What is consequence of risk and reward?

Answer 3

Someone who wants high rewards must accept a higher level of risk of loss

Question 4

What is the risk pyramid?

Answer 4

1) Shares in newly quoted company
2) Shares in established company
3) Unit Trusts
4) Bank Saving account
5) Premium Bonds

Question 5

How does interest effect savings accounts?

Answer 5

(Interest is the reward you earn on savings)

Due to low interest rates recently, people are more willing to choose riskier products to earn higher returns

Question 6

What is the current base rate of interest in the UK?

Answer 6

5.25%

Question 7

What are products people with high risk acceptance would purchase ?

Answer 7

High risk investments (shares) in the hopes of earning a high return

Question 8

What are some products for people with average risk tolerance?

Answer 8

Credit Products

Question 9

What is a product people who are risk adverse may use?

Answer 9

Bank Saving accounts

Question 10

What is risk transfer?

Answer 10

When a person faces a risk and decides to spend money on passing the risk to someone else

Question 11

What are the impacts of risk?

Answer 11

• The amount of money involved
• The effect on lifestyle
• The timing of the event
• The frequency of the event

Question 12

What is the probability of risk?

Answer 12

How likely of an event is to happen

Question 13

How do you calculate probability of risk?

Answer 13

Probability X Impact = Degree of risk

Question 14

What are the two types of life assurance protection?

Answer 14

• Whole of life assurance
• Term assurance

Question 15

What are some features of whole of life assurance?

Answer 15

• The sum assured is payable on the death of the life assured

• There is NO fixed time limit

Question 16

Why is whole of life assurance less common?

Answer 16

It is more expensive as it is certain the sum will be paid out at some point in the future

Question 17

What are some features of term assurance?

Answer 17

• The sum assured is payable, only if the person dies before the end of a specified term

Question 18

What happens is a person survives the term in term assurance?

Answer 18

The cover ceases and NO payment or refund is ensured

Question 19

What are reasons for life assurance?

Answer 19

• Family protection
• Debt protection
• Managing a tax liability
• Cover for older people

Question 20

What are some features of critical illness assurance?

Answer 20

• It pays out a guaranteed cash lump if the insured person is diagnosed with a critical illness

• The cover can be combined with a life insurance policy

Question 21

What is income protection insurance?

Answer 21

They pay out a monthly income to insured people who have suffered an accidental injury or a long term illness

Question 22

What does ASU stand for?

Answer 22

Accident, sickness & unemployment insurance

Question 23

What does the ASU do?

Answer 23

Provides cover to the insured party in the event of an accident or sickness that prevents them from working (or involuntary unemployed)

Question 24

What is the maximum of cover available for ASU?

Answer 24

Varies from provider to provider, though it’s usually based on a percentage of the insured persons income

Question 25

What is the maximum time the ASU pays out for?

Answer 25

12 or 24 months
(the cost is usually lower than the cost of income protection insurance)

Question 26

What is the FSCS?

Answer 26

Financial Services Compensation Scheme
(set up to protect people’s savings up to a certain limit)

Question 27

What are the areas of savings and investments the FSCS protects if it defaults?

Answer 27

• Investments
• Deposits
• Home finance
• Long term assurance
• Conpulsory insurance
• Non- Compulsory insurance
• General insurance advice & arranging

Question 28

What are the benefits of making a will?

Answer 28

• You can decide what will happen to your money, property and possessions after death

• Provide for a partner where there is no marriage or civil partnership

• Make arrangements for children

• Minimise the amount of inheritance tax they pay

Question 29

What are some items in a will?

Answer 29

• Details of your assets

• Names and details of all the people whom money and possessions are being left to

• Arrangement for guardianship of children under 18

Question 30

What is inheritance tax?

Answer 30

It is paid on an estate when someone dies if the value of the estate exceeds a certain amount (nil rate band)

Question 31

What is a trust?

Answer 31

A financial relationship where property is held by one party (trustee) for the benefit of another (beneficiary)

Question 32

What is a Junior ISA?

Answer 32

A long term tax free savings accounts for children
(if they’re under 18 and not entitled for a Child’s Trust Fund)

Question 33

What is a legal guardian?

Answer 33

A person who has the legal authority & corresponding duty to care for the person and property of another person (a ward)

Question 34

What are factors to consider when attempting to create the right mix of products and providers?

Answer 34

• Saving & Borrowing
• Short term, medium term & long term products
• Different types of the same products
• Different providers