Topic 6 Meeting customers’ needs: protection

Question 1

1. What are the two main factors that affect the term of life cover required?

Answer 1

Two main factors influence the term of the coverrequired:

• the term of any financial liabilities such as a mortgage, other longer-term debts or other capital needs;
• the length of the period when others will be dependent on the life assured.

Question 2

1. List three medical conditions commonly covered under critical illness insurance.

Answer 2

The following are usually covered:

• heart attack;
• most cancers;
• stroke;
• coronary artery disease needing surgery;
• major organ transplant;
• multiple sclerosis;
• kidney failure.

Question 3

1. Diane’s employer offers private medical insurance as part of her employment package. How would the premiums and benefits be regarded for tax purposes?

Answer 3

The premiums would be taxable as a benefit in kind, but any benefits would be tax free.

Question 4

1. John is employed and Simon is self‑employed. Both would receive statutory sick pay if they were ill, subject to sufficient National Insurance payments having been made. True or false?

Answer 4

• John would be eligible for Statutory Sic k Pay
• Simon would have to claim Employment and Support Allowance.

Question 5

1. A company requires key person insurance on Graham, its marketing manager. Graham’s salary is £60,000 in relation to a total wage bill of £2m and company profits of £5m. What level of cover should the company consider?

Answer 5

Question 6

1. What is the key difference between buy‑and‑sell and cross‑option agreements?

Answer 6

• Under the buy-and-sell method, on the death of a partner, the deceased’s legal representatives are obliged to sell the partner’s share to the other partners, who are obliged to buy it.
• The difference with the cross (or double) option method is that the surviving partners and the deceased’s family have the option to buy/sell, but not the obligation; the deal must go ahead if either party exercises their option.

Question 7

1. A company requires key person insurance on Graham, its marketing manager. Graham’s salary is £60,000 in relation to a total wage bill of £2m and company profits of £5m. What level of cover should the company consider?

Answer 7

Question 8

1. What is the key difference between buy‑and‑sell and cross‑option agreements?

Answer 8

• Under the buy-and-sell method, on the death of a partner, the deceased’s legal representatives are obliged to sell the partner’s share to the other partners, who are obliged to buy it.
• The difference with the cross (or double) option method is that the surviving partners and the deceased’s family have the option to buy/sell, but not the obligation; the deal must go ahead if either party exercises their option.