U1: T12 - HEALTH AND GENERAL INSURANCE Flashcards
Julie wants to make sure that she can meet all of her essential outgoings if she is unable to work due to medium‐ or long‐term illness.
Which of the following products would be most suitable for her?
a) Accident, sickness and unemployment insurance (ASU).
b) Critical illness cover (CIC).
c) Income protection insurance (IPI).
d) Private medical insurance (PMI).
The correct answer is c) income protection insurance.
Answer a) is incorrect because ASU cover is usually designed to cover only mortgage repayments and usually for a maximum of two years.
Answer b) is incorrect because critical illness cover is restricted to specific conditions and is usually paid as a lump sum, which may not cover outgoings over a prolonged period of time.
Answer d) is incorrect because PMI only covers costs directly associated with medical treatment.
The contents of Charlene’s home are insured for £25,000 when they are actually worth £50,000. She is burgled and loses £2,000‐worth of computer equipment.
Using the ’average principle’, calculate how much the insurance company will pay her.
The insurance value is divided by the actual value, then multiplied by the value of the claim:
(£25,000 ÷ £50,000) × £2,000 = £1,000 (less the ‘excess’ under the policy).
When Gary was diagnosed with bowel cancer at the age of 50, he was able to use the lump sum he received under his insurance policy to pay off his outstanding mortgage.
Which of the following types of insurance did Gary have?
a) Private medical insurance.
b) Income protection insurance.
c) Critical illness insurance.
d) Long‐term care insurance.
c) Critical illness insurance.
Private medical insurance covers costs associated with treatment while income protection insurance pays a regular income rather than a lump sum. Long‐term care insurance is designed to meet the costs of care in later life.
Marco, a self‐employed painter and decorator, is considering taking out income protection insurance. He should opt for as short a deferred period as possible.
True or false?
True.
Marco’s income will reduce very rapidly if he is unable to work. He should opt for a short deferred period rather than a long one.
Marco’s partner Lydia, an HR manager, already has income protection insurance. If she claims under her policy, she will have to pay tax and NICs on the income she receives. If Marco goes ahead and buys income protection, he will not pay tax or NICs if he has to claim benefits under the policy.
This is likely to be because:
a) Marco’s earnings are below the personal allowance for income tax.
b) Marco’s policy will be arranged on an individual basis whereas Lydia’s policy has been arranged as part of a group scheme.
c) Marco is self‐employed whereas Lydia is an employee.
d) The insurance provider from whom Marco is thinking of buying his policy has different rules to Lydia’s insurance provider.
Answer is b)
Marco’s policy will be arranged on an individual basis whereas Lydia’s policy has been arranged as part of a group scheme.
Adaeze, an office administrator, hurts one of her hands, causing permanent damage, and has to be re‐employed on a lower salary.
What effect would her return to work have on her IPI benefits?
a) Full benefits would be paid until Adaeze has fully recovered.
b) Proportionate benefits would be paid, but no other claims under the policy would be accepted by the insurance company.
c) Benefits would cease immediately.
d) Proportionate benefits would be paid until retirement, death or the end of the policy.
Answer is d)
Proportionate benefits would be paid until retirement, death or the end of the policy.
Annette, who retired last year, has developed arthritis and needs a hip replacement. Under which of the following types of insurance policy might she be eligible to claim benefits?
a) Critical illness cover.
b) Accident, sickness and unemployment insurance.
c) Private medical insurance.
d) Income protection insurance.
Answer is C)
Private medical insurance, to cover the cost of treatment. Critical illness cover would not cover a hip replacement, while accident, sickness and unemployment insurance and income protection insurance provide cover for people who are working.
Vanessa is unhappy in her current job and has decided to resign. She will be able to claim benefits under her ASU policy to tide her over until she finds a new post.
True or false?
False.
ASU benefits are not available to policyholders who resign voluntarily.
Roger, who is 78, is finding it difficult to look after himself at home and is planning to move into residential care next month. He has purchased an immediate needs annuity so his fees will be paid direct to his care provider, once tax has been deducted.
True or false?
False.
With an immediate needs annuity, the benefits are paid directly to the care provider but they are tax‐free.
General insurance policies operate on the principle that policyholders should be restored to the position they were in before the event occurred that led to their claim.
True or false?
True.
This is the principle of indemnity.
Steve’s home contents were insured for £25,000. Last winter his kitchen was flooded and he claimed under his contents insurance for £6,000 damage to kitchen appliances and contents. His insurers established that his home contents should have been insured for £32,000.
Calculate how much Steve actually received once his insurers had taken account of the fact that he was underinsured.
(£25,000 ÷ £32,000) × £6,000 = £4,687.50 (less any excess).
It is illegal to drive a vehicle on public roads in the UK unless you have insurance that covers damage to your car or injury to yourself.
True or false?
False.
It is a legal requirement to have third‐party motor insurance, which covers injury to other people and their property.
In the context of IPI (Income Protection Insurance), what is the deferred period?
The period that must elapse between the onset of the illness/ injury that gives rise to the claim and the first payment of benefits.
Where income protection insurance (IPI) is taken out on an individual basis the benefits are taxed.
True or False
False
Where income protection insurance (IPI) is taken out on an individual basis the benefits are tax-free.
Where income protection insurance (IPI) is taken out by an employer the benefits are taxed.
True or False
True
IPI can be arranged by an employer on a group basis and in this case the
income is taxable as earned income.
