Unit 1 Topic 12 - Health and general insurance Flashcards

1
Q

What is critical illness cover?

A

Critical illness cover provides a tax-free lump sum to met the additional costs that someone may face if they find themselves in this situation. The illness need not be terminal.

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2
Q

What is income protection insurance?

A

Income protection insurance (IPI) pays an income when accident or illness prevents someone from earning a living by carrying out their normal occupation.

Many insurers also offer IPI to people whose main responsibilities are in the family home, for example looking after children, rather than earning money outside it.

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3
Q

What factors will influence the premium rate of income protection insurance?

A
  • The age of the life assured.
  • The amount of benefit
  • Current state of health
  • Past medical history
  • The length of the deferred period
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4
Q

What are Reviewable premiums on IPIs?

A

A reviewable premium means that premiums may start off relatively low, but will be reviewed in the future and may go up every few years or so. In some cases, the premium may be reviewable every year, or every five years. to take into account changing circumstances.

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5
Q

What are Guaranteed premiums on IPIs?

A

The nature of guaranteed premiums means that these tend to be more expensive than other two options, but the premiums are guaranteed for the life of the policy, which may be 25 years of even longer.

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6
Q

Define Deferred period in relation to insurance.

A

The period that must elapse between the onset of the illness/injury that gives rise to the claim and the first payment of benefits.

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7
Q

How are IPI benefits taxed?

A

When income protection insurance is taken out on an individual basis the benefits are tax free.

IPI can be arranged by an employer on a group basis and in this case the income is taxable as earned income.

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8
Q

What is ASU insurance?

A

Accident, sickness and unemployment insurance (ASU) plans are a type of general insurance that may be considered as an alternative to IPI.

ASU insurance is typically used to cover mortgage repayments if illness, accident or loss of employment prevents the policyholder from earning a living. A level of income to monthly mortgage repayments is paid for a limited period, usually a maximum of two years.

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9
Q

How does ASU differ from IPI?

A

In contrast to IPI, ASU plans should be viewed as short term to protect mortgage payments rather than as providing total protection of earned income.

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10
Q

What are the restrictions on ASU insurance?

A
  • The proposer must have been actively and continuously employed for a specified minimum period prior to starting the plan.
  • Any redundancy that the proposer had reason to believe was pending when they took out the policy will be excluded.
  • No benefit will be payable if redundancy occurs within a specified period of the cover starting.
  • A person may have to have been employed for a minimum period either before they can take out this type of plan or before the unemployment cover becomes value.
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11
Q

Define Proposer in terms of insurance.

A

The individual who is applying for cover under the insurance policy and will pay the premiums, also referred to as the policyholder. The proposer is often the same as the person(s) covered under the policy, the life assured, but can be different.

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12
Q

How are ASU benefits taxed?

A

All benefits are tax-free, but there is no tax relief on contributions to an ASU plan when it is arranged on a personal basis.

If the scheme is set up on a group basis, any employer contribution will be allowed as an expense against corporation tax.

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13
Q

What is Private medical insurance?

A

Private medical insurance (PMI) is a pure protection plan designed to provide cover for the cost of private medical treatment, thus eliminating the need to be totally dependent on the NHS.

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14
Q

What does Private medical insurance usually cover?

A
  • In-patient charges: including nursing fees, accommodation, operating fes, drugs, and the cost of a private ambulance
  • Surgical and medical fees: including surgeon’s fees, anaesthetist’s fees, pathology, and radiology
  • Out-patient charges including consultations, pathology, radiology, and home nursing fees.
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15
Q

What is long-term care insurance?

A

The purpose of long-term care insurance (LTC) is to provide the funds to meet the costs of care that may arise in later life, when a person is no longer able to perform competently some of the basic activities involved in looking after themselves each day.

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16
Q

Define Annuity.

A

A financial product purchased with a lump sum, which then pays out a regular income, potentially for the lifetime of the annuity holder (the annuitant).

17
Q

Define Immediate needs annuity.

A

An annuity from which the benefits are used to pay for care needs that the insured already has.

18
Q

Define Deferred needs plan.

A

An investment designed to build up funds that can then be drawn on to pay for care needs as and when required.

19
Q

How are immediate long-term care annuities taxed?

A

They are tax free if paid direct to the care provider. Furthermore, the annuity must have qualified as an immediate needs annuity when it was taken out.

20
Q

Under what circumstance would an annuity not qualify as an immediate needs annuity?

A

If its benefits can be paid to the policyholder.

21
Q

How are annuities that do not qualify as an immediate needs annuity, taxed?

A

Only the interest element is taxable as savings income. Tax rates applicable are as follows (2019/20):

  • Tax at a rate of 20% is deducted at source.
  • Non-taxpayers or individuals are not liable to tax on their savings income can reclaim any overpaid tax.
  • Higher-rate taxpayers having a further liability of 20%
  • Additional-rate taxpayers have a further liability of 25%.
22
Q

What five broad bands can general insurance be categorised under?

A

The first two relate to both personal and commercial situations:

  • property loss: loss, theft of damage to static and movable assets (from diamond rings to houses to supertankers);
  • liability loss: resulting from a legal liability to third parties, eg personal injury or damage to property;

The remaining three are restricted to commercial situations. They are:

  • personnel loss (due to injury, sickness or death of employees);
  • pecuniary loss (as a result of defaulting creditors);
  • interruption loss (when a business is unable to operate due to one of the other losses occuring, eg because its premises have suffered fire damage).
23
Q

What is the principle of indemnity?

A

In the event of a claim, insured persons should be restored to the same financial position after a loss that they were in immediately before the loss occurred.

24
Q

What is all-risks cover?

A

The aim of an all-risks policy (sometimes known as extended contents cover) is to indemnify the policyholder for loss, damage or theft of items that are regularly taken out of the home. Cover is normally split into two categories:

  • unspecified items: these need not be specifically named but each item must have a value below a specified amount;
  • specified items: these items are above the single-item value limit and are individually listed.
25
Q

What does Third party cover include?

A
  • Death or bodily injury to third parties, including passengers in the car - hospital charges and emergency medical treatment charges are also covered;
  • damage to property;
  • legal costs incurred in the defence of a claim.
26
Q

What does Third party, fire and theft cover provide in addition to Third party?

A
  • Fire, lightning or explosion damage to the vehicle

- theft of the vehicle, including damage caused during theft or attempted theft.

27
Q

What does Comprehensive cover in addition to third party, first and theft?

A

A typical comprehensive policy would include some or all of the following:

  • accidental damage to the vehicle on all-risks basis;
  • loss of or damage to personal items in the vehicle;
  • personal accident benefits;
  • windscreen damage
28
Q

What is Insurance premium tax?

A

Some general insurance premiums payable in the UK are subject to insurance premium tax (IPT). The standard rate of IPT is currently 12% of the premium on most general insurance which relate to risks for which the period of cover under the terms of an insurance contract begins on or after that date.

Travel insurance premiums are taxed at a higher rate of 20%.

29
Q

What is payment protection insurance?

A

PPI can cover monthly loan repayments if the policyholder’s salary is reduced due to accident, sickness or unemployment. The policy will pay out only for a fixed period of time, usually 12 months.