Unit 2 - Serving the Retail Consumer Flashcards
Budgeting, managing debt and borrowing
What is net disposable income?
Income - outgoings = net disposable income
Expenditure can be considered under 3 headings:
1) essential spending- mortgage, council tax etc
2) everyday spending- travel, food
3) occasional or non-essential spending - gifts, holidays
What is debt consolidation?
Negotiating a new loan to repay an existing loan or loans; often with a lower interest rate and lower monthly payments
What is an IVA?
Individual voluntary agreement
What is the risk of property loans?
If clients fail to make the required repayments, this could result in them losing their home
What are the two ways in which a mortgage can be repaid?
1) Capital and interest repayments
2) Interest only
What are the different mortgage types?
Capped Cap and collar Discount Euro (or other foreign currency) Equity linked (Aka shared appreciation mortgages) Fixed interest Flexible Offset Tracker
What is equity release?
Describes a range of products available to older clients typically over the age of 60, allows them to release the equity tied up in their home
Equity release schemes are either:
Lifetime mortgages
Or
Home reversion plans
What is a lifetime mortgage?
Clients borrow money secured against their home. The home still belongs to them. Apart from roll-up schemes and fixed repayment lifetime mortgages, they will have to pay interest on the loan every month. When they die or move into a long term care facility the home is sold and the money from the sale is used to pay of the loan.
If there is not enough money from the sale to pay off the loan, the client or beneficiaries would have to repay any extra, to guard against this, most lifetime mortgages offer a no negative equity guarantee.
What is a home reversion plan?
Client sells all or part of their home in return for a lump sum, regular income or both. The home then belongs to the reversion provider, but the client is allowed to carry on living in it under a lease until they die or move into along term care facility. Because of this the client will only receive between 20% and 60% of the value of their home.
What are the 2 home purchase plans?
Ijara
Diminishing musharaka
What are sale and rent back agreements?
Where companies offer to help clients with financial difficulties by buying their home and then renting it back to them for a fixed period. Sometimes called flash sales.
What are the two types of loan?
Unstructured- mortgages, overdrafts
Structured- car / sofa
Individual protection needs are influenced by:
Age Dependants Income Financial liabilities Employment status Existing cover
What is term assurance?
Pays a lump sum/series of lump sums on death of the life assured within a specified time frame.
What are the different types of term assurance?
Level term assurance Decreasing term assurance Family income benefit Increasable term assurance Convertible term assurance Renewable term assurance
What are endowment policies?
Pay a lump sum on the death of the life assured but primarily savings vehicles. Some offer the option of providing critical illness cover at extra cost.
What are whole of life policies?
Primarily geared towards providing a substantial level of life cover but some have an investment elements. Provide cover for the lifetime of the assured.
What is income protection?
Designed to replace lost income for an individual who due to illness or accident, is unable to work.
Once benefits start to be paid, they will continue until the insured returns to work, dies, or reaches the expiry date of contract. The benefits of the policy are exempt from income tax.
What is personal accident and sickness insurance?
Like income protection, also pay a regular benefit while the insured is unable to work due to illness or an accident. However differences to income protection include:
- may also pay a one off lump sum if insured loses a limb or digit, the sight of one or both eyes or is permanently disabled
- this policy will only pay benefits for a maximum of one or two years and therefore the deferred period is short
- reduced number of health and occupational questions asked compared to income protection
- regular benefit is likely to be fixed sum rather than percentage of policy holders earnings
What is critical illness cover?
Pays a lump sum on the diagnosis of a specified illness regardless of whether or not that prevents insured from working
What are the factors affecting a clients pension requirements?
Age Income Dependents Previous and current pension arrangements State provision
How is a CPA taxed?
Taxed as earned income on the whole of the income paid at 20% 40% and 45% tax rates