Unit 2 Topic 4 Flashcards
Accident, sickness and unemployment (ASU) insurance
A policy that provides cover to the insured party in the event of accident or sickness that prevents them from working or if they become involuntarily unemployed
Beneficiary
In relation to trusts, a beneficiary is a person whose property is held as part of a trust and looked after by a trustee
Civil partnership
A legal union between same-sex couples
What is this defining?
An assessment of an individual’s creditworthiness based on their record of money borrowed and repaid
Credit rating
Critical illness insurance
Insurance that pays out a guaranteed cash lump sum if the insured person dies or is diagnosed with a specific critical illness
Estate
The sum of a person’s assets minus all debts and obligations (aka net worth)
Financial Services Compensation Scheme
A compensation scheme that pays compensation to account holders of up to a certain amount per provider if the provider is in default
Impact of risk
The effect on someone’s life of sustaining loss or damage
What is this definition describing?
A policy that allows people to manage the risk of loss of earnings over a long term. It pays out a monthly income to insured people who have suffered an accidental injury or long-term illness and who are therefore unable to work.
Income protection insurance
Inheritance tax
A tax that may be payable on the estate left by someone when they die
What is this definition describing?
The term used to describe someone who has died without having made a will. In this situation, intestacy laws set out what happens to the person’s possessions.
Intestate
Legal guardian
Are wards always children?
A person who has the legal authority and the corresponding duty to care for another person, known as a ward.
The ward is usually a child (under 18) but could also be an incapacitated or disabled person who is not able to make decisions for themselves.
Probability of risk
The likelihood of a damaging or harmful event happening
Risk averse
Reluctant to take any kind of risk
Risk transfer
Give an example?
A way of managing risk by transferring it (at a cost) to someone else who will accept the financial responsibility.
Best example is insurance, which passes the risk of loss or damage on to the insurance company.
Trade union
An organisation that represents workers within a particular industry or carrying out a particular type of job.
What do trade unions seek to do?
Trade unions seek to protect the rights and enhance the working conditions of their members and also offer a range of benefits, such as legal advice.
Fill the gaps:
A _________ ___________ whereby property is held by one party (the _______) for the benefit of another (the ___________).
Financial relationship
Trustee
Beneficiary
Trustee
A person who holds property for the benefit of another party as part of a trust. They have legal title to the property but also duty of care to the beneficiary.
Will
A legal document setting out what a person wants to happen to their belongings (assets) after their death
Name as many features of risk as you can (there’s 6 on here)
Physical injury or death
Loss or damage to possessions
A legal liability
Uncertainty
Probability
Taking a chance
Describe the relationship between risk and reward
The higher the risk —> higher the reward
Can you name the tiers of the risk pyramid (hint: there’s 5 tiers) , in order of their increasing risk?
Most risky —> Shares in a newly quoted company
Shares in an established company
Unit trusts
Bank savings account
Least risky —> Premium bonds
Why does placing shares in an established company carry risk?
They carry risk as there is no diversification
Why are unit trusts risky?
Carry risk because their value can fluctuate according to stock market movements.
Why do premium bonds carry no risk?
Because they’re 100% backed by the government
What is the current UK base rate of interest?
5.25%
What kind of products would people with high risk acceptance be willing to purchase? Can you give an example?
High-risk investments
Shares in a new company in a high-risk sector
What products would people with an average degree of risk tolerance be willing to purchase?
Loans, any kind of borrowing
What products would people who are risk averse be willing to purchase/use?
Bank accounts
Name two aspects of the impact of risk
The amount of money involved
The effect on lifestyle
An individual CAN calculate the probability of risk. True or False?
False - not something an individual can calculate, however it is possible for someone to have an idea of the likelihood of an event happening if they have some control over the event and are able to take some risk reduction measures.
Name two main types of life assurance
Whole-of-life assurance
Term assurance
What type of life assurance do these features correspond with?
1.Policy has no fixed time limit and remains in force until the policyholder dies or surrenders it.
2.More expensive, less common.
Whole-of-life assurance
What type of life assurance do these features correspond with?
1.Sum assured is payable only if person assured dies before end of specified term. If person survives term, cover ceases and no payment or refund premium is payed.
2.Suitable as mortgage protection.
Term assurance
Name four reasons as to why people may buy life assurance
Family protection
Debt protection
Managing a tax liability
Cover for older people
Name two features of critical illness insurance
Can be combined with a life insurance policy as an additional option
Normally includes illnesses such as certain cancers, heart attacks or strokes
Name two features of invoke protection insurance
Allows people to manage the long-term risk of loss of earnings and being unable to pay their mortgage, other debts and household bills.
Pays out a monthly income to insured people who have suffered an accidental injury or a long-term illness and who are therefore unable to work
Name two features of ASU insurance
Covers involuntary unemployment
Only pays out for a limited period (cost usually lower than the cost of IPI)
Can you name the areas of savings and investments that the FSCS protects if a FSP defaults?
Bonus points for the percentages!
Investments (100% of the first £85,000 per person per firm)
Home finance
Arranging (100% of the first £85,000 per person per firm)
Long-term insurance (100% of the claim with no upper limit)
Compulsory insurance (90% of the claim with no upper limit)
Non-compulsory insurance (90% of the claim with no upper limit)
Name 3 benefits of making a will
Minimises the amount of inheritance tax paid
Allows for people to make arrangements for their children in the event of the death of one or both parents
Allows people to make arrangements to provide for a partner where there is no marriage or civil partnership involving them
Name 3 items that may be included in a will
Details of the persons assets
Names and details of the beneficiaries
Arrangements for the guardianship of any children under the age of 18
