Unit 5:17 Protection Types (Life Insurance)

Question 1

Term Insurance

Answer 1

• Coverage provided for a pre-agreed period of time
• If the life assured survives the term, coverage stops
• No premiums are returned at the end of the term
• Designed to provide protection for a specific timeframe

Question 2

Level term Assurance (Interest Only Protection)

Answer 2

• Payout (sum assured) is a fixed amount if you pass away during the policy.
• The payout never changes, no matter what.
• Inflation might reduce its buying power over time
• Good for long-term protection, but the money may be worth less in the future
• No investment component

Question 3

Decreasing Term Insurance (Mortgage Protection Insurance)

Answer 3

• Payout amount goes down over time (usually in line with mortgage balance as you pay it off)
• Premium remains constant throughout policy term
• Designed to cover reducing debts like repayment mortgages
• More cost-effective than level term for mortgage protection

Question 4

Convertible Term Assurance

Answer 4

• Provides flexibility to convert policy into whole-of-life or endowment assurance
• No additional health checks needed to switch
• Usually comes with slightly higher premiums than standard term assurance
• Valuable option if health deteriorates during initial term period

Question 5

Whole of Life Policy

Answer 5

• Provides financial support for loved ones after death
• Pays out a lump sum upon death of the insured
• Helpful for covering extra expenses after death
• Can be used for inheritance tax (IHT) planning

Question 6

Exclusions from Pay-outs (WOL)

Answer 6

• Alcohol or drug misuse: policies might not pay out if death linked to substance abuse
• War or terrorism: these situations can sometimes be excluded
• Suicide or reckless acts: payouts might not happen in these unfortunate circumstances
• Different insurers have different rules, crucial to find one that fits client’s situation

Question 7

Critical Illness Cover

Answer 7

• Provides a tax free lump-sum pay-out upon diagnosis of specific life-threatening or debilitating illnesses
• Funds can be used for long-term care needs
• Can cover living accommodation modifications
• Helps pay for medical equipment
• Assists with mortgage/debt repayment
• Protects investments
• Improves quality of life during recovery

Question 8

Types of Critical Illness Cover

Answer 8

• Level Cover: Fixed cover and premium amounts throughout the term
• Decreasing Cover: Cover amount decreases monthly, suitable for repayment loans like mortgages
• Increasing Cover: Adjusts yearly to cover rising medical or care costs, with increasing premiums

Question 9

CIC: Standalone vs. Integrated Plans

Answer 9

• Standalone Plan: Offers only critical illness cover, with a survival period before pay-out
• Combined or Integrated Cover: Provides both life cover and CIC benefits
• Integrated policy pays out on death or critical illness claim
• Coverage often ceases after the first claim
• Multiple coverage options to suit different protection needs

Question 10

Protection Advice Standards

Answer 10

• The Association of British Insurers (ABI) provides industry standards and guidelines that mortgage advisors need to understand when recommending protection products alongside mortgage advice

Question 11

Insurance Premiums: Guaranteed vs. Reviewable Options

Answer 11

• Guaranteed premiums remain fixed throughout policy term
• Reviewable premiums subject to periodic reassessment
• Guaranteed premiums provide budgeting certainty
• Reviewable premiums typically start lower initially
• Premium type affects long-term affordability of protection

Question 12

CIC Survival Period

Answer 12

• Some companies will only pay out on a critical illness if the subject survives 14-30 days after being taken ill

Question 13

Income Protection Insurance

Answer 13

• Income Protection Insurance (IPI) is a permanent contract that cannot be cancelled due to a lot of claims
• Differs from short-term plans that undergo annual review
• Provides long-term financial security when unable to work due to illness or injury till retirement
• They pay a percentage of your earning tax free

Question 14

Deferred Period

Answer 14

• (How long you can go without insurance paying out)
• Deferred Period offers choices of waiting periods: 4 weeks, 13 weeks, 26 weeks, or 52 weeks
• Selection depends on employer’s sick pay arrangements
• Longer deferred periods result in lower premium costs
• Balances affordability with timing of income replacement needs