Week 1 Flashcards
High risk, low probability
Serious illness
High risk, high probability
Redundancy in high turnover job
Low risk, low probability
Don’t really happen
Low risk, high probability
Scraped knee
What is insurance best to cover in terms of probably
Low probability, high risk
What is morbidity
Likeliness of illness
What is Mortality
Likeliness of death
What types of lifestyle have a significant impact on life expectancy
Smoking, drinking, Change eating patterns, exercise
Why has the need for protection changed?
Historically people stayed in the same job, more protection from employer. Now higher turnover of job roles and less protection
Why is there a protection gap?
Lack of understanding, costs, inertia (a tendency to do nothing), advice - not enough
What should we look at when giving protection
Needs, wants, gots (for this look at YES - yourself, employer, state)
Type of life insurance - term
Runs for a specific length of time, it ends and if no claim is made no claim can be made after
Life insurance - Whole of life
Lasts for whole of life
Life insurance - endowment
Form of savings plan with life cover attached. Often used in the past as way of repaying mortgage
Heath insurance - income protection
Pays out an income when unable to work due to illness, this stops when go back to work, retire or die. Usually be up to 60% of gross income.
A provider cannot cancel an income protection policy unless the policy holder stops paying the premiums. This means the holder can claim multiple times.
Health insurance - PMI - private medical insurance
Pay for private treatment - acute medical conditions i.e short term.
Health insurance - CIC - critical illness cover
Lump sum on diagnosis of serious illness. 30 day survival period
Type of term life insurance - level term
Sum assured (amount covered) is set for a particular term and doesn’t change. Can be linked to inflation so the real value sum assured is maintained great for protection against interest only mortgage
Type of term life insurance - decreasing term
The sum assured decreases over the term in line with the term outstanding balance of the mortgage. In theory the mortgage is always guaranteed to be repaid. Usually much cheaper than level term as the insurer is committed to a lower pay over time
Type of term life insurance - whole of life
Whole of life payout guaranteed as long as premiums maintained. Potentially really useful for funeral expenses and IHT (inheritance tax)
State benefit - 3 groups of benefits
Means tested
Contribution tested
Needs tested
Means tested
Those where payment is based on the level of an individuals broader recourses recourses - with payment targeted at those who have the least. Often known as income based
Contribution tested
Those where payment is based of NIC - national insurance contribution. Whether sufficient NIC has been paid.
Needs tested
Where payment is based neither on contribution nor means tested but rather the individuals level of need
21/22 full signed tier pension is 179.60 per week
How long do you have to contribute NIC in order to receive full single tier pension
35 years - class 1 for employees, class 2 for self employed
10-35 years - reduced amount
0-10 years - no entitlement
Is state pension taxed and what type of test does it fall into?
State pension is not means tested however is taxable sound any other income then this results in tax being paid on other incomes
Amount received under universal credt
Between 344 and 596.58 - paid direct into account per month
How is universal credit taxed and how is it tested i.e. which of the 3
Universal credit is means tested but not taxed - exemptions if worked more than 16 hours in 50 of last 52 hours
SSP - state sickness pay
pay. 28 weeks at 99 not means tested but is taxable
Level term
Sum assured stays the same for the period
Decreasing term
Decreases over time of the term, typically a mortgage as the amount decreases reduces as you pay if off over the term
Convertible term
Normal term assurance policy but can be converted from term assurance to whole of life or endowment.
Renewable term
Continue policy past term without need for medical underwriting
Family income benefit - term assurance
Rather than lump some, this provides an annual amount after passing. Supports family and is still term assurance. Yearly income.
Gift intervivos - decreasing term assurance
If some gives a certain gift within 7 years subject to IHT if within 7 year period, this term assurance covers this.
Why would an insurance company pays out for joint life first death typically
Mortgage
Why would an insurance company pay out for joint life second death
IHT
Responses from insurance company on underwriting findings, what do they say
Accept
Accept revised terms
Defer - not for us right now but come back to us in 6 months etc
Decline
Different types of non disclosure on claim application i.e filled form in wrong and then made a claim
Reasonably non disclosure
Careless non disclosure
Deliberate non disclosure - fraudulent
What is a natural premium
This is the natural premium, if younger the premium is cheaper. Der more expensive
What is a level premium basis
Pay same amount of premiums over life insurance. Slight more when younger which then reduced price when older
What is a trust and what does it involve
Trust is a box, trustee is the person who looks after the trust, beneficiary is the person who receives the benefit, settler person who pays out
Types of trusts - absolute trust
Settler name beneficiary from outset and this does not change
Types of trust - flexible / discretionary
Broader categories of beneficiary e.g. classes - kids, grandkids, friends
How do trust assignments work
Assign a life insurance trust e.g. income protection to the mortgage company
What do you need to provide when making a Life insurance claim?
Male sure it is a valid claim
Premiums up to date
Proof of original policy document
Assignment to be notified
Proof of age
Proof of terminal illness
What does qualifying mean for tax around life insurance policies and examples
No tax to be made in any gains or proceeds, e.g. mortgage protection, level term insurance, decreasing term assurance all
What are the qualifying rules?
Only regular premium policies can be qualifying and the definition of regular can be annually
The policy pays a lump sum of death of early disability
You can have additional benefits such as waiver of premium without breaching the qualifying rules
The premium in one year should not be more than 200% of previous years premiums
No one year premium should exceed 1/8 of the total premiums payable over the length of the policy
An endowment policy should have a term of at least 10 years
Limit of 3600 per annum on contributions
75% rule for term assurance
What is top slicing
Top slicing the the charge of tax based on the gain made from a chargeable transfer e.g. if made 100k over 20 years that’s a gain of 5k per year - if earn 49k you will pay 20% on the 4k over
What is the nill rate band for iht
£325k
What is the rate of tax paid on IHT over the 325k nill rate band
40% it reduced to 36% where 10% gifted to charity
IHT gifting and exemptions
You can gift as many £250 gifts to as many people
Annual exemptions - gift £3000 per year and can give previous year also
If marriage - parents 5k grandparents 2.5k anyone else 1k
Gift to spouse - unlimited
Gifts to charity political parties or that will benefit the wider community all unlimited
What is a PET - potentially exempt transfer?
Where someone makes a gift from one person to another and they know each other i.e one estate to the other. Potentially exempt from tax but if die within 7 years then falls back into the donors estate and then subjected to IHT - above nill rate band
What is a chargeable lifetime transfer - CLT
Where someone transfers to another and the receiver is unknown i.e fund, 20% is paid at the point in tax above the 325k nill rate band and if die within 7 years no further tax however if survive then an adjustment at the end can be made
What is taper relief and the tax paid at each years
Taper relief is the charge of the tax on the gift not the amount of the gift
0-3 40%
3-4 32%
3-5 24%
5-6 16%
6-7 8%
7+ 0%
How can you negate the impact of IHT through insurance policy?
Whole of life cover - joint life second death
Write in trust
Gift intervivos
The settler is often the trustee to retain control over the arrangement
The trustee can be the beneficiary though the settler would want to ensure that the trustee could be relied upon to take care of all other beneficiary
What is the purpose of a With profit fund
To provide a smoothed investment return for investors, when market good the fund will hold some profit back to pay when market isn’t doing so well
Examples of whole of life assurances
Unit linked
With profit
Non profit
Companies cannot start taking generic tests before accepting a life application
Why is it important to notify a life insurance provider of the assignment of a policy
Because without notice the entitlement to benefit might be weakened
Under a joint life second death how is the ‘75% of premiums to age 75’ calculated?
By using the younger life
What rate of taxed is deemed to have been paid by a life fund on income and gains under a non qual policy when considering personal liability
8.75% or 20% for income and 10% for capital gains
What is an assignment
Transfer of ownership from one person to another
What year was the policy of assurance act formed
1867
What is an Absolute assignment
An outright or permanent transfer either to gift or sale. The full ownership and rights pass across. The policy documents should also be passed
Assignment to trust
Transfering something into a trust moves ownership from the original person to the trustees. Note once a policy is assigned to someone else it it not possible to put it into a trust as the ownership has already changed due to the assignment
Will creation has 3 formal stages
Writing
Signing
Attestation
What rate of tax is deducted from the interest element of an immediate care long term care insurance paid to the member
20%
In order to qualify for attendance allowance at the higher rate, care must be needed how many hours per day
24 hours per day
What is attendance allowance
Where you go care for family member…
If an individual has capital between the upper and lower limit the local authorities will
Deem each £250 to produce £1 per week income
What term is given to the power of attorney created under mental capacity act 2005
Lasting power of attorney
How many rates if attendance allowance are there?
2 - higher and lower
What is income protection sometimes known as?
Permanent health insurance PHI
Income protection - pure protection have no cash value. There are 2 versions which do have cash value..
Investment linked cover- part of premium is invested
Holloway policies - cash value build up often taken by self employed & can be taken out at retirement
Different types of cover for income protection
Own occupation - will only pay out if can’t do you job
Any suited - will only pay out if can do something similar
Any occupation - will pay out if can do any job
ADL - activities of daily living - house work
What is a deferred period for IP and explain how you should use it
Deferred period is the time a claim is made and the time before any payment is paid out. 4,8,13,26,52,104. If have cover by employer for 6 months then would have deferred period of 26 weeks as this is cheaper
Benefit limit - IP
To stop people staying off for ages insurers will cap the payout at gross 60% of income
Income protection - when will it stop?
When the insured either dies, hit retirement or goes back to work. Cheaper policies will have a max pay out of 5 years then reset…
Underwriting of IP
Age & term
Health & weight
Personal and family history
Occupation
Smoking
Driving
Pastime
Different categories for occupation under IP
1 - white collar
2 - skilled workers in light manual work
3 - skilled workers engaging in non-hazardous but manual work
4 - heavy manual work and skilled workers in hazardous manual roles
5 - unclassified
Underwriting of income protection what are the options used by insurers
Tele- underwriting conversation with applicant
Gp report
Nurse visit
Additional questionnaires
How will the underwriter communicate the decision to the application
Accept
Accept subject to a rating or an exclusion
Postpone for a period of time
Decline
Premium basis - how can a premium be set up
Guaranteed - stay the same over the period - more expensive
Reviewable premiums - reviewed every 5 years for example
Additional benefit insurers give the insured under income protection
Waiver of premiums - while in deferred period no premiums to be paid
Automatic increase options - policy auto increase to account for inflation
Discount gym membership
Making a claim with IP
When the insured falls lll - the insured should tell the insuree should notify the insurer as soon as possible. The closer to the end of the deferred period the insurer will start to make enquiries
When can a claim be refused for IP by an insurer
Self inflicted injury
Illegal activities
Complications of pregnancy
Hiv or aids unless contracted through work
Drugs or alcohol
Failing to take advise if doctor
Foreign travel and the free limits for income protection
UK IP will pay out if claim made abroad - normally if in reputable country…
IP - rehabilitation and proportionate benefit
Proportionate benefit - when insured returns to work on a lower income the insurance company will make up the pay
Rehabilitation benefit - if can only go back to work for 3 days due to illness then the insurance company will make it up
Taxation on IP for individual policies
No tax relief on premiums but the benefit is tax free
Group policy (employers who take it out for employees) for income protection - the rules
Owned by company
If event of claim the employer will receive payment and pay to employee - taxed as PAYE
Employer can use it as an allowable expense when calculating their corp tax bill
Sum assured can be higher up to 75%
Most common uses for CIC
Cover mortgage or other loans
Adapt home
Peace of mind
Lump sum to partner to buy out shareholder
What are the 2 main forms of CIC
Standalone CIC.
Life and CIC combined
Trusts & CIC
Generally would not want CIC in a trust as you want to receive the benefit
So if have life and CIC combined there is a split trust where can put life insurance in trust but not CIC
ABI standardisation
Introduced to give confidence to consumers on cover and set standard rules which conditions are covered
ABI standard minimum cover
Cancer
heart attack
stroke
early onset Parkinson’s
Note: more illnesses are covered but above is minimum e.g. blindness, coma, major organ transplant
CIC underwriting
Same as IP
Genetic testing for cic
Not allowed
Policies features at added cost
Reinstatement cover for joint policies on separation or divorce
Children cover
Waiver if premium
Benefit increase
Terminal illness cover
Total or permanent disability
What is long term care
Care needed when an individual is unable to look after themselves
LTC can can be provided in a number of different settings
Own home often known as ‘domicillary care’ care in own home often by family
Sheltered housing / supported living - this is a half way house between you home and care home
Care home
Care home with nursing
Hospital
Hospice
Cost of care (LTC)
Care assistant - £30 per hour
Live in nurse £200 per day
Care home £900-£1200 per week
Long term care - support from NHS
Continued healthcare will cover - where ‘primary health need’
NHS funded care - strict hard to get cover where NHS will cover care costs
NHS funded nursing care - most in carehome will qualifying
Local authority LA support and single assesment framework (saf)
When NHS cannot provide cover the LA step in to asses needs through f2f meeting, guided questionnaires, discussion with fam, all above. To asses need of care!
SAF - if someone been in hospital the above been asked so a SAF prevents the same questions to avoid duplicate work and less stress for fam
When LA asses care needs there is a capital threshold, what are the rules
Eng, NI, Scot similar around 14,250
Wales 50k
Threshold of lower and higher limit - if in the middle you pay £1 per £250 per week
Do get £25.65 for personal expense allowance for hairdressing etc
Bonds are excluded from above but withdrawal aren’t
Attendance allowance
2 categories non means tested and paid in 2 rates dependant on whether support is needed day or night or both
Self funding options for LTC
Investments
Pension
Renting out the home
Unlocking equity - 2 types of equity release - lifetime mortgage -& home revision - the sale or part sale of house at discount version. Customer is allowed to live at home but not own it
LTC insurance based products - payout requirements
Will pay out if cannot do 3 of activities of daily living ADL - eating dressing mobility. Transfering - move from bed to wheelchair
Power of attorney POA
It is a legal instrument where one (the donor) gives another (the attorney or donee) the power to manage their affairs. For when lose mental capacity.
Different forms of POA
Ordinary POA - for when someone goes abroad donne can look after affairs often if someone leaves the country for a short period. It ceases if person loses mental capacity.
Enduring POA - this version can be used even where the donor loses mental capacity it can come into effect immediately. It must be registered with court of protection or office of the public guardian
What is a general insurance policy
A short term type of cover which are cheaper but serve as less cover to term insurance and whole of life
How often is general insurance reviews and what is the cancellation policy
Yearly (annually) - and can be cancelled by insured at any point
Types of general Insurance?
Mortgage payment protection insurance - mppi
Payment protection insurance ppi
Accident sickness and unemployment insurance - asu
Personal accident and sickness
Private medical insurance
Forms of PMI
Basic, standard and enhanced
Underwriting for PMI
Standard - full underwriting as same as IP and CIC
Moratorium - underwriting to reduce premiums for clients and also reduce admin, it works by excluding any conditions for the last 5 years and for a period of 2 years from when cover is in place
Exclusions are same ie drug abuse illega activities
What is the typical Claims process for PMI
In order to claim typically by going to gp with issue then then refering to you insurer to get treatment
Group policies for PMI
Employers now offer PMI as benefit as can gain from corp tax and get cheaper than indiv policy due to bulk buying power
Key person insurance KPI
There to mitigate the risk of the loss of someone through illness of death within a business
How to set sum assured for kpi
Multiple of salary e.g. x 5
Proportion of profits -
Key person salary x last year total profit x number of years to replace key person / total wage bill
Underwriting on kpi
Normal underwriting but also financial underwriting to ensure write amount, allows question of moral risk i.e don’t over insure and they die
Tax issues for kpi
Set by Anderson rule 1940’s
What is the most tax efficient for kpi
Term insurance although good argument for whole of life if person staying long term
What is shareholder protection?
Where it is drawn up what happens to the shares of a shareholder if they die or fall ill
Shareholder protection agreements
Buy and sell - both parties have to buy it sell
Cross option - if one wants to buy other has to sell and vice versa but can stay on if want
Automatic accrual - shares directly pass across the surviving member as person who died will have insurance plan i.e life cover that would give cash
Single option - if person is Ill or dies, they can pick whether sell or not but survivor had to buy. And if person does not want to sell survivor cannot force this
Shareholder protection - what type of policy are good for which situation
Term insurance good as no surrender value if shareholder leaves
Whole of life more expensive and premiums increase at 10 years
Life of another - each shareholder takes Insurance out on each other i.e. 12 policy example
Tax for shareholder protection same as others
Loan protection
Overdraft and loans
Practical aspects of financial planning
Look at wants - GOTS = needs
Clients situation - family, relationship, existing policies and benefits, state benefits, dependants, labilities, current and past health, occupation, attitude to risk,
Adviser types since the retail distribution review
Restricted
Independent
Suitability and remuneration (payment for service)
All remuneration should be disclosed to client, all recommendations to client should be in a suitability letter.
Remuneration is second to the client needs
Power of attorney 3 types
Ordinary POA - if someone goes abroad short term, ceases if a person loses mental capacity
Enduring POA - look after finances if person loses mental capacity - must be registered with OPG / court of protection
Lasting POA - look after everything including health situation e.g. decline treatment - must be registered with OPG and name of an independent person
Different types of life insruance cover exist to meet different needs 3 types
Maximum cover - maximum cover based on premiums
Minimum - most gets invested in order to meet qual rules and invested baso saving plan
Balanced - middle ground
Personal independence payment, disability living allowance & attendance allowance how they testes
Not means not nic tested and not impacted by IP
State bereavement support payment
Aim to give people support in short term where need it,
2500 and 100 per month where not receiving child benefit
3500 and 350 per month where claiming child benefit or pregnant
Is tax free.
What is intestacy
Not having a valid will
SSP how much you get
99.35 for 28 weeks
A individual under the age of 65 is how much more likely to suffer a critical illness than die?
5 times more as likely
What is the full residence nill rate band?
175k
If someone is overweight what type of risk is this from an underwriting pov
An increasing extra risk due to someone more likely to suffer heart problems
What does buy back mean and where could it best be used
Where someone buys back into a plan once claimed been made, best used in life insurance with cic if claim on cic
If there would be financial consequence of death, life insurance is a good idea
Under a joint tenancy - when one party dies, the sole ownership passes to the other part
Why is proof if age required for a death claim
Because premiums are based on age
What is an allowable expense
A business cost that is not taxed
What percentage of customers say they had no faith in the insurance industry to pay out claims
20%
Premiums in whole of life insurance can increase with maximum sum assured policies normally every 10 years
Above what level of cover do financial underwriters often require further financial questionairs for key protection application assurance applications
250k and above
Unit linked while if life assurance, at what price are units purchased
Offer
What is most likely to make someone lose income aged 30’s
Sickness not redundancy
Employment support allowance
For people unable to work due to illness or disability - paid after 3 days for unemployed 28 weeks for employed to qualify
Support for mortgage Interest
39 week wait period and maximum cover is 200k
For tax due on transfer of policy a chargeable event has to occur
Damps
Death, assignment, movement, potential surrender, surrender
Has monies changed hands?
Buy back option
note a payment needs to be made Where there is a joint life assurance and cic plan - if claim made in cic and policy ceases the assured can buy back some of the lost cost from the life assurance with no underwriting
Group IPI premiums - how are they taxed?
Premiums will be a deductable business expense, proceeds will be taxable. Group IPI are paid through PAYE so as a result are taxable
Whenever long term think IP
If a person is on IP and have broke leg and wait time for op is long the insurance company will pay for this to be done privately as cheaper
This is called financial benefit
Inception
Point something starts
Daily living allowance
Covers care and mobility
If says ‘only’ not likely to be answer
Ltc benefit - if paid to care home tax free
If paid to person taxable
