C10 Personal Protection

Different ages affects needs, for example…

• Younger clients – dependants

• Working clients – income

• Older clients – IHT protection (also cost of protection increases with age)

Marital status affects needs through…

• Financial interdependence

• On divorce – maintenance payments or re-arranging joint policies

Having dependants affects needs, like…

• Minor children – age and schooling, disabilities, or older relatives

A person being cared for is effectively…

a dependant, and people move in and out of caring as circumstances change

Wills should be…

made and up to date, integrating trusts/gifts or IHT funding to reduce estate

Health and vulnerability should be considered for…

cost of premiums, restrictions and availability smoker status

Occupation affects needs through…

• need to protect income

• existing employer benefits/death in service

• partnership or key person issues

• non-workers with caring responsibilities

Income and capital should be considered for…

• means testing

• available resources

• ability for a continuing income (e.g. savings income)

Expenditure should be considered to…

determine the level of essential outgoings and replacement income

Liabilities should be considered because…

• they are significant in determining need for protection

• how can it be paid when off work

State benefits should be considered because…

provisions/entitlements should be taken into account BUT could change

Existing policies should be…

checked they are adequate and properly arranged

Attitude to risk in protection is…

not usually relevant for pure protection but crucial if product involves an element of investment

Future risk is a factor that should be considered for…

reviewable protection

Factors affecting investment risk include…

• availability of emergency fund

• level of risk on existing investments

• future expectations of income or capital

• psychological attitude to risk

The planning process for life assurance is…

• Identify need for life cover

• Quantify capital/income needed on death (split income into short and long-term)

• Determine how long cover needed

• Consider existing policies

• Recommend type of policy

Calculating life cover consists of…

1. assessing immediate capital needs (e.g. mortgage)

2. assess long-term income needs (multiply into a lump sum) and consider continuing income (e.g. widowers pension), FIB may be appropriate

3. assess short-term income needs (multiply into a lump sum) and deduct extra short-term income (e.g. dependants pension)

4. determine existing cover

Take existing cover from total needed to establish lump sum shortfall

Extras to consider for life cover includes…

• Inflation – assume e.g., 3% for lump sum cover

• Additional family benefits – cover in excess of that required to just cover expenditure

• Existing cover – employer benefits will cease on leaving (unless continuation option)

• Timescale – if unsure then perhaps use longer period

• Flexibility – convertible or renewable may be preferable

• Waiver of premium – premiums continue to be paid in the event of illness

Priorities should be…

• Capital needs – highest priority (usually mortgage)

• Long-term income needs – reasonable standard of living – high priority

• Short-term income needs – consider essential and non-essential expenditure

• Consider reducing level of cover or reducing term to reduce costs

Disability and heath should be considered by…

• how long can person manage without income

• how long are employer benefits paid for

• calculating required income level

• identifying other sources of income e.g. working spouse

IP vs CIC…

• IP covers more definitions but increasingly strict

• IP linked to earnings – unlike CIC

To afford both IP and CIC, consider…

• Reducing cover

• Attaching CIC as a rider e.g. to term assurance

• Joining group IP

For pensions, considerations include…

• if no considerable earnings, restricted to £3.6k per annum

• employer provided ill-health retirement provision

• could use lifetime IS if meet eligibility criteria

PMI for many people is a…

high priority, especially business owners for speedy treatment

As PMI varies so much, individuals should…

shop around for the best

Protecting against redundancy should be considered because…

• No UC for first 39 weeks (unless claiming State pension credit, in which case no waiting period)

• Interest only payments limited to first £200,000 (unless claiming State pension credit, in which case £100,000) with SMI, and its a means tested loan

To plan for redundancy without protection…

• have an emergency reserve

• buy redundancy cover but its expensive and may never pay out

• use mortgage flexibility, like change to interest only, reduce payments, take payment holiday

• reduce expenditure

With affordability, there is often a…

compromise (ideal vs affordable), and recommendations must be affordable in long term too (savings/reg premium policies)

An independent adviser looking at whole of market should consider…

• Scope of cover – definitions, exclusions

• Underwriting – GP or Medical Examiner required limits, maximum sum assured or premium levels, signpost specialist firms

• Service – poor provider service will reflect badly on the adviser

• Financial strength – ensure provider will be around in the future to meet claims

• Free Asset Ratio (FAR) denotes strong office with potential for growth (surplus assets held by life office over value of liabilities/expressed as % of total assets)

• Also use ratings (e.g., Standard & Poor’s and Moody’s)

Solutions should be identified and…

all possible solutions listed to select most appropriate for each

Reviews should ideally be…

annually, and check…

• existing contracts - still relevant/could replace/get cheaper?

• new needs - birth/marriage/new mortgage?

• income - increases so more affordability?

• new products - better solutions than before?

Interrelationship of products…

• Add-on/riders – cheaper than separate policies but stops on 1st claim

• Over-insurance – results in paying too much for cover you cannot claim on

• New products arrive from time to time – should be compared to existing provision as regards cover/exclusions (don’t cancel existing until new product in place!)

Presenting recommendations…

• In-depth fact-find

• Explain recommendations verbally

• Give client all product literature

• Follow up discussions with confirmation in writing

• Suitability letters are FCA requirement

• Keep copies of fact finds, written recommendations and suitability letters

• If client disagrees with recommendations either: Decline to proceed with their request, proceed as requested, either way document and both client/adviser sign