Learning Material Sample

UK Financial Services, regulations and ethics Demo

4. Main areas of financial advice

In this section, we briefly discuss the importance of budgeting and how it affects an individual&...

Shortened demo course. See details at foot of page.

...t the client can identify cost savings which can be used to fund financial planning recommendations.
In this section, we analyse the factors upon which and individual’s protection needs arise before moving on to look at some basic features of the main protection products.

Factors on which protection needs arise

There are many factors that influence a client’s protection needs. Some major ones are:




Financial liabilities

Employment status

Existing cover.


Variance in age will often highlight different protection needs (see life cycle of protection needs later).


Number and age are very important. They will often be vital in determining the type of cover needed, how much and for how long. Adults as well as children could be dependants (e.g. elderly relative). If dependants are children then it is likely that their dependency will not last forever e.g. they may consider their children will become financially independent when they start full time work perhaps at age 18 or 21.


Determines affordability to meet objectives. If a client cannot afford to meet all protection needs, he will have to prioritise. Also assists in calculating cover levels e.g. in income or family protection arrangements.

Financial liabilities

Regular income expenditure needs to be deducted from income to assess affordability. Capital liabilities may require protecting so that on death or incapacity, they can be repaid. Some examples of potential liabilities that would need repaying on death or illness include mortgages, credit cards and inheritance tax.

Employment status

A person’s employment status is important in determining any protection needs. Those who do not work through unemployment and/or sickness may not receive anything other than modest State benefits. Equally they are unlikely to be able to afford private protection arrangements to augment the provision made by the State. Employees are likely to have the most provision made for them through work-based schemes for example, the continuation of salary in the event of illness or incapacity. These would need to be fully investigated before making any recommendations to ensure there is no unnecessary duplication. Those who are business owners are likely to have a variety of both personal and business related protection needs.

Existing cover

Existing cover should always be taken into account when assessing client needs. Other areas to assess as well as the available benefits from existing insurance policies are accessibility to State benefits and any payments that may be made by an employer on death or illness. As already mentioned, there is no point in arranging more cover than is needed.

Protection life cycle

The following list gives an indication of the potential protection needs that may arise during the different stages of a person’s life. You should not look at this list and assume it applies to all people. Many will have variances of these needs at different life stages far removed from those shown below for instance as a result of never marrying or having children, divorce and second families.

Typical protection needs that may arise on death, si...

Shortened demo course. See details at foot of page.

...mbing stairs, shopping, preparing food

First three definitions get used for people in work. First definition will be most expensive but more likely to pay a claim. Last definition will be cheapest but least likely to pay a claim. Fourth definition usually used with cover such as that available for house persons.

Critical illness cover

Critical illness cover – benefits

Provides a lump sum on the diagnosis of a “critical illness” as specified in the policy schedule. Common conditions include: cancer, kidney failure, heart attacks, major organ transplants, multiple sclerosis, permanent and total disability, stroke, etc. Many other conditions are included these days as the market has become more competitive.

Amount of lump sum benefit is usually linked to some kind of need of the individual e.g. linked to mortgage loan or to meet costs of house alterations in event a claim. No specified maximum benefit though in theory

Benefits received tax free

No tax relief on premiums.

Critical illness cover – definition of incapacity

Apart from permanent and total disability, usually diagnosis of the illness will trigger payment of the claim

Where there is no life cover associated with the policy, insurers require the assured to survive diagnosis by between 14 and 30 days (depending on provider).

Mortgage Payment Protection Insurance (MPPI) and Accident Sickness and Unemployment Insurance

Benefits – In the event of accident, sickness or unemployment, MPPI provides monthly benefits to cover mortgage repayments, buildings and contents insurance, life policy premiums and the MPPI premium too. Benefit is often limited to 120-125% of these repayments but is still quite comprehensive. Monthly benefit payments are limited to a maximum of two years.

Deferred period is often between 30 and 60 days. It can vary depending upon whether the claim is made for an accident and sickness or unemployment. These plans are fully portable so can be taken with the policyholder when he moves and use it to cover mortgage costs there.

The main difference between an MPPI policy and accident sickness and unemployment insurance is that the latter can be taken out without any link to a mortgage. Benefits, deferred periods and exclusions are all similar to MPPI. Benefits will be limited to about 75% of earnings or a maximum monthly amount. Some will provide a lump sum for event such as the loss of a limb or eye.

For both types of policy, benefits are tax-free and premiums do not attract tax relief.

The types of cover that Personal Accident and Sickness insurances generally provides is as follows:

Lump sums on:


Permanent disablement

Loss of an eye

Loss of a leg, foot or toe

Loss of an arm, hand, finger or thumb

Other specified injuries or accidents.


Weekly sickness benefits paid if the insured is unable to work through illness or accident subject to a short deferred period e.g. 30 days. Benefits payable for a maximum of 104 weeks

Medical expenses will be refunded up to a specified percentage of the costs incurred when the insured suffers and accident.

In this section, we very briefly discuss the effects of borrowing to raise funds to pa...

Shortened demo course. See details at foot of page.

... that the client does not consider repaying some of their debt with their cash reserves.
In this section, we identify the factors that are taken into account when assessing a client's savings and investment needs.

Savings and investment objectives

In both cases of savings and investments, a defined and realistic set of income and capital growth objectives need to be agreed between client and adviser.


Refers to the regular investment of small amounts of money. Objectives tend to revolve around exp...

Shortened demo course. See details at foot of page.

...reduced by choosing investments that provide “real growth” based on the values of goods and services.

For each class of asset, it is possible to determine a relevant rate of return that can then be used to define the appropriate ratio of these assets within the savings or investment portfolio.


Account needs to be taken of taxation of the investment

Account needs to be taken of taxation of the individual.

In this section, we identify the factors that are taken into account when assessing a client’s retirement planning needs.


An individual’s retirement provision needs depend upon a number of factors that we shall discuss in the ensuing text. In all areas the adviser will need to ask specific questions in order to sufficiently ascertain what the client’s needs are. These are outlined in note form below.

Factors on which a client’s pension requirements depend


How old is the client?

When will he retire?

This helps to define the length of time...

Shortened demo course. See details at foot of page.

...may need to be restricted for a minority of wealthy clients due to the lifetime allowance (a limit placed on the value of pensions built up in registered pension schemes). If this limit is exceeded a lifetime allowance tax charge applies.


Rules determined by pensions legislation and policed by HMRC

Areas covered by rules are broadly similar to individual pensions

Some occupational schemes are benefit led, i.e. maximum pension benefits are determined at retirement by certain limits set by the scheme (although note that pension simplification applies to all pension arrangements).

In this section, we briefly identify the factors that are taken into account when assessin...

Shortened demo course. See details at foot of page.

...arious family members. We shall discuss the fundamentals of inheritance tax in chapter 7.

In this section, we briefly identify the considerations that need to be made in order to advise clients on mitigating the...

Shortened demo course. See details at foot of page.

...>Keep planning flexible in case of changes in legislation

Undertake regular reviews of a client’s tax position.

About Demo Courses

This is a shortened version of our online course, built so that you can get a good idea of what is provided. The full version shows all the current text and is fully formatted. Use the top right drop down menu to view the chapters. If you have already purchased this course, please log in to access the full version

Our online courses page lists details of all our courses. For more details on the above course see;

Chapter Links