financial services financial products module 2 1
TRANSCRIPT
FINANCIAL SERVICES
Financial ProductsModule 2
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FINANCIAL SERVICES
Agenda
Protection
Mortgages
Pensions
Savings and Investments
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Protection
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Insurance
What insurance policies do you or your family have?
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Protection Needs
Against death
Against loss of income
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Factors affecting protection requirements
Age
Dependants
Income
Financial liabilities
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Protection Products
Term AssuranceWhole of Life AssuranceCritical Illness CoverIncome Protection InsuranceLong Term CarePrivate Medical Insurance
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Term AssurancePays on death if it occurs within the term
No ‘cash in value’ if the plan is stopped
No pay out at the end of the term
The cheapest type of life insurance
Various types are available
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Whole Of Life AssurancePays on death whenever it occur
Normally has investment content
If stopped early there may be a ‘cash in value’
‘Cash in value’ likely to be low in early years
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Critical Illness CoverPays a lump sum on diagnosis of a critical
illness
Provider will have a list of the illnesses covered
If you fully recover the money is still yours
No ‘cash in value’ if stopped early
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Income Protection InsurancePays an income if unable to work due to
sickness or injury
Starts after deferred period and ceases when policy holder returns to work, dies, or plan stops (retirement)
Benefit can be level or increasing
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Long Term Care Insurance
Covers cost of your own care needs when you are older
Pre-funded through regular contributions when you are younger
Paid when unable to do a number of ‘Activities of Daily Living’ (ADL)
Amount paid depends on number ADLs unable to perform
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Private Medical Insurance
Benefits for those seeking private medical care outside NHS
Contract renewed annually
Written on single/joint/family basis
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Protection Exercise
In groups answer the following:What are the main features of term
assurance?In what event will critical illness cover pay
out?How long do the payouts from income
protection insurance normally last for?What does long term care insurance cover?
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Mortgages
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Mortgages - Interest Rate Options
Fixed rate
Variable rate
Capped and/or Collared
Flexible Mortgage
Low start
Discounted
Deferred Interest
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Mortgages - Associated Costs
Arrangement feeLegal FeesStamp DutySurveyInsurances
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Pensions
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Basic State Pension
Dependent on number of working years in which you have been paying National Insurance contributions
The number of ‘qualifying’ years you need for a full basic State Pension depends on your age and whether you are a man or a woman: Men born before 6 April 1945 usually need 44 qualifying years Women born before 6 April 1950 usually need 39 qualifying years Men born on or after 6 April 1945 need 30 qualifying years Women born on or after 6 April 1950 need 30 qualifying years
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Occupational PensionsEmployer contributes to the pension fundEmployee may also be required to
contributeEmployee has options to make additional
contributionsTwo main types:
• Defined Benefit (Final Salary)• Defined Contribution (Money Purchase)
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FINANCIAL SERVICESDefined Benefit (Final Salary) schemes
The income in retirement is a fraction of your final salary
The fraction is agreed in advance
The greater the number of years you are in the scheme, the greater the fraction of your final salary
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FINANCIAL SERVICESDefined Benefit (Final Salary) example
In groups, work out the answer to the following question:
If someone is in an 80ths scheme for 20 years and their final salary is £20,000, how much income would they get in retirement?
Answer:20/80 x £20,000 = £5,000
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FINANCIAL SERVICESDefined Contribution (Money Purchase) schemes
The income in retirement is dependant on how the pension fund has performed
The fund is used to provide and income for the rest if your life
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Personal PensionsIndividual pays into the pension fund
Income in retirement dependant on how the fund performs
Can pay into a Personal Pension as well as an Occupational Pension
Some employers offer Group Personal Pensions to their employees instead of Occupational Pensions
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Savings and Investments
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Why people save...
Major expenditure - house, carEmergency fundEducationRetirementOpening Business
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Lump Sum Investment Objectives
To increase capital
To build capital for future income
To increase current income levels
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Bank and Building Society Accounts
Current accountSavings accountNotice Period accountFixed Term investmentsCash ISA
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Exercise – Two groups
Group One – list the advantages of Bank and Building Society accounts
Group Two – list the disadvantages of Bank and Building Society accounts
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FINANCIAL SERVICESAdvantages Disadvantages
Short termEasy accessUnderstandableCapital is risk free
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Worst medium to long term performer
‘Real’ value of capital may be at risk
No opportunity for growth Uncertainty of return
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Collective InvestmentsExamples include Unit Trusts, Open Ended
Investment Companies (OEICs) and Investment trusts
The money is invested into shares or other types of asset (for example property, government gilts)
The risk is spread over a variety of assetFund manager usually makes the decisions
as to where to investCharges apply to run the fund
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Prices are quoted daily: