Financial Protection Planning Trends
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Questions and Answers

What is the most common way to categorize different types of risks?

The most common way to categorize different types of risk is according to their severity of impact as well as their likelihood of occurrence.

The risk of a minor injury, such as a cut finger, falls into the category of high frequency and high impact.

False (B)

Which of these events are examples of high impact, low frequency events that insurance can help protect against?

  • A minor injury, such as a cut finger
  • Premature death (correct)
  • Periods of unemployment
  • Reaching retirement age

    • What are the two main events that have a high potential impact on individuals and their families?

    <p>The two main events are death and disability.</p> Signup and view all the answers

    What is the term commonly used to describe the range of insurance contracts that provide financial sums in the event of long-term illness, disability or death?

    <p>Financial protection.</p> Signup and view all the answers

    The British protection insurance industry is the third largest in the world in terms of sums insured in force.

    <p>False (B)</p> Signup and view all the answers

    What does the British Household Panel Study highlight about changes in British society since the 1950s?

    <p>The study highlights the major widening of lifestyle options and the increasing complexity of people's lives due to more choice, greater affluence, and changed social attitudes.</p> Signup and view all the answers

    Which of the following is NOT a factor that has contributed to changing attitudes towards insurance?

    <p>The decline of consumerism (A)</p> Signup and view all the answers

    According to the Royal London State of the Protection Nation survey, only 10% of those surveyed felt that everyone in employment should consider income protection.

    <p>False (B)</p> Signup and view all the answers

    What percentage of UK adults reported having no life assurance or other financial protection in the FCA's 2022 Financial Lives survey?

    <p>53%</p> Signup and view all the answers

    In 2018, Scottish Widows reported that 39% of self-employed workers have a life assurance policy, compared with 30% of full-time employees.

    <p>False (B)</p> Signup and view all the answers

    What was the main reason cited by respondents in the Drewberry 2021 survey for considering life insurance after the pandemic?

    <p>Increased anxiety about the future (B)</p> Signup and view all the answers

    What percentage of respondents in the 2011 Protection Review/ICM/Hannover Life Re Survey believed they had sufficient life assurance cover?

    <p>90%</p> Signup and view all the answers

    What are the two main events that have a high potential impact on individuals and their families, and should be top priorities for insurance-based solutions?

    <p>The two main events that have a high potential impact on individuals and their families are death and disability.</p> Signup and view all the answers

    What are the key financial commitments that protection policies need to cover?

    <p>Protection policies need to cover key financial commitments such as mortgages, rent, bills, living expenses, debt repayments, and future income needs.</p> Signup and view all the answers

    Historically, life assurance was primarily purchased by men as they were considered the 'breadwinners' in families.

    <p>True (A)</p> Signup and view all the answers

    What is the maxim commonly cited in the insurance industry regarding life assurance?

    <p>Life assurance is sold, not bought. (A)</p> Signup and view all the answers

    What are some of the major factors that have impacted the purchase of insurance protection?

    <p>Some major factors influencing the demand for insurance protection include affordability, movements in the housing market, income per head, economic factors, and the presence of dependants.</p> Signup and view all the answers

    What is the protection gap? How is it calculated?

    <p>The protection gap represents the shortfall between the amount of financial protection needed by an individual or family to maintain their living standards after a death or disability, and the actual amount of life cover in place. It's calculated by subtracting the cover currently in force from the resources needed.</p> Signup and view all the answers

    What are some of the factors that can influence consumers' demand for protection?

    <p>Factors influencing consumer demand for protection include affordability, movements in the housing market, income levels, economic factors, and the presence of dependants.</p> Signup and view all the answers

    What is the trend in the price of term assurance policies, and how has it affected demand?

    <p>The price of term assurance policies has generally been declining. This reduction in price has led to an increase in the amount of cover purchased.</p> Signup and view all the answers

    The protection gap is a concern for the government because it indicates that a large percentage of people lack adequate insurance coverage, which could lead to financial hardship for families of deceased or disabled individuals.

    <p>True (A)</p> Signup and view all the answers

    What are some of the reasons why people overestimate the cover they have in place?

    <p>People might overestimate their insurance coverage because they may be unaware of the specific details of their policies, fail to update their cover as their needs change, or have incomplete or outdated information about their coverage.</p> Signup and view all the answers

    What are some of the reasons why younger people, sometimes called 'millennials,' haven't purchased life assurance?

    <p>Some reasons cited by millennials for not purchasing life assurance include a lack of perceived need, no dependants, no mortgage, sufficient cover from work, preferring to spend money elsewhere, not knowing how to buy it, and the cost of coverage.</p> Signup and view all the answers

    What are some of the concerns consumers have regarding financial advisers, which can lead to a lack of trust in the financial services industry?

    <p>Consumers are worried whether financial adviser services are genuinely unbiased, representing good value for money in terms of commission or fees, and providing a clear and comprehensive understanding of their options. These trust issues can prevent people from seeking financial advice.</p> Signup and view all the answers

    What are some of the ways in which consumers research protection insurance?

    <p>Consumers research protection insurance through channels such as over the phone, online via a personal computer, tablet, or smartphone, face-to-face with an adviser, and at their bank or building society.</p> Signup and view all the answers

    How can the financial services industry build trust with consumers and successfully penetrate the protection needs market?

    <p>Building trust requires a combined approach focusing on transparency, clear communication, unbiased advice, and the use of technology to deliver services and benefits efficiently. Gamifying health and fitness through apps linked to financial protection could be beneficial for engaging younger generations.</p> Signup and view all the answers

    What are some of the major factors that drive the demand for life assurance products?

    <p>Some major factors driving demand for life assurance include affordability, movements in the housing market, income per head, economic factors, and the presence of dependants.</p> Signup and view all the answers

    How can insurers stimulate demand for protection products?

    <p>Insurers can stimulate demand by offering innovative products, emphasizing affordability and value-added features, providing clear and understandable information, leveraging technology to enhance the customer experience, building strong relationships with customers, and engaging in effective marketing campaigns.</p> Signup and view all the answers

    Study Notes

    • Financial protection is crucial for mitigating personal financial risk, prioritizing death and disability.
    • Insurance addresses high-impact, low-frequency risks best, whereas manageable risks are best managed through other means.
    • A risk matrix (frequency vs. impact) categorizes events, showing insurance's effective role for rare, high-impact events.
    • UK life expectancy (2020-2022): male ~78.6 years, female ~82.6 years.
    • Financial protection covers long-term illness, disability, or death, and the UK protection insurance industry is the fourth largest globally.

    • Life events are increasingly complex and less predictable than in the post-war era.

    • Family models, attitudes towards work, and technology affect protection needs.

    • Historical life assurance was geared toward a simpler, linear lifestyle with men as breadwinners, with straightforward financial planning.

    • Industrial insurance sales forces provided direct contact to consumers, but also at a high price.

    • Distribution methods shifted to more cost-effective approaches.

    • The Retail Distribution Review (RDR) influenced financial advice access and commission.

    • Online and non-advised channels for protection grew, but saw a drop in 2022 due to the cost of living.

    • Some direct-to-consumer providers offered advising services.

    • Increased consumerism, welfare state attitudes, and technological developments have affected insurance attitudes.

    • Consumer surveys show low awareness of protection needs, with many believing the state will provide support.

    • Research shows that many consumers overestimate their protection cover and low understanding of various protection policies.

    • Cost and trust were key factors for consumers without protection.

    • Trust in financial advice was highlighted as a concern in various surveys. Online research and advisor choice have changed.

    • Affordability, housing market fluctuations, income, and dependents directly impact the demand for protection products.

    • Age and income often correlate to protection needs, reflecting higher financial commitments with increasing age and responsibilities.

    • The protection gap represents the difference between ideal cover and consumer's actual cover, calculated as national average income multiples.

    • UK life protection gap (estimated) is £2.4 trillion.

    • Income protection gap (estimated) is £200 billion annually. This gap is caused by the difference in average salaries and employer benefit offerings.

    • Increased living costs can lead to cancellation of protection products.

    • Price competition for life assurance, level term and critical illness decreased.

    • There are differing opinions on why the industry has not expanded its sales.

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    R05 Financial Protection Study Book 2024-25 PDF

    Description

    Explore the key factors and trends influencing financial protection planning. This quiz covers the importance of insurance for mitigating financial risks related to death and disability, along with evolving consumer attitudes towards protection needs. Understand the impact of changing family dynamics and life events on current protection strategies.

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