CII IF6 cheat sheet

Term assurance pays a lump sum only on death within the policy term; no maturity value, so it is pure protection. Decreasing term is sized to a repayment mortgage; level term suits interest-only or family protection needs.

Whole-of-life cover is guaranteed to pay on death whenever it occurs, so premiums reflect lifelong mortality risk; reviewable premiums can rise, while guaranteed premiums are fixed and cost more initially.

Endowment policies combine life cover with a savings element and a stated maturity date; conventional endowments carry a reversionary bonus and terminal bonus, unit-linked versions link value to fund performance.

Investment bonds (single-premium life policies) are whole-of-life or term contracts with a surrender value; UK onshore bonds are taxed under chargeable event rules, and 5% annual withdrawals of the original premium are tax-deferred.

Personal pensions are defined-contribution arrangements: the fund at retirement depends on contributions and investment growth, not on salary or years of service. Defined-benefit schemes promise a pension based on accrual rate and pensionable salary.

Annuities convert pension capital into income; level annuities do not rise with inflation, escalating annuities rise by a fixed or RPI-linked amount, and investment-linked annuities keep the fund invested with income varying.

Drawdown keeps the fund invested and pays an income within withdrawal limits; the fund remains exposed to investment risk and can be exhausted, unlike a lifetime annuity which provides guaranteed income for life.

Income protection pays a replacement income (typically up to 50-70% of earnings) after a deferred period while the insured cannot work; critical illness pays a lump sum on diagnosis of a specified condition, not on inability to work.

Family income benefit pays an income from death to the end of the term rather than a lump sum, so the total payout falls the longer the survivor lives; it is usually cheaper than equivalent level term cover.

The Financial Services and Markets Act 2000 gives the FCA its statutory objectives; the FCA's Principles for Businesses (especially Treating Customers Fairly, Principle 6) apply to all regulated firms alongside detailed rules in the FCA Handbook.

The Consumer Duty (COBS 2A) requires firms to act to deliver good outcomes for retail customers across four outcomes: products and services, price and value, consumer understanding, and consumer support.

The regulator's suitability rules require a personal recommendation to be suitable for the client; under the retail distribution review, independent advisers must consider a comprehensive and unbiased range of retail investment products.

Disclosure requirements include a key features document or key information document, a suitability report for advised sales, and clear disclosure of charges and the nature of the service (independent or restricted).

Pension freedoms (from April 2015) removed the requirement to buy an annuity at retirement for defined-contribution schemes; the money purchase annual allowance restricts future tax-relieved contributions once income is flexibly accessed.

The lifetime allowance has been replaced (from 6 April 2024) by lump sum and death benefit allowances, with excess lump sums taxed at the recipient's marginal rate; pension commencement lump sums are normally tax-free up to the permitted limit.

Pension contributions receive tax relief at the individual's marginal rate; annual allowance limits tax-relieved saving and a tapered annual allowance applies to high earners, with carry-forward of unused allowance from the previous three years.

Onshore investment bonds are subject to chargeable event gains taxed at the policyholder's marginal rate with a 20% tax credit for basic-rate tax already paid; offshore bonds have no credit, so the full gain is taxable.

Life assurance premiums are generally not tax-deductible for individuals, and death benefits from term policies are normally paid free of income tax and outside the estate if written in trust.

Fact-finding must establish the client's objectives, financial circumstances, existing arrangements, attitude to risk, capacity for loss, time horizon and dependants before any recommendation is made.

Attitude to risk (willingness) and capacity for loss (ability to bear a fall) are distinct; a recommendation is unsuitable if the product's risk exceeds either, even where the client states a high risk appetite.

Vulnerability: firms must identify clients who are vulnerable (health, life events, resilience, capability) and adapt the process; the Consumer Duty requires outcomes no worse for vulnerable customers.

Suitability reports must explain why the recommendation is suitable, the disadvantages and costs, and how it meets the client's objectives; they are a regulatory record, not marketing material.

Affordability analysis for protection compares premiums with disposable income and existing cover; for pensions it compares contributions with earnings and competing priorities such as mortgage and emergency savings.

Replacement business (switching existing policies) requires a comparison of the old and new contracts, including loss of guarantees, exit penalties and new underwriting, and the justification must be documented.

Trust planning for protection: placing a policy in trust can keep the payout outside the estate, speed payment to beneficiaries and reduce inheritance tax exposure; the adviser should explain the choice of trust.

Risk profiling tools are aids, not substitutes for judgment; the adviser must reconcile the tool output with the client's stated objectives and capacity for loss, and record any divergence.

Ongoing suitability: advice must be reviewed as circumstances change (marriage, divorce, redundancy, retirement), and the agreed service and review frequency should be disclosed to the client.

Free-look period: most life and pension contracts give the client a cancellation right (commonly 30 days for life/pensions, 14 days for some investments) during which the policy can be cancelled and premiums refunded.

Non-disclosure and misrepresentation: the insurer's remedy depends on whether the failure was deliberate, reckless or innocent; the Insurance Act 2015 introduced proportionate remedies for commercial contracts and the Consumer Insurance (Disclosure and Representations) Act 2012 governs consumers.

Claims on death require proof of death, claimant identity and policy documents; the insurer checks the trust or nomination to determine who receives the benefit and may require probate where no trust exists.

Critical illness claims require medical evidence confirming the condition meets the policy definition; definitions vary by insurer, and survival periods (commonly 14-28 days) may apply before payment.

Income protection claims require proof of incapacity and earnings; the deferred period must elapse, and the insurer may require ongoing medical evidence and rehabilitation support during the claim.

Premium payment: missed premiums can lead to lapse after a grace period; for unit-linked policies, missed premiums may trigger a reduction in cover or a surrender, and reinstatement may require new underwriting.

Policy alterations such as increase or decrease in sum assured, addition of a waiver of premium benefit, or change of nominee must be recorded by endorsement and may require underwriting or a medical.

Complaints must be handled under the FCA's dispute resolution rules, with a final response within eight weeks and referral to the Financial Ombudsman Service if unresolved; the ombudsman can award compensation.

Data protection and record-keeping: the firm must retain suitability and transaction records for the required period (commonly at least five years, longer for pensions) and handle client data in line with UK GDPR.