IAI SA4 cheat sheet

Indemnity principle: the insured is restored to the pre-loss financial position, no better; valued policies and reinstatement cover are exceptions where a fixed sum or new-for-old basis applies.

Insurable interest must exist at inception for property and at the time of loss for life; without it the contract is void under English law.

Utmost good faith (uberrimae fidei) applies to both parties; the Consumer Insurance (Disclosure and Representations) Act 2012 replaced the duty to volunteer information for consumers with a duty to take reasonable care not to make a misrepresentation.

Utmost good faith for commercial insureds is now governed by the Insurance Act 2015: a duty of fair presentation requiring disclosure of every material circumstance the insured knows or ought to know, plus sufficient information to put a prudent insurer on notice.

Remedies for breach of fair presentation under the Insurance Act 2015 are proportionate: avoid the contract, or if the breach was not deliberate or reckless, apply terms as if disclosed or reduce the claim proportionately.

Average clause (underinsurance): claim paid = loss x (sum insured / value at risk); applies to property policies subject to average, not to agreed-value or first-loss covers.

Subrogation: after paying a claim the insurer steps into the insured's rights of recovery against third parties; it cannot recover more than it paid and cannot prejudice the insured's uninsured losses.

Contribution between insurers: where multiple policies cover the same loss on an indemnity basis, liability is shared rateably by independent liability or by the sum-insured method; total recovery cannot exceed the loss.

Liability insurance operates on an occurrence or claims-made basis; claims-made policies respond to claims first notified during the policy period, with retroactive dates and extended reporting periods defining cover.

Term assurance pays a lump sum only if death occurs within the term; no maturity value. Variants: level, decreasing (mortgage protection), increasing, renewable, convertible, and family income benefit (income stream to end of term).

Whole-of-life assurance is guaranteed to pay on death whenever it occurs; premiums may be reviewable or guaranteed, and policies may be with-profits or unit-linked.

Endowment assurance pays the sum assured on death within the term or on survival to maturity; historically used for savings and mortgage repayment.

Underwriting: mortality is assessed via medical evidence, family history, occupation, residence, and lifestyle; outcomes are standard rates, loadings, exclusions, postponement, or decline. Non-disclosure can allow avoidance within the contestability period (typically two years in many markets).

Suicide and non-disclosure clauses: many policies restrict claims in the first 12-24 months; reinstatement after lapse may restart contestability periods.

With-profits policies: premiums buy units of sum assured plus bonuses. Reversionary bonuses are added annually and guaranteed once declared; terminal bonuses are discretionary and paid on claim or maturity.

Unit-linked policies: premiums buy units in funds; policy value fluctuates with investment performance; charges (allocation, fund management, bid-offer spread, surrender penalties) reduce returns.

Life policy taxation (UK context): proceeds are generally free of income tax and capital gains tax for the policyholder; chargeable gains can arise on non-qualifying policies or on gains above the annual exempt amount, and the chargeable event regime applies to higher/additional-rate taxpayers.

Trusts and beneficial nomination: writing a policy in trust can remove proceeds from the estate for inheritance tax and speed payment; nomination directs proceeds to a chosen beneficiary outside the estate.

PMI (private medical insurance) is typically annually renewable, covers acute conditions, and excludes chronic, pre-existing, and cosmetic treatment; underwriting may be fully medical, moratorium, or community rated.

Moratorium underwriting excludes conditions in the look-back period (commonly 5 years) that the applicant had symptoms of, received treatment for, or sought advice about, until a continuous symptom-free period (commonly 2 years) elapses.

Full medical underwriting assesses each applicant's history at outset and may apply exclusions, loadings, or decline; declared conditions are excluded or rated permanently.

No-claims discount (NCD) and excess are cost-control levers: a higher excess lowers premium; NCD scales reward claim-free years but are reset on claim.

Critical illness cover pays a lump sum on diagnosis of a defined condition meeting the policy definition (e.g. cancer, heart attack, stroke); definitions are the contract, and survival periods (commonly 14-30 days) may apply.

Income protection (permanent health insurance) pays a replacement income (typically up to 50-70% of earnings) after a deferred period, until recovery, retirement, or the policy term; own-occupation, suited-occupation, and any-occupation definitions differ materially.

Long-term care insurance funds care needs assessed against activities of daily living (ADLs) or cognitive impairment; benefits may be indemnity (reimbursement) or pre-funded (fixed sum), and UK state support is means-tested.

Health cash plans reimburse fixed amounts for routine treatments (dental, optical, therapy) and are not PMI; they are indemnity-limited per benefit and per year.

Group health schemes are experience-rated and commonly employer-funded; individual policies are community- or medically-rated, and portability on leaving a group scheme is limited.

State pension (UK): based on National Insurance qualifying years; the new State Pension requires 35 qualifying years for the full amount and a minimum of 10 to receive anything; deferral increases the pension.

Defined benefit (DB) schemes promise a pension based on salary and service (e.g. 1/60th per year); the employer bears investment and longevity risk; defined contribution (DC) schemes pay whatever the fund buys, with the member bearing the risk.

Auto-enrolment (UK): eligible jobholders are enrolled automatically; minimum contributions are 8% of qualifying earnings in total, of which at least 3% must come from the employer.

Annual allowance (UK): the standard limit on tax-relieved pension savings is £60,000 (2024/25); tapering reduces it for high earners, and carry-forward of unused allowances from the previous three years is available.

Lifetime allowance was abolished from 6 April 2024 and replaced by the lump sum allowance (£268,275) and lump sum and death benefit allowance (£1,073,100).

Pension commencement (UK): from age 55 (rising to 57 in 2028), options include UFPLS (25% tax-free, remainder taxed as income), flexi-access drawdown, annuity purchase, or scheme pension; the tax-free lump sum is capped at 25% of the fund or the lump sum allowance.

Money purchase annual allowance (MPAA) is £10,000 and is triggered by flexibly accessing a DC pension (not by buying an annuity or taking only the tax-free lump sum).

Trivial commutation and small pots: small pots (up to £10,000 each, three personal/occupational pots) can be taken as a lump sum with 25% tax-free; trivial commutation rules apply to total pension savings under £30,000.

Death benefits: DC pots can pass to nominees or successors free of inheritance tax (for most schemes) and are usually tax-free if death occurs before age 75; after 75 they are taxed at the recipient's marginal rate.

Other benefits: group life assurance (death in service, often 3-4x salary), group income protection, and employee share schemes (SIP, SAYE) are common workplace benefits with distinct tax treatments.