Life Assurance and Protection Products
Core concepts
Life assurance pays a sum on death (or on survival, for endowments) and is written on a long-term basis. Candidates must know the main types: term assurance (level, decreasing, increasing, convertible, renewable), whole-of-life (with or without investment element), endowment (with-profits or unit-linked), and family income benefit (pays an income rather than a lump sum).
Understand underwriting and disclosure: the duty of fair presentation applies, and non-disclosure or misrepresentation can make a policy voidable. Learn suicide clauses, cooling-off periods, grace periods for premiums, and the difference between guaranteed and reviewable premiums. For protection products, know critical illness cover (pays on diagnosis of a listed condition, often with a survival period), income protection (pays a proportion of earnings, typically 50–70%, after a deferred period), and waiver of premium.
Traps
A classic trap is confusing term assurance (no surrender value, pure protection) with whole-of-life (permanent cover, often higher cost). Another is the decreasing term policy used to protect a repayment mortgage - the sum assured falls roughly in line with the outstanding loan. Watch for questions about trusts (writing a policy in trust can keep proceeds outside the estate and speed payment) and about life of another policies requiring insurable interest at inception.
Worked rule of thumb
For income protection, the benefit is a replacement of earnings, so it is capped and usually taxable if paid by the employer. For critical illness, the payout is a lump sum on diagnosis, not reimbursement of medical costs - and it is paid regardless of whether the insured continues to work.