1. FINANCIAL SERVICES Financial Products Module 2 1

2. FINANCIAL SERVICES Agenda Protection Mortgages Pensions Savings and Investments 2

3. FINANCIAL SERVICES Protection 3

4. FINANCIAL SERVICES Insurance What insurance policies do you or your family have? 4

5. FINANCIAL SERVICES Protection Needs Against death Against loss of income 5

6. FINANCIAL SERVICES Factors affecting protection requirements Age Dependants Income Financial liabilities 6

7. FINANCIAL SERVICES Protection Products Term Assurance Whole of Life Assurance Critical Illness Cover Income Protection Insurance Long Term Care Private Medical Insurance 7

8. FINANCIAL SERVICES Term Assurance Pays 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 8

9. FINANCIAL SERVICES Whole Of Life Assurance Pays 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 9

10. FINANCIAL SERVICES Critical Illness Cover Pays 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 10

11. FINANCIAL SERVICES Income Protection Insurance Pays 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 11

12. FINANCIAL SERVICES 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 12

13. FINANCIAL SERVICES Private Medical Insurance Benefits for those seeking private medical care outside NHS Contract renewed annually Written on single/joint/family basis 13

14. FINANCIAL SERVICES 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? 14

15. FINANCIAL SERVICES Mortgages 15

16. FINANCIAL SERVICES Mortgages - Interest Rate Options Fixed rate Variable rate Capped and/or Collared Flexible Mortgage Low start Discounted Deferred Interest 16

17. FINANCIAL SERVICES Mortgages - Associated Costs Arrangement fee Legal Fees Stamp Duty Survey Insurances 17

18. FINANCIAL SERVICES Pensions 18

19. FINANCIAL SERVICES 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 19

20. FINANCIAL SERVICES Occupational Pensions Employer contributes to the pension fund Employee may also be required to contribute Employee has options to make additional contributions Two main types: Defined Benefit (Final Salary) Defined Contribution (Money Purchase) 20

21. FINANCIAL SERVICES Defined 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 21

22. FINANCIAL SERVICES Defined 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 22

23. FINANCIAL SERVICES Defined 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 23

24. FINANCIAL SERVICES Personal Pensions Individual 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 24

25. FINANCIAL SERVICES Savings and Investments 25

26. FINANCIAL SERVICES Why people save... Major expenditure - house, car Emergency fund Education Retirement Opening Business 26

27. FINANCIAL SERVICES Lump Sum Investment Objectives To increase capital To build capital for future income To increase current income levels 27

28. FINANCIAL SERVICES Bank and Building Society Accounts Current account Savings account Notice Period account Fixed Term investments Cash ISA 28

29. FINANCIAL SERVICES 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 29

30. FINANCIAL SERVICES Advantages Disadvantages Short term Easy access Understandable Capital is risk free 30 Worst medium to long term performer ‘Real’ value of capital may be at risk No opportunity for growth Uncertainty of return

31. FINANCIAL SERVICES Collective Investments Examples 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 asset Fund manager usually makes the decisions as to where to invest Charges apply to run the fund

32. FINANCIAL SERVICES Prices are quoted daily: