1. Understand the sources of personal financial protection
Topic 3
Understand the sources of personal financial protection

2. Learning Intentions After this topic you will be able to:
Understand the ability to pay for a financial product
Appreciate what could go wrong that could affect the ability to pay
Describe protection products for the financial consequences of sickness, death and redundancy

3. Ability to pay
Everyone should plan their finances carefully. This would normally involve creating a budget.
You have to make sure you know what is essential expenditure. Essential expenditure has to be paid first before you spend money on treating yourself.
Activity 3a

4. Borrowing Money
You have to make sure you can repay any borrowing on top of your essential expenditure. This applies to the whole term of the borrowing. Questions you may ask are:
Is your job secure
Is your income likely to continue at the same level
Will you have additional expenses in the future.

5. Planning for the Future
Regardless of how well we budget for the future there is always the possibility of unforeseen circumstances arising which can affect our ability to pay for a financial commitment. The consequences of these events can affect you or your family. Events such as:
Sickness
Death
Redundancy

6. Sickness and Redundancy
You can protect your self by investing in a PPI
Payment Protection Insurance. PPI can cover mortgage payments, credit card borrowing and loan repayments if your income falls as a result of an accident, illness or unemployment.
These policies pay out for a fixed period i.e. one year
The extra premium is normally included in your monthly payments
If you are sacked you will find that there will be no payment
If you know you are being made redundant when taking out the policy once again there will be no payment made to you

7. Death A lump sum is paid if you die
This money can be used to pay your loans, debts, funeral.
Different policies (Whole-of-Life) this policy pays out the sum assured whenever you die – for example your mortgage, overdrafts loans, funeral expenses
(Term Assured) is cheaper but only covers you if you die within a fixed period i.e. 15 years – This is an effective way of providing mortgage cover

8. Protection in cases of poor financial advice and fraud
You can apply for financial compensation to ease your loss if you have been badly advised.
FOS - Financial Ombudsman Service – This scheme was set up by the government as an independent expert to settle disagreements between a financial provider and a customer.
FOS will look at complaints regarding mortgages, insurance, bank accounts and bank charges as well as lending including credit cards

9. Loss of money due to bad advice
The FSCS – Financial Services Compensation Scheme is another organisation set up by the government – they will pay out to a business regulated by the FSA if they feel a customer has been poorly advised i.e. a client being recommended
The wrong mortgage
If the adviser you used has gone out of business
This organisation covers deposits, insurance policies, investments and mortgages
Maximum compensation to a firm is 50K i.e. so if you have invested 70K you can only be compensated up to 50K

10. Activity 3b
Read pages 33 to 37
Answer Activity 3b

11. Responsibilities of consumers
You need to take responsibility for what financial products you want to have and only take them if you can afford to pay them
Mistakes can be costly
Clients need to make sure they read documentation especially the small print
Let the buyer beware – ‘Caveat emptor’
Read the Case Study on page 38

12. Review Questions Read over Topic 3 again
Answer the Review questions on page 40