Client Needs Assessment

• Topic 01

  Client Needs Assessment

  54 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. A client has group IP covering 50% of salary after a 26-week deferred period. Their salary is £72,000 per year. What further protection gap might remain, and what additional cover should the adviser consider?

   • A
     There is no gap; the group IP provides adequate cover as it pays 50% of salary which is above the IP market maximum
   • B
     The gap is simply the difference between 50% and 65% salary; the adviser needs only to top up to 65%
   • C
     The group IP covers £3,000/month after 26 weeks; the gap is the first 26 weeks (only employer sick pay and SSP available) and the difference between 50% salary and the client's actual income needs; additionally, the coverage ceases on leaving employment
     Correct answer
   • D
     The gap is zero; the employer's group IP scheme is a qualifying group scheme and therefore provides comprehensive protection
   Explanation

   Several gaps remain: (1) During the 26-week deferred period, the client relies on employer sick pay and SSP only — if sick pay is generous this may be fine, but if not, there is a short-term gap. (2) The 50% salary replacement may be insufficient if the client's actual expenses exceed 50% of salary. (3) The group IP ceases if the client leaves employment, potentially leaving them unprotected. The adviser should assess each gap and consider whether personal IP is needed to supplement or replace the group scheme.

2. Are self-employed individuals entitled to Statutory Sick Pay?

   • A
     Yes; self-employed individuals receive SSP at a reduced rate through their self-assessment tax return
   • B
     No; SSP is only available to employees earning above the Lower Earnings Limit
     Correct answer
   • C
     No; but only if their annual profits exceed the small profits threshold
   • D
     Yes; self-employed individuals who pay Class 4 NI contributions are eligible for SSP
   Explanation

   Statutory Sick Pay is a statutory payment made by employers to qualifying employees. Self-employed individuals do not have an employer and therefore cannot receive SSP. This is one of the most significant gaps in State provision for the self-employed and is a key reason why income protection insurance is especially important for self-employed clients. Class 4 NI contributions pay by the self-employed do not entitle them to SSP.

3. A business owner client has a personal life policy worth £500,000 and a company-owned key person policy on his own life worth £300,000. In the needs assessment, the adviser identifies that the client's spouse needs £600,000 to clear the mortgage and fund 15 years' income replacement. Which of the following correctly describes the coverage position?

   • A
     The key person policy should be surrendered and the proceeds added to the personal policy to increase total personal cover to £800,000
   • B
     The personal life policy (£500,000) addresses the personal family need but falls short by £100,000; the key person policy (£300,000) benefits the company and cannot be used to bridge the personal shortfall — the adviser should recommend increasing personal cover
     Correct answer
   • C
     The key person policy can be redirected to the spouse on death to bridge the personal shortfall, as the business is the client's estate
   • D
     The combined cover of £800,000 exceeds the £600,000 personal need; no further personal cover is required
   Explanation

   Personal and business policies serve entirely different purposes. The personal life policy (£500,000) is the resource available to the client's family on his death. The key person policy (£300,000) is owned by the company and will be paid to the company on death — it cannot legally or practically be redirected to the spouse. The personal shortfall is £600,000 − £500,000 = £100,000. The adviser must recommend increasing the personal life policy by at least £100,000. The tax treatment of the key person policy is separate and does not merge with personal policy planning.