Introduction to financial products and customer needs (Benefit categories,…
Introduction to financial products and customer needs
Benefits on events that are unpredictable- both whether and when they might occur
Benefits on events certain to occur, but unpredictable in time
Benefits for immediate consumption
Benefits on events predictable in time
Benefits from the accumulation of disposable income and capital
Social security benefits
Retirement pensions including survivor benefits
Medical care, for example the NHS in the UK
Income support due to unemployment, illness or disability
Housing support due to low income
Long-term care support
in return for a single payment (or a series of payments) the provider will pay an individual or any heirs an agreed amount (or series of amounts) that start or end on a pre-specified event. This event may happen to the individual, the indivduals' property or a third party.
An insurance contract for providers of insurance which allows the transfer of (direct) risk taken on to a third party
A vehicle that involves the accumulation of funds, which are paid out on a later event, usually retirement, but the event may also be death or early withdrawal from the pension scheme.
A vehicle that involved an individual paying a single payment or a series of payments to a provider with the expectation that a higher amount will be paid back at a later date
A financial instrument whose value depends on the value of underlying investments (e.g. shares, bonds) or variables (e.g. interest rates, exchange rates)
principles of insurance and pensions
in most countries, an insurance contract is only valid if the person taking out the contract has a financial interest in the insured event, to prevent moral hazard, fraud and other crime.
Putting money aside in advance of the risk event, which is uncertain in terms of whether it will happen, its timing and amount. Returns on the money and risk tolerance also have to be considered
Pooling of risk
protects a group of individuals that pool their finances, against uncertainty in financial costs, which then leads to more cost-effective provision. Examples include continuing care retirement communities (USA) and microinsurance.
Determined after a careful analysis and prioritisation, followed by fitting products to those needs. The needs may be identified as:
maintaining a current lifestyle
protection e.g. against death, loss, illness, accident
accumulation for a known purpose, e.g. retirement income, mortgage repayment
accumulation for a purpose as yet unknown, from remaining disposable income or capital
This may involve taking advantage of tax-efficient arrangements
Identified by considering an individual's feelings. this may result in an individual getting what they want rather than what they truly need. Examples are:
to generate more income in retirement than is actually needed
to avoid the guilt of not protecting dependants
has an immediate effect on an individual's circumstances
e,g, protection e.g. against death, loss, illness, accident.
relate to future aspirations
e.g. accumulation for a known purpose e.g. retirement income mortgage repayment
e.g. accumulation for a purpose as yet unknown out of any remianing disposable income or capital
Attitude to risk
prefer protection against future events even at the expense of a worse immediate lifestyle
Prefer to work on the assumption that rare events will not happen to them, and will prefer to address such events when they occur. In the meantime they will use the money saved by not making provision to enhance their immediate lifestyle