Brand Mock 1, 2024/25

Question 1

In relation to insuring against risk, it is most effective when addressing risks that are

A. high frequency and low impact.
B. low frequency and low impact.
C. low frequency and high impact.
D. high frequency and high impact.

Answer 1

C

Insurance is most effective when addressing risks that are low frequency and high impact,
such as premature death or serious illness.

Question 2

The aggregate demand for mortality protection would not be driven by

A. movements in the housing market.
B. whether or not the client has any dependents.
C. income per head.
D. the employment history of the applicant.

Answer 2

D

The aggregate demand for life assurance is driven by affordability, movements in the
housing market, income per head and if the client has any dependants.

Question 3

What type of policy offers substantial premium discounts to applicant who establish and can evidence high fitness protocols?

A. Low-cost endowments.
B. Preferred life policies.
C. Whole of life policies.
D. With profits endowment.

Answer 3

B

Preferred life policies offer an additional discount in their premiums for those who
engage in a healthy lifestyle and are happy to disclose this information to their insurer

Question 4

Martin took out a life assurance policy on the life of his wife Karen. How will the policy be affected if they get divorced at some point in the future?

A. There will be no change unless a court orders otherwise.
B. An automatic cancellation of the policy will take place.
C. Assignment to Karen is required.
D. The life assured under the policy will have to be changed.

Answer 4

A

A future divorce will not affect Martin’s life assurance policy unless a court rules
otherwise.

Question 5

Which type of policy offers a lump sum or income benefits if the insured suffers an accident or is unable to work due to redundancy?

A. Private Medical Insurance.
B. Health Cash Plans.
C. Accident, sickness and unemployment.
D. Long term care insurance.

Answer 5

C

Accident, Sickness and Unemployment (ASU) polices are designed to pay out a lump sum
or income if the insured suffers an accident, is unable to work due to sickness,
redundancy, or unemployment.

Question 6

Stephen, a financial advisor is reviewing his client’s protection needs. One of Stephen’s main concerns when looking at his client’s current assets vs their need for protection should be

A. are the client’s current assets liquid, as this will alter his protection recommendations.
B. what the client is willing to spend on their insurance policy over the term of the policy.
C. how the client’s current assets might impact on their eligibility for the personal independence payment.
D. the client’s existing debt to income ratio and how that will impact on his recommendation.

Answer 6

A

When looking at a client’s need for protection the adviser must give consideration to the client’s existing assets and in particular how liquid those assets are.

Question 7

Warren, a financial adviser, is reviewing his clients’ needs for protection in light of their likely state benefit entitlements. He should be aware that statutory sick pay will only be available to

A. Philip, employed part-time and not paying any National Insurance contributions.
B. Steven, self-employed and paying Class 2 and Class 4 National Insurance
contributions.
C. Brenda, currently on a career break and paying Class 3 National Insurance
contributions.
D. Miriam, employed and paying Class 1 National Insurance contributions.

Answer 7

D

Only employees who earn enough to pay or be credited with Class 1 NI contributions are
usually entitled to Statutory Sick Pay. Miriam is therefore the only person eligible.

Question 8

Income support can be claimed by individuals between the ages of
A. 16 and 64.
B. 16 and State pension age.
C. 18 and State pension age.
D. 18 and 65.

Answer 8

B

Income support can be claimed by individuals between the ages of 16 and State pension
age.

Question 9

To qualify for a full new State pension an individual must have a total of how many years’ National Insurance contributions or credits?

A. 26
B. 30
C. 35
D. 39

Answer 9

C

To qualify for a full new State pension, an individual must have a total of 35 years’ NI
contributions or credits.

Question 10

Arlene has taken out a unit-linked whole of life assurance policy on a standard cover basis. In what situation would the premiums need to be increased?

A. If her state of health changed.
B. The unit prices fall by more than 1.0% over a six-month period.
C. Every ten years in line with her increased age.
D. If the underlying fund did not meet a pre-determined rate of return each year.

Answer 10

D

Arlene’s premiums will need to be increased if the underlying fund does not meet a pre-
determined rate of return each year. This is to ensure that the life cover she requires can
be maintained.

Question 11

In calculating the amount of premium to be paid for a life assurance policy, what is normally added to a loaded premium to arrive at the final premium payable?

A. Initial percentage charge.
B. Underwriting fee.
C. Policy charge.
D. Mortality adjustment.

Answer 11

C

A policy charge is normally added to a loaded premium to arrive at the final premium
payable. The policy charge is a handling fee.

Question 12

The Policies of Assurance Act 1867 covers all forms of assignment except

A. voluntary assignments for no consideration.
B. assignments by operation of law.
C. assignments by way of a mortgage.
D. assignments to trustees.

Answer 12

B

Assignments by operation of law are not covered by the Policies of Assurance Act 1867.
All the other types of assignment listed are.

Question 13

Caroline held an own life with-profits life assurance policy. On her death, the amount payable on the claim may vary depending on

A. the amount of premiums paid over the term.
B. her age at death.
C. the basic sum assured.
D. the exact date of death.

Answer 13

D

The claim value on a with-profits life assurance policy will vary according to the precise
date of death.

Question 14

Most life offices will pay death claims without a grant where the sum assured and the value of the estate is small, if the proceeds are being paid to

A. immediate family members.
B. a surviving spouse.
C. any relations of the deceased.
D. a trust for the benefit of minor children.

Answer 14

B

Most life offices will pay death claims without a grant where the sum assured and the
value of the estate is small, if the proceeds are being paid to a surviving spouse.

Question 15

How is the cover provided under a whole of life policy affected if premiums cease at a pre-set age?
A. It remains in force for a maximum period of 10 years.
B. It reduces to 50% when premiums cease.
C. It reduces by a stated percentage in each future year.
D. It is not affected – the cover continues until death.

Answer 15

D

Even if premiums cease at a pre-set age (one agreed in the policy at outset), the cover
itself is not affected and continues until death.

Question 16

Frank has received the terminal illness benefit payment from his term assurance policy. What is the CORRECT tax treatment of the payment at the time it is made?
A. A liability for inheritance tax will be payable.
B. There is a liability for income tax.
C. No liability for income tax or inheritance tax is due.
D. There is a liability for capital gains tax.

Answer 16

C

There is no tax (income, CGT or IHT) due immediately on the lump sum payment from a
terminal illness benefit. However, if Frank does not spend all the money prior to his death,
anything left over will be included in his estate and will potentially be liable to IHT.

Question 17

Alan has made a gain of £6,000 on his non-qualifying life assurance policy. This gain could be liable for
A. higher and additional rates of income tax only.
B. capital gains tax.
C. income tax at Alan’s appropriate rates.
D. income tax at Alan’s appropriate rates and capital gains tax.

Answer 17

A

The gain on a non-qualifying life assurance policy is potentially liable to the higher and
additional rates of income tax only (with the basic rate liability having already been met at
source). Gains on these policies are liable to income tax, not CGT.

Question 18

Melvin has a ten-year qualifying life assurance policy. A chargeable event would occur where the policy is

A. assigned for money’s worth in year 9.
B. made paid up after 7 years.
C. assigned as a result of a divorce court order.
D. surrendered after 6 years.

Answer 18

D

Surrendering the policy after only six years is less than three quarters of its original term
and would mean the policy losing its qualifying status. The surrender would therefore be
a chargeable event. Assignment in year 9 would not be as it has passed three quarters of
the term. The policy being made paid up is not, in itself, a chargeable event. Assignment
as a result of a divorce court order is not consider to be for money’s worth.

Question 19

Colin and Evelyn want a life assurance policy to meet the potential inheritance tax bill on their joint estate of £1,150,000 which they own in equal shares and includes the family home valued at £500,000. On the first death, they plan to leave their estate to each other and then on the second death to their children. If they were both to die in the current tax year, the most effective policy would be a

A. joint life second death policy for £32,000
B. joint life second death policy for £60,000
C. joint life first death policy for £140,000
D. joint life second death policy for £150,000

Answer 19

B

There will be no IHT due on first death as the couple are leaving everything to each other,
and this will be exempt under the spousal exemption. On second death, the IHT bill will
be £1,150,000 less 2 x nil rate bands (£650,000 in 2024/25) less 2 x residence nil rate
bands (£350,000 in 2024/25) = £150,000. As the property is valued at above £350,000,
the main residence nil rate bands can be used in full. The excess is taxed at 40% (the rate
at which IHT is due on death) = £60,000. The policy required is therefore a joint life
second death with a sum assured of £60,000. This should be written under trust.

Question 20

Marie has an onshore life assurance policy and Claire has an offshore life assurance policy. The difference in the tax treatment of their funds is

A. Marie’s fund will be taxed at roughly the basic rate of income tax, while Claire’s fund will have gross roll-up.
B. Marie’s fund will be taxed, but the tax is reclaimable while Claire’s fund will have a gross roll-up.
C. Claire’s fund will be taxed at roughly the basic rate of income tax, while Marie’s fund will benefit from gross roll-up.
D. Marie’s fund will be taxed, and the tax is non-reclaimable, while Claire’s fund will be taxed but the tax is reclaimable.

Answer 20

A

Marie’s onshore fund will be taxed at roughly the basic rate of income tax, while Claire’s
offshore fund will have gross roll-up, meaning tax is not generally deducted at source
(although a small non-reclaimable withholding tax may be taken).

Question 21

Paul made a PET of £450,000 in June 2020. If he dies in September 2024, how much inheritance tax would the donee be liable for? (Assume no annual allowances are available)
A. £30,000
B. £50,000
C. £102,000
D. £18,000

Answer 21

A

Paul died just over 4 years after making the £450,000 PET. The PET has therefore failed,
and the amount in excess of Paul’s available nil rate band is subject to IHT. £450,000 -
£325,000 = £125,000 @ 40% = £50,000. However, because Paul died between 4 and 5
years after making the PET, only 60% of the tax due is payable thanks to taper relief.
£50,000 @ 60% = £30,000. The donee is therefore liable to IHT of £30,000.

Question 22

A life office is making a payment to a policyholder on the surrender of a life assurance policy that involved a chargeable gain. How will the life office pay the proceeds?

A. Gross with deduction of no tax.
B. After deduction of any tax due.
C. Gross but with a tax invoice for the amount due.
D. After deduction of fund tax only.

Answer 22

D

Although the life office is deemed to have deducted 20% at source from the life fund, it
will not deduct any income tax from the chargeable gain itself. The policyholder will need
to pay any further income tax due to HMRC via self-assessment.

Question 23

Carol is making her third claim on her income protection policy. How will her insurer treat the policy going forward?
A. The insurer will increase the premiums at the start of the next policy year.
B. They can cancel the policy.
C. The policy will continue on the original terms and premium.
D. They can impose special terms or exclusions.

Answer 23

C

Income protection policies are permanent. An insurer cannot increase the premiums,
cancel the policy or apply special terms or exclusions on account of the number of claims
made. Carol’s policy will therefore continue on the original terms and premium.

Question 24

Karim, a financial adviser, is in the process of arranging income protection policies for a number of his clients. It is likely that the highest premium will be charged to

A. Derek, aged 45, with a deferred period of 13 weeks.
B. Chloe, aged 52, with a deferred period of 26 weeks.
C. Arthur, aged 47, with a deferred period of 8 weeks.
D. Julia, aged 48, with a deferred period of 4 weeks.

Answer 24

D

The applicant with the shortest deferred period is likely to pay the highest premium. In
this question, that’s Julia.

Question 25

In what circumstances might an income protection policy provider pay a commuted lump sum to the insured rather than continue paying the benefits on a regular basis? A. It is not expected that the client will recover from their incapacity. B. The client has a life expectancy of less than 6 months. C. If the insured recovered from a condition initially expected to be terminal. D. Where the insured is aged over 55 at the time of the first claim

Answer 25

A ## Footnote If a claimant is not expected to recover from their incapacity, an income protection policy provider may decide to pay out a commuted lump sum rather than continue paying benefits on a regular basis.

Question 26

Tom is receiving benefits from his employer’s group income protection scheme. How will these be treated in relation to his personal tax liability? A. The benefits will be free of tax if Tom has been a member of the scheme for more than 2 years before receiving the benefits. B. Any benefits will be completely free of any liability for tax. C. They will be taxed in the same way as normal pay. D. The benefits will only be taxed if Tom is still receiving them after 12 months.

Answer 26

C ## Footnote Benefits from a group income protection scheme are paid out under PAYE, meaning that income tax and National Insurance contributions are deducted in the same way as for normal pay.

Question 27

Emil took out an income protection policy in June 2016 and has now been living and working in Thailand for the last 15 months. How is this likely to affect her policy? A. The benefits would only be paid for a maximum of six months. B. Any benefits payable will likely be suspended or cancelled. C. Her premiums will have to be substantially increased. D. The term of the policy will be reduced to a maximum of age 50.

Answer 27

B ## Footnote Because Emil has been outside her provider’s free limits for more than a year, it is very likely that they will suspend or cancel her policy.

Question 28

Where a life office is calculating a proportionate benefit under an income protection policy, how will they usually define previous earnings? A. Average earnings in the tax year in which incapacity started. B. Total earnings for the year prior to incapacity. C. Average earnings for the year or six months prior to incapacity. D. Total earnings for the six months up to when incapacity started.

Answer 28

C ## Footnote Where a life office is calculating a proportionate benefit under an income protection policy, previous earnings are usually defined as average earnings for the year or six months prior to incapacity.

Question 29

Karina has a combined life assurance and critical illness policy. What will happen to the sum assured on death if she makes a claim on the diagnosis of a critical illness? It will A. continue at the original amount for a maximum of five years. B. continue at half the original amount. C. only continue to exist if Karen survives for a minimum of two years. D. not exist as if there is a CIC payout, there is no further payment on death

Answer 29

D ## Footnote If Karina claims on the diagnosis of a critical illness, a combined life and critical illness policy will not pay out a further sum on her death, as the critical illness benefit will be viewed as an accelerated death benefit.

Question 30

If a claim is made on a critical illness policy, which factor would NOT usually be checked by the office that issued the policy? A. The diagnosed illness is likely to cause death. B. If the diagnosed illness is covered by the policy. C. Whether the diagnosed illness was not a pre-existing condition. D. Whether the policyholder disclosed all relevant facts when applying for the policy.

Answer 30

A ## Footnote Providing the claimant outlives the 14 – 30 days survival period, whether their illness is likely to be terminal is not relevant to the claim.

Question 31

Income Protection is likely to be a higher priority than Critical Illness cover for most people because A. it has a shorter deferred period. B. income protection policies allow higher sums assured. C. an income protection plan covers significantly more medical conditions. D. the plan pays the benefits tax free.

Answer 31

C ## Footnote Income protection is likely to be a higher priority than critical illness for most people because it covers significantly more medical conditions, including mental health and muscular-skeletal conditions that aren’t covered by critical illness policies.

Question 32

With a claim under a critical illness policy, the onus of proof is on the A. life office. B. policyholder. C. policyholder or their spouse. D. personal representatives of the policyholder.

Answer 32

B ## Footnote The onus is on the policyholder to prove that a CIC claim is payable.

Question 33

When critical illness premiums are being determined by insurers, it is correct to say that A. premiums are more expensive for women. B. premiums are based on mortality statistics. C. reviewable premiums are dependent on the health of the insured. D. guaranteed premiums tend to be higher than reviewable premiums.

Answer 33

D ## Footnote Guaranteed premiums on critical illness policies tend to be higher than reviewable premiums. Premiums are unisex (gender neutral), based on morbidity statistics (not mortality) and reviewable premiums are based on the provider’s overall claims’ experience, not on the health of the individual life insured.

Question 34

Where an employer takes out group critical illness cover for their employees, a claim will usually only be paid where the employee survives for how many days after diagnosis? A. 10 B. 14 C. 21 D. 30

Answer 34

D ## Footnote For group critical illness cover, the survival period is typically 30 days.

Question 35

What type of income is disregarded for long term care purposes according to the Care Act 2014? A. Surrender proceeds of an Insurance (investment) bond. B. Sale proceeds of a Capital redemption bond. C. Individual Savings Accounts income. D. Sale proceeds of a Unit trust.

Answer 35

A ## Footnote According to the Care Act 2014, insurance (commonly known as investment bonds) are still disregarded when assets are taken into account for care assessment purposes.

Question 36

Doreen, resident in England, has savings and investments of £20,000. How much tariff income will her local authority deem her to have? A. £11.50 per week. B. £15.00 per week. C. £23.00 per week. D. £80.00 per week.

Answer 36

C ## Footnote £20,000 is in excess of the lower threshold (£14,250 in England), so each £250 of assets over the threshold is assessed as giving £1 a week of tariff income. £20,000 - £14,250 = £5,750 / £250 = £23.

Question 37

Maureen has taken out a budget plan private medical insurance policy. She should be aware that if she makes a claim, her policy is unlikely to cover A. home nursing. B. doctor’s fees. C. drugs. D. accommodation.

Answer 37

A ## Footnote A budget plan private medical insurance policy provides the very minimum of cover. It is therefore highly unlikely that home nursing will be available

Question 38

Susan has a mortgage payment protection insurance policy. If she makes a claim on becoming unemployed, the very maximum amount of time for which benefits will be paid is usually A. 9 months. B. 12 months. C. 18 months. D. 24 months.

Answer 38

D ## Footnote The maximum benefit pay-out period for a mortgage payment protection insurance policy is typically 2 years (24 months).

Question 39

Graeme has set up an accident, sickness and unemployment insurance policy. What is the correct tax treatment of his premiums and benefits? A. Tax relief is available on the premiums, but the benefits are taxable. B. There is no tax relief on the premiums, and the benefits are tax free. C. There is no tax relief on the premiums, and the benefits are taxable. D. Tax relief is available on the premiums, and the benefits are tax free.

Answer 39

B ## Footnote An ASU policy set up by an individual will pay out benefits tax free. However, there will be no tax relief on the premiums payable.

Question 40

The typical exclusions under a personal accident and sickness insurance policy would include A. loss of a leg. B. permanent disablement. C. death. D. normal pregnancy.

Answer 40

D ## Footnote Normal pregnancy is a typical exclusion under a personal accident and sickness insurance policy. The other events are likely to be covered.

Question 41

Ben has a budget private medical insurance policy and Claire has a comprehensive plan. When comparing the two plans, their financial adviser ought to be aware that A. Ben’s policy has limited extra benefits. B. Claire’s policy will have lower limits on the costs of treatments covered in any one year. C. if there is an excess on the policy, it will be higher on Ben’s. D. there will be no exclusions on Claire’s policy.

Answer 41

C ## Footnote As Ben has the cheapest form of cover, his policy is unlikely to have any extra benefits. As Claire has comprehensive cover, any limits placed on the cost of treatments in a single year are likely to be higher than Ben’s. Ben’s excess is, in fact, likely to be higher than Claire’s as he has a budget plan. Claire’s policy will still have the standard exclusions.

Question 42

A mortgage payment protection insurance provider can cancel the policy at a minimum of how many days’ notice? A. 14 B. 21 C. 30 D. 90

Answer 42

D ## Footnote A mortgage payment protection insurance provider can cancel a policy with a minimum of 90 days’ notice.

Question 43

For which type of protection policy could future risk be a factor? A. All contracts for longer than 10 years. B. Contracts with reviewable premiums. C. Contracts with add on benefits. D. All contracts where the insured is over age 40 at the outset.

Answer 43

B ## Footnote Future risk is a factor in contracts with reviewable premiums, as the issue of affordability after a premium rise raises its head.

Question 44

After a full review an adviser has recommended to their client that they take out both term assurance cover and income protection insurance. The client only agrees to the term assurance cover. What is best practice as to how the adviser should proceed? A. Proceed with the term assurance but ask the client to confirm in writing that they did not want the income protection insurance. B. Advise the client that they are unable to act for them anymore. C. Refuse to proceed unless the client accepts the full recommendation. D. Take no action and suggest that the matter is looked at in the next review meeting.

Answer 44

A ## Footnote Where a client does not proceed with an adviser’s full recommendation, the adviser should proceed with the part of the recommendation the client agrees with and get the client to confirm, in writing, that they did not wish to proceed with the other part.

Question 45

One of the drawbacks of using the multiple of salary basis to calculate the amount of key person insurance required by a company would be that it A. does not take account of the key person’s age. B. can only be based on a multiple of 5. C. is only loosely related to the key person’s contribution to profits. D. only takes a short-term time factor into account.

Answer 45

C ## Footnote A drawback of using the multiple of salary basis to calculate the amount of key person insurance required by a company is that it is only loosely related to the key person’s contribution to profits.

Question 46

The transferring of a shareholding on the death of a shareholder cannot be facilitated by A. switching arrangement. B. a buy and sell agreement. C. a cross-option agreement. D. automatic accrual

Answer 46

A ## Footnote Buy and sell agreements, cross option agreements and automatic accrual are all examples of how a shareholding can be transferred on the death of a shareholder. A switching arrangement is not.

Question 47

A cross-option arrangement for a partnership is most beneficial for A. situations where own life policies in trust are to be used for the protection policies. B. obtaining tax relief on the premiums of associated life assurance policies. C. obtaining tax free benefits from associated life assurance policies. D. preserving business property relief for inheritance tax purposes.

Answer 47

D ## Footnote A cross option arrangement for a partnership is most beneficial for preserving business property relief for IHT purposes.

Question 48

Peter a self-employed plumber has taken out a loan of £40,000 to buy new equipment for his business. Why might he want any associated insurance policy to repay it on his death to have a sum assured greater than the amount of the loan? A. To ensure that it keeps pace with inflation. B. To take account of changes in interest rates affecting the amount to be repaid. C. There may be early redemption penalties involved. D. To provide funds for his dependants.

Answer 48

C ## Footnote If there are early redemption penalties involved, these should be taken into account when determining the sum assured.

Question 49

If a company has an agreement to purchase its own shares on the death of a shareholder, subject to HMRC agreement the sale will normally count as a A. trading receipt for corporation tax purposes. B. disposal for capital gains tax purposes. C. chargeable transfer for inheritance tax purposes. D. distribution for income tax purposes.

Answer 49

B ## Footnote If a company has an agreement to purchase its own shares on the death of a shareholder, then subject to HMRC agreement, the sale will normally count as a disposal for capital gains tax purposes.

Question 50

The type of trust usually used with shareholder protection is a A. flexible trust. B. bare trust. C. statutory trust. D. resulting trust.

Answer 50

A ## Footnote The type of trust usually used with shareholder protection is a flexible trust.