Exam Guide Mock

Question 1

Ophelia is worried about the financial risk to which she is exposed because of the hazardous pursuits that Benjamin undertakes. A necessary requirement for Ophelia to be able to effect an assurance policy on Benjamin’s life is that

A. Benjamin agrees to a trust being set up in which to settle the policy.
B. Benjamin is either her husband or her son or her father.
C. she has an insurable interest in Benjamin’s life at policy commencement.
D. she secures Benjamin’s consent to such policy.

Answer 1

C

Question 2

Within a life assurance fund, what rate of tax, if any, applies to the interest received from corporatebonds?

A. None.
B. 20%
C. 40%
D. 45%

Answer 2

B

Question 3

The types of protection policy that are most readily open to commoditisation are those where

A. comparisons between policies are simple and purchase is determined mainly by price.
B. comparisons between policies require expert advice.
C. policies of the same type may have significantly different conditions regarding underwriting.
D. policies of the same type may have significantly different conditions regarding valid claims

Answer 3

A

Question 4

Lucasta, single, has £500,000 assurance cover through her employment. She also has loans amounting to £750,000. Currently, she pays the interest on her loans from her regular earnings. Her mother, recently widowed, has assets of £2,000,000. Lucasta is the sole beneficiary of her mother’s will. What, if anything, can rightly be inferred regarding Lucasta’s current life assurance needs?

A. Nothing can rightly be inferred.
B. She has no need for any life assurance cover.
C. She needs life assurance cover of at least £250,000.
D. She needs life assurance cover of not more than £750,000.

Answer 4

A

Question 5

Michael earns £40,000 per annum and has just started to pay £6,000 gross per annum into his personal pension plan. What is the maximum gross tax-relievable premium, if any, he can pay per annum to a new term assurance policy, given his current pension payment?

A. None.
B. £600
C. £4,000
D. £6,000

Answer 5

A

Question 6

A company is intending to insure the life of a key individual aged 40 who is responsible for bringing in 40% of the company’s £500,000 turnover, contributing significantly to the company’s profits.
What is likely to be the most suitable policy?

A. A 5-year convertible term assurance policy.
B. A 5-year renewable term assurance policy.
C. A family income benefit policy.
D. A with-profits endowment policy.

Answer 6

B

Question 7

Harold, a married man, is wondering about what is meant when State benefits are described as means tested. He should be aware that, because of means testing, eligibility for such benefits may depend upon

A. his own income being below a certain limit only.
B. his and his wife’s income being below certain limits only.
C. his and his wife’s income and/or capital being below certain limits.
D. his National Insurance contribution record having reached a certain threshold.

Answer 7

C

Question 8

Hannah is about to effect an income protection insurance policy and is unsure how, if at all, insurance companies take into account any State benefits received because of sickness or disability, when determining the maximum benefit available to her. She should be aware that such State
benefits

A. are not taken into account.
B. are taken into account only if they are taxable.
C. are taken into account only if the applicant is self-employed.
D. may be taken into account, irrespectively of her tax and employment status.

Answer 8

D

Question 9

A client earning £15,000 per annum is unable to work due to sickness and his employer will NOT continue to pay a salary while he is incapacitated. Which State benefit would he usually expect to receive after a few days to provide him with an income for the first 28 weeks?

A. Disability Living Allowance.
B. Employment and Support Allowance.
C. Attendance Allowance.
D. Statutory Sick Pay.

Answer 9

D

Question 10

The cost of the life cover provided by a whole of life unit-linked policy is typically met by

A. a fixed level of unit cancellation throughout the life of the policy.
B. a variable level of unit cancellation throughout the life of the policy.
C. an increased level in the standard annual management charge.
D. regular deductions from the standard annual management charge.

Answer 10

B

Question 11

The natural premiums of life assurance policies rise each year because

A. inflation needs to be taken into account.
B. the lives assured grow older.
C. there are new entrants.
D. underwriting is more stringent.

Answer 11

B

Question 12

If a life assurance policy with terminal illness benefit is written under a discretionary trust, then any death benefits would initially be paid to the

A. assured.
B. beneficiaries of the trust.
C. life assured’s estate.
D. trustees.

Answer 12

D

Question 13

In the tax year 2024/2025, Simon, a higher-rate taxpayer, receives a terminal illness payment under a level term assurance policy and survives beyond the expiry date of the policy. He has fully used his dividend allowance and personal savings allowance for the tax year. What happens to the payment?

A. The payment remains his as a tax-free lump sum.
B. The payment remains his, but with a possible Capital Gains Tax liability.
C. The payment remains his, but with a possible Income Tax liability.
D. He must refund the payment to the life office.

Answer 13

A

Question 14

Melissa has a whole of life policy on a standard sum assured basis and is using it as a way of saving over the longer term. Why is this NOT sensible?

A. The savings element is designed to avoid premium increases.
B. The savings element is available only on death of the life assured.
C. The policy cannot be assigned.
D. The policy lacks any surrender value.

Answer 14

A

Question 15

Anthea effected a life assurance policy on the life of her business partner Benedict. She then assigned the policy to her husband Clive, who then assigned it to his mother Dawn. Who will be entitled to the policy’s proceeds?
A. Anthea.
B. Benedict.
C. Clive.
D. Dawn.

Answer 15

D

Question 16

What type of interest do the beneficiaries of a trust have with regard to the assets?

A. Equitable.
B. Insurable.
C. Legal.
D. Power of appointment.

Answer 16

A

Question 17

Which possible tax advantage would most likely be sought when using a will for financial planning purposes?

A. A better use of the potentially exempt transfer (PET) rules.
B. A Capital Gains Tax reduction.
C. An Income Tax reduction.
D. An Inheritance Tax reduction.

Answer 17

D

Question 18

A wealthy client intends to reduce his potential Inheritance Tax liability by making regular gifts using a life assurance policy written in trust for the benefit of his daughter. Ignoring the normal expenditure exemption, in order to maximise use of other exemption(s), the annual premium
should be

A. £250
B. £3,000
C. £3,250
D. £4,000

Answer 18

B

Question 19

Justine, an additional-rate taxpayer, invested £100,000 into an onshore life assurance bond just over four years ago. The bond’s current value is £150,000 and she now wants to make her first withdrawal. What is the maximum sum that she may withdraw without any risk of an immediate
tax liability?
A. £20,000
B. £25,000
C. £30,000
D. £37,500

Answer 19

B

Question 20

Cecil is over age 55 at the outset of an endowment policy. Under qualifying rules, at least 75% of total premiums is normally payable on death, but is reduced by what percentage for each year that Cecil exceeds age 55?
A. 2%
B. 3%
C. 4%
D. 5%

Answer 20

A

Question 21

Gerard assigned to Lucia a non-qualifying life assurance policy. Ignoring Inheritance Tax implications, what condition(s), if any, must hold in order for there to be no tax charge purely in virtue of the assignment?

A. There are no conditions.
B. Only that the assignment must be an outright gift.
C. That Gerard and Lucia are married at the time of the assignment.
D. That the assignment must be an outright gift and the surrender value at the time does not exceed £325,000.

Answer 21

B

Question 22

The life assurance fund of a UK insurer has realised a £300,000 gain on disposal of some shares. Which tax, if any, could apply to this gain?

A. None.
B. Capital Gains Tax.
C. Corporation Tax.
D. Income Tax.

Answer 22

C

Question 23

When considering an income protection insurance policy, the key difference between a guaranteed plan and a reviewable plan primarily relates to the

A. benefit level.
B. criteria used to assess a claim.
C. criteria used to underwrite an increment in benefits.
D. premium level.

Answer 23

D

Question 24

Under a group income protection insurance scheme, free cover relates to the cover provided
A. during the deferred period, after a claim is made.
B. to each member without cost.
C. without any evidence of earnings being required.
D. without any evidence of health being required.

Answer 24

D

Question 25

Rachel, a bank employee, has developed a disability resulting from arthritis and had her claim under an income protection insurance policy accepted. However, she only receives a reduced amount of the total benefit possible from the policy. What is the most likely reason for this? A. Her employer is paying her sick pay. B. She disclosed the arthritis at the outset of the policy. C. The policy is still within the deferred period. D. She is only unable to perform her own occupation.

Answer 25

A

Question 26

Sam is applying for an income protection insurance policy. His only declared health issue is back pain, which has occurred intermittently over the last 10 years and he has taken 6 months off work during that period. How is this likely to affect treatment of his application? A. It will be accepted with an exclusion applied. B. It will be accepted on standard terms, but the deferred period will have to be at least 6 months. C. It will usually be accepted on standard terms. D. It will always be rejected.

Answer 26

A

Question 27

Tom and Jane are twins with no significant health issues. They have identical income protection insurance policies effected on the same date, for the same level of cover, on the same terms. Tom is an accountant and Jane is an office clerk. How, if at all, are their monthly premiums most likely to differ? A. It is not possible to determine. B. Their premiums would not differ. C. Tom’s premiums would be more expensive. D. Jane’s premiums would be more expensive.

Answer 27

B

Question 28

Robert, a self-employed plumber, has a net profit of £200,000 per annum and is paying £1,000 per month for cover under an individual income protection insurance policy. How much Income Tax relief, if any, can he claim per month on the premium? A. None. B. £200 C. £400 D. £450

Answer 28

A

Question 29

Lavinia declared all relevant information requested, when she effected a critical illness insurance policy. Regarding an illness, a necessary condition for any claim being successful under the policy, is that the illness A. is not terminal. B. meets the policy’s criteria only. C. meets the policy’s criteria and the claim is made within 30 days of the illness occurring. D. meets the policy’s criteria and she cannot return to work.

Answer 29

B

Question 30

Samantha has critical illness insurance cover paid for by her employer. What is Samantha’s tax position with regard to the policy? A. The premiums are treated as a benefit in kind and any benefits paid are tax exempt. B. The premiums generate no tax liability but any benefits paid are liable to Capital Gains Tax. C. The premiums generate no tax liability but any benefits paid are liable to Income Tax. D. The premiums generate no tax liability and any benefits paid are tax exempt.

Answer 30

A

Question 31

A company’s directors are considering offering group critical illness cover to the company’s employees. They have recently heard of the development of severity-based cover. They need to be aware that under such a policy A. claims would only be valid for employees unable to work as a result of the covered illness. B. fewer illnesses are covered compared with usual critical illness policies. C. more than one valid claim may be made regarding a given individual, when the illness progresses in its severity. D. valid claims would always lead to the full sum insured being paid out.

Answer 31

C

Question 32

Ludmilla had a stand-alone guaranteed critical illness policy. She suffered a heart attack which is an event covered by the policy, yet no payment was made, despite a claim being made. Why was this? A. The attack occurred when she was residing outside the free limits. B. The attack occurred within the first six months of the policy. C. She died before the end of the policy’s survival period. D. She died when she was residing outside the free limits.

Answer 32

C

Question 33

Whose responsibility is it to prove a critical illness claim? A. The insurer’s chief medical officer only. B. The policyholder’s general practitioner (GP) only. C. The policyholder only. D. The policyholder and the insurer’s chief medical officer jointly.

Answer 33

C

Question 34

The key underwriting factor for a group critical illness scheme is A. the anticipated number of new entrants. B. morbidity. C. the nature of the business. D. the number of members of the scheme.

Answer 34

B

Question 35

Under a long-term care insurance policy, the benefit normally becomes payable if the claimant A. cannot carry out a number of specified activities of daily living (ADLs). B. is diagnosed as having a specified illness. C. is unable to work due to long-term sickness or accident. D. suffers an illness requiring a minimum period of convalescence care.

Answer 35

A

Question 36

An uncle has recently given his niece a Lasting Power of Attorney (LPA) to deal with his welfare needs if he loses mental capacity. What action should the niece take in anticipation of that possible loss? A. Apply for a deed of variation. B. Appoint a co-attorney. C. Register the LPA with the Office of the Public Guardian. D. Require him to complete a Property and Financial Affairs LPA depositing both LPAs with his solicitor.

Answer 36

C

Question 37

The Financial Conduct Authority defines long-term care insurance as essentially providing benefits to policyholders when, through deterioration of health, they A. are likely to be unable to work for a long term, defined as at least five years. B. are unable to perform at least five activities of daily living. C. cannot continue to live independently without assistance. D. must enter a long-term care home.

Answer 37

C

Question 38

John and Amy, both aged 42, are getting divorced. They currently have a family income benefit policy which is effected on a joint life first death basis. As a result of the divorce, what will happen to the policy, if anything? A. Nothing, the policy may continue unaltered. B. The policy must be cancelled. C. The policy will be transferred into one of their names, as decided by the court. D. The terms of the policy must be revised.

Answer 38

A

Question 39

Sarah is a higher-rate taxpayer whose realised gains already fully use up her Capital Gains Tax (CGT) exemption for the tax year 2024/2025. Her dividend income exceeds her dividend allowance and her savings income exceeds her personal savings allowance. She has her own private medical insurance which is paying for the treatment of an acute condition. What is her tax liability, if any, regarding these payments during this year? A. None. B. 24% CGT. C. 20% Income Tax. D. 40% Income Tax.

Answer 39

A

Question 40

Which type(s) of medical conditions is a private medical insurance policy designed to cover? A. Acute conditions only. B. Chronic conditions only. C. Acute and chronic conditions only. D. Acute, chronic and pre-existing conditions.

Answer 40

A

Question 41

Jessica started an accident, sickness and unemployment (ASU) policy in February 2023 when she had just turned 54. She was employed, full time, in a call centre. She had been paying into a personal pension plan for many years and continued to do so. In August 2024, she became unemployed, but the provider of the ASU policy rejected her claim for benefits. The rejection was justified because her A. policy had been in force for under two years. B. unemployment arose as part of a mass redundancy. C. unemployment arose when she could take the benefits from her pension plan. D. unemployment was her voluntary decision

Answer 41

D

Question 42

Private medical insurance premiums are being paid by the employer for an employee who is a higher-rate taxpayer. What is the employee’s tax position with regard to these premiums? A. The employee is not liable to tax on the premiums. B. The employee must pay Income Tax at his marginal rate. C. The employer must pay all the tax due on behalf of the employee. D. The employer must pay the tax due, only up to the basic-rate level, on behalf of the employee.

Answer 42

B

Question 43

Under an accident, sickness and unemployment insurance policy, how does the maximum benefit payment term for long-term sickness usually compare with the maximum benefit payment term for unemployment? A. The benefits will always be payable for longer in the event of long-term sickness. B. The benefits will always be payable for longer in the event of unemployment. C. The benefits will be payable for restricted terms of similar duration. D. The benefits will be payable for the entire duration of the event in both cases.

Answer 43

C

Question 44

What is the essential feature of a capitation scheme relating to a dental plan? A. It places special restrictions on dental treatments covered. B. It provides the possibility of cashback. C. It is a means for people to budget for their dental costs. D. It is a means of insuring against dental costs.

Answer 44

C

Question 45

An adviser has recommended that his client purchases an income protection insurance policy with a 26-week deferred period, but the client insists on 52 weeks instead. What action should the adviser take? A. Proceed on a 52-week basis and document the client as being insistent in a suitability report. B. Proceed on a 26-week basis and incorporate a stepped deferred period facility. C. Refuse to proceed unless the client accepts the recommendation. D. Take no action and recommend the client reassesses the matter after a year.

Answer 45

A

Question 46

Malik has recently effected a unit-linked critical illness policy. He is aware that his circumstances may change and also that inflation could affect the benefits, but he is wondering why, those considerations apart, his financial adviser is still recommending regular reviews. What good reason(s), if any, are there for the recommendation? A. None. B. Only that the insurer may reduce the illnesses covered by the policy. C. There may be investment underperformance and a reduction in the illnesses covered. D. There may be investment underperformance and more competitive products may enter the market.

Answer 46

D

Question 47

What is the most appropriate type of trust for a combined policy consisting of critical illness cover and life assurance? A. An absolute trust. B. A discretionary trust. C. A split trust. D. A statutory trust.

Answer 47

C

Question 48

Habib has such a significant role as an employee of a pharmaceutical company that the company has recently effected a key person policy on his life. Habib has since written a will. If he were to die during the term of the policy, typically to whom would the death benefits initially be payable? A. The company. B. The company’s nominated beneficiaries according to the policy. C. The executors of Habib’s will. D. Habib’s nominated beneficiaries according to the policy.

Answer 48

A

Question 49

Which underwriting factor has a greater impact on an income protection insurance policy than on a critical illness policy? A. Family medical history. B. Geographical location in the UK. C. Level of existing cover. D. Type of occupation.

Answer 49

D

Question 50

What initially happens to a deceased director’s shares in a business? A. They are held by the company as trustee for beneficiaries. B. They form part of the deceased’s estate. C. They pass to the remaining directors. D. They pass to the remaining shareholders.

Answer 50

B