TEST 2

Question 1

People’s confidence in long-term financial arrangements is undermined by which of
the following factors?

Answer 1

Inflation

Question 2

Morag is considering a policy that would enable her to maintain her mortgage
payments if she was made redundant. She should be aware that such policies:

Answer 2

will only provide benefits for a maximum of two years

Question 3

James makes a lifetime gift into a trust which isn’t an absolute/bare or disabled trust. How much tax is due immediately?

Answer 3

20% on the amount gifted into trust that exceeds the available nil rate band

Question 4

Where a business is considering protection for one of its employees, the need will
depend on:

Answer 4

the individual employee’s role in the business

Question 5

Which of the following statements relating to the personal independence payment is
true?

Answer 5

Eligibility is based on an assessment of individual need

Question 6

In relation to the State pension credit, an individual reaching State pension age on or
after 6 April 2016 may normally be entitled to:

Answer 6

The guarantee credit only

Question 7

Mark and Joanne are making a claim in November 2017 for child tax credit having had their first child in June 2017. Their claim can be backdated:

Answer 7

for no more than one month

Question 8

Which of the following is a term assurance policy which may be used as an alternative
to a whole life policy?

Answer 8

Term 100

Question 9

Which of the following statements CORRECTLY defines the pure or net premium calculated for life assurance policies by actuaries from mortality tables?
A. The premium required just to meet the claims of those who die during the year
B. The actual premium that will be paid by the policyholder
C. The premium for all policyholders in good health
D. The premium required to meet claims each year including an assumed interest
rate of 5%

Answer 9

A. The premium required just to meet the claims of those who die during the year

Question 10

Carla is placing a life assurance policy into trust. Which of the following statements is
correct in relation to her selection of trustees?

Answer 10

The trustees should have an understanding of her wishes

Question 11

Craig has had a life assurance policy assigned to him. By when should he notify the life office of the assignment?

Answer 11

As soon as possible

Question 12

Jack, who is married to Vera, has an endowment policy approaching maturity. The life office’s form of discharge can be signed by:

Answer 12

Jack only

Question 13

In which of the following circumstances would the claimant on a life assurance policy normally be asked to sign a Statutory Declaration?
A. When receiving the proceeds of a death claim
B. When receiving the proceeds of a maturity claim
C. When a policy document has been lost
D. When a policy has been assigned

Answer 13

C. When a policy document has been lost

Question 14

Shona has been advised to take out an increasing term assurance as protection for her dependants. The reason for this would be:

Answer 14

to ensure that the sum assured keeps pace with inflation

Question 15

Julie has decided to pay the premiums on her life assurance policy by monthly
instalments. This means that the premium she pays will have a:

Answer 15

frequency loading

Question 16

Where a claim is made under a mortgaged life policy, who will the life office make the
payment to?

Answer 16

The mortgagee

Question 17

Who is responsible for declaring a chargeable gain on a life policy to HMRC?

Answer 17

The policyholder only

Question 18

Helen has made a chargeable gain of £4,500 on the surrender of her non-qualifying life assurance policy. If her taxable income in 2017/2018 is £40,000 she will be liable for which of the following taxes on the gain?

Answer 18

Income tax at 20%

Question 19

John is paying regular monthly premiums on a life assurance policy to protect a
potential inheritance tax liability. Which of the following exemptions from
inheritance tax could he claim against the annual premiums totalling £3,200?

Answer 19

The annual exemption and the normal expenditure out of income

Question 20

Frances has made a claim on the maturity of a second-hand life assurance policy and
made a chargeable gain. Which of the following taxes will she be liable for?

Answer 20

Capital gains tax

Question 21

Andrew died in May 2017, leaving £81,250 to his niece and the remaining £285,000 to
his wife Mary. Mary’s estate is to be left to their niece. If Mary’s estate is now worth
£590,000 and she wants to take out a policy to cover the inheritance tax liability on this, she should take out a policy for which of the following amounts?

Answer 21

£8,500

Question 22

The life fund of a UK insurer is liable for capital gains tax at which of the following
rates?

Answer 22

20%

Question 23

Kevin is employed and receives sick pay from his employer. This is paid at full pay for six months and then half pay for a further six months. In arranging an income
protection policy, he will be able to take out cover based on:

Answer 23

half pay for months 7 - 12 and full pay from month 13

Question 24

The usual limitation on the amount of benefit that can be paid from an individual
income protection policy is that the total of all policies does not exceed:

Answer 24

50% - 60% of average monthly gross earnings in the year prior to incapacity

Question 25

``` Jennifer, who works in the hotel and catering industry, is applying for an income protection policy. In which occupational class will she be placed for the calculation of her premium rate? ```

Answer 25

Class 2

Question 26

Daniel’s company provides income protection for him and they pay the premiums. For how long will the benefits usually be paid if he becomes ill?

Answer 26

To the earliest of his recovery or normal retirement date

Question 27

Arlene has started a second occupation on a part-time basis, three years after taking out her income protection policy. How will this change be treated by most providers?

Answer 27

It will mean that her benefits will only be paid in relation to her occupation at the time the policy started

Question 28

Sean has an income protection policy with a deferred period of 13 weeks. When should he notify the insurance company in the event that he becomes incapacitated and needs to make a claim?

Answer 28

As soon as possible

Question 29

Amanda has a term assurance policy that includes Waiver of Premium (WOP). For how long will the waiver of premiums continue when a valid claim is made?

Answer 29

Until she returns to work, the expiry of the policy or a specified age

Question 30

Neil’s critical illness policy has been set up on a reviewable basis. Which of the following is the new rate based on when the reviews are undertaken?

Answer 30

Claims experience of the insurer

Question 31

Emily, a higher rate taxpayer, has received the benefits from her critical illness policy after making a valid claim. Which of the following taxes will she be liable for?

Answer 31

There is no tax liability

Question 32

Where a combined life assurance and critical illness policy allows for a buy back of the sum assured on death after the payment of benefits on a critical illness claim, this is typically allowed for what period of time?

Answer 32

Up to six months from the end of any treatment for the diagnosed critical illness

Question 33

Although no set survival period is specified in the ABI best practice, which of the following reflects the typical range of survival periods for critical illness cover on the market?

Answer 33

14 – 30 days

Question 34

Under total and permanent disability, which of the following definitions is the strictest in terms of when a critical illness cover would pay out?

Answer 34

Unable to look after oneself ever again

Question 35

Which of the following conditions is usually excluded from critical illness cover? A. Heart valve replacement B. HIV infection caused by a blood transfusion administered in the UK C. Temporary loss of speech D. Terminal illness

Answer 35

C. Temporary loss of speech

Question 36

Which of the following factors should be carefully examined by the potential policyholder before taking out a long-term care policy?

Answer 36

The number of activities of daily living (ADLs) used to assess the need for care

Question 37

Belinda, a single parent, has 2 children aged 8 and 10, has taken out a personal accident and sickness policy for herself. If she wanted to extend the cover of the policy to cover her children, what restriction might there be?

Answer 37

The cover may be restricted to accidents only

Question 38

Avril wants a low-cost policy that will help to pay for any medical care she requires. A disadvantage of a basic private medical insurance plan rather than a comprehensive policy is:

Answer 38

there may be limits on the cost of treatment covered in one year

Question 39

A mortgage payment protection insurance policy is designed to cover:

Answer 39

All mortgage related costs

Question 40

Which of the following additional benefits may also be paid from an accident, sickness and unemployment insurance policy?

Answer 40

A lump sum benefit for loss of a limb or sight

Question 41

Systemis Ltd pays the premiums for a group personal accident and sickness insurance for their employees. How is this treated in relation to the company’s taxation?

Answer 41

It is treated as an allowable business expense

Question 42

Which of the following is not an argument in favour of taking out private medical insurance?

Answer 42

It is more suitable for a patient with a chronic medical condition

Question 43

Vivienne wants to apply for a mortgage payment protection insurance policy. Which of the following is a typical eligibility condition?

Answer 43

She must have been employed/self-employed continuously for the last 6 months

Question 44

In quantifying the protection needs of a client on death, which of the following should be considered first?

Answer 44

Capital to settle liabilities

Question 45

James has completed a sales process with a client and sold a protection product. To meet the FCA rules he should keep copies of:

Answer 45

The fact-find, written recommendations and suitability letters

Question 46

Tax relief can generally be given on premiums for a key person policy where the life assured is classed as:

Answer 46

an employee

Question 47

Where policies are written on a life of another basis in relation to share protection insurance, the main advantage is that:

Answer 47

there is no need for trusts

Question 48

Caledon Ltd has an agreed overdraft facility with their bank of £50,000. They have only ever used £20,000 of it occasionally to cover short term cash flow problems. In considering the insurance cover, they should have on this, the cover should be for:

Answer 48

£50,000

Question 49

Tim is in a partnership with Nigel and they have agreed to set up a buy and sell agreement. The associated life assurance policies should be written as:

Answer 49

own life policies in trust for the other partner

Question 50

DDB Ltd has made a claim on a company held life policy. How is this treated in relation to taxation?

Answer 50

The profit is treated as income of the company and subject to corporation tax