CeMAP Advising on Protection Products 2

Question 1

What is the primary purpose of Mortgage Payment Protection Insurance (MPPI)?

Accepted Answer

To cover monthly mortgage payments for a limited period if the borrower is unable to work due to accident, sickness, or unemployment

Answer

To repay the mortgage in full if the borrower dies

Answer

To protect the lender against borrower default

Answer

To cover the cost of home repairs

Question 2

How does decreasing term assurance work and why is it commonly recommended alongside a repayment mortgage?

Accepted Answer

The sum assured decreases over the term to broadly match the reducing mortgage balance, providing cost-effective cover

Answer

The premiums decrease over time

Answer

The policy term decreases based on the borrower's age

Answer

It provides increasing cover as the mortgage balance falls

Question 3

What is critical illness cover and how does it complement mortgage protection?

Accepted Answer

It pays a lump sum on diagnosis of a specified critical illness, which can be used to repay the mortgage or cover costs during recovery

Answer

It only covers terminal illness

Answer

It covers all illnesses automatically

Answer

It is the same as income protection insurance

Question 4

What is the difference between indemnity-based and benefit-based income protection policies?

Accepted Answer

Indemnity-based policies pay based on actual earnings loss, while benefit-based policies pay a pre-agreed fixed amount regardless of actual earnings at claim time

Answer

There is no difference

Answer

Indemnity policies are cheaper

Answer

Benefit-based policies only cover unemployment

Question 5

Why might an adviser recommend level term assurance for an interest-only mortgage?

Accepted Answer

Because the outstanding balance on an interest-only mortgage remains constant throughout the term, requiring a constant level of cover

Answer

Level term assurance is always cheaper than decreasing term

Answer

Level term assurance provides better tax benefits

Answer

It is a regulatory requirement for interest-only mortgages

Question 6

What is the adviser's duty regarding protection advice during the mortgage advice process?

Accepted Answer

The adviser must assess the client's protection needs, discuss relevant products, and document the client's decision whether or not to proceed

Answer

Protection advice is entirely optional and can be skipped

Answer

The adviser must sell at least one protection product with every mortgage

Answer

Protection advice is only required for first-time buyers