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

MPPI provides temporary cover for monthly mortgage payments if the borrower cannot work due to accident, sickness, or involuntary unemployment.

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

Decreasing term assurance provides a declining sum assured that roughly tracks the reducing balance of a repayment mortgage, making it an efficient and affordable way to cover the outstanding debt.

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

Critical illness cover pays a tax-free lump sum upon diagnosis of a specified serious illness (such as cancer, heart attack, or stroke), which can be used to clear the mortgage.

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

Indemnity policies assess the actual income loss at the time of claim, while benefit policies pay the pre-agreed amount regardless of what the policyholder is earning when they claim.

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

With an interest-only mortgage, the capital balance does not reduce over the term, so level term assurance maintaining a constant sum assured is more appropriate than decreasing cover.

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP Advising on Protection Products 2