CII R05 Critical Illness and Income Protection 2

Question 1

What is the key difference between critical illness cover and income protection insurance?

Accepted Answer

Critical illness pays a lump sum on diagnosis; income protection pays a regular income during inability to work

Answer

Critical illness pays a tax-free lump sum on diagnosis of a specified condition. Income protection pays a regular income (up to a percentage of earnings) when the policyholder is unable to work due to illness or injury.

Question 2

Which type of income protection policy covers inability to work due to ANY cause, including accident and sickness?

Accepted Answer

Permanent health insurance

Answer

Permanent health insurance (PHI), now commonly called income protection, covers inability to work from any cause — illness, injury or accident — and can pay until retirement age if necessary.

Question 3

What is 'suited occupation' as a definition of disability?

Accepted Answer

The policyholder cannot do any job suited to their education, training, and experience

Answer

The suited occupation definition means benefit is paid if the policyholder cannot work in any occupation suited to their qualifications, education and experience — a middle ground between own and any occupation.

Question 4

Under an income protection policy, what is the significance of the 'benefit basis' being 'indemnity' rather than 'agreed value'?

Accepted Answer

Indemnity basis pays based on actual earnings at the time of claim, which could be less than the insured amount

Answer

On an indemnity basis, the benefit is limited to the actual earnings at the time of claim. If earnings have fallen since the policy was taken out, the benefit will be reduced accordingly. Agreed value locks in the benefit at the time of application.

Question 5

A client has been unable to work for 14 months due to a serious back injury. Their income protection policy has a 52-week deferred period. Are they eligible to claim?

Accepted Answer

Yes, the 52-week deferred period has been exceeded by 2 months, so benefit should now be payable

Answer

The deferred period of 52 weeks means benefit commences after 52 weeks of continuous incapacity. After 14 months (approximately 60 weeks) the deferred period has passed and benefit payments should begin.

CII R05 Practice Test

CII R05 Practice Test

CII R05 Critical Illness and Income Protection 2