CII R05 Financial Protection — Questions and Answers

Question 1: What is the difference between 'own occupation' and 'any occupation' definitions in income protection insurance?

Own occupation pays more; any occupation pays less
There is no meaningful difference between the two
Any occupation definition is more generous to the claimant
Own occupation means unable to do your specific job; any occupation means unable to do any job at all (Correct answer)

Correct answer: Own occupation means unable to do your specific job; any occupation means unable to do any job at all

Own occupation is the most generous definition — the policyholder qualifies for benefit if unable to do their own specific job. Any occupation requires inability to do any job whatsoever, making it much harder to claim.

Question 2: Which type of term assurance automatically renews at the end of each term without the need for fresh medical evidence?

Level term assurance
Convertible term assurance
Decreasing term assurance
Renewable term assurance (Correct answer)

Correct answer: Renewable term assurance

Renewable term assurance gives the policyholder the option to renew the policy at the end of each term without providing further medical evidence, though at rates reflecting the new age.

Question 3: An employer takes out a group income protection policy for employees. What is the typical maximum benefit level as a percentage of salary?

25% of gross salary
100% of gross salary
50% of net salary only
Up to 75% of gross salary including employer pension and NI contributions (Correct answer)

Correct answer: Up to 75% of gross salary including employer pension and NI contributions

Group income protection policies typically cover up to 75% of gross salary. This percentage often includes the cost of employer pension contributions and employer National Insurance contributions, not just the salary element. This ensures the employer can continue to fund the employee's pension and meet their NI obligations during the claim period.

Question 4: Which of the following best describes a 'with-profits' whole of life policy?

The policy only pays out if a specified illness is diagnosed
Bonuses are added to the sum assured based on the insurer's investment performance (Correct answer)
The sum assured is fixed throughout the policy's life
The premiums reduce annually based on market conditions

Correct answer: Bonuses are added to the sum assured based on the insurer's investment performance

With-profits policies share in the insurer's investment profits through reversionary bonuses added annually and a terminal bonus on claim, enhancing the original sum assured.

Question 5: What is 'waiver of premium' on a protection policy?

A clause that reduces premiums after a claim-free period
A feature that waives premiums on the policyholder's 65th birthday
An option that waives future premiums if the policyholder becomes unable to work due to illness or injury (Correct answer)
A discount applied if premiums are paid annually

Correct answer: An option that waives future premiums if the policyholder becomes unable to work due to illness or injury

Waiver of premium is a benefit that suspends premium payments after a defined period of disability, usually 26 weeks, so the policy continues in force even when the policyholder cannot work.

Question 6: Which of the following employees is NOT eligible to be covered under a relevant life policy?

A shareholder-director owning 10% of the company's shares
A company director who is employed under a contract of service
A sole trader who employs staff but has no PAYE income themselves (Correct answer)
An employee aged 58 with 20 years of service

Correct answer: A sole trader who employs staff but has no PAYE income themselves

A sole trader cannot be covered by a relevant life policy because the policy requires an employer-employee relationship under a contract of service; sole traders are self-employed.

Question 7: In a life assurance trust, who is the 'settlor'?

The person who creates the trust by placing the policy into it (Correct answer)
The insurer who issues the policy
The solicitor who drafts the trust deed
The person who receives the benefit

Correct answer: The person who creates the trust by placing the policy into it

The settlor is the person who creates the trust — in a life assurance context, this is typically the policyholder who assigns the life policy into the trust.

Question 8: A policyholder diagnosed with early-stage prostate cancer makes a claim on their critical illness policy. The insurer declines the claim. What is the most likely reason?

Prostate cancer is never covered under any critical illness policy
The cancer may not meet the policy's definition, which typically excludes early-stage or low-grade cancers (Correct answer)
The policyholder did not wait 12 months after taking out the policy
Critical illness policies only cover female cancers

Correct answer: The cancer may not meet the policy's definition, which typically excludes early-stage or low-grade cancers

Critical illness policies typically exclude early-stage, low-grade, or non-invasive cancers from the full critical illness definition. Many prostate cancers diagnosed at an early stage (such as Gleason score 6 or below, or TNM classification T1a/T1b) may fall below the threshold for a full critical illness claim, though they might qualify for an additional payment benefit.

Question 9: What is 'evidence of insurability' and when might it be required?

It is a reference from the applicant's employer confirming their occupation
It is medical or financial evidence required by the insurer to confirm the applicant is an acceptable risk, typically when exercising guaranteed insurability options or for high sums assured (Correct answer)
It is a certificate confirming the policyholder has no outstanding claims
It is proof that the applicant has previously held insurance

Correct answer: It is medical or financial evidence required by the insurer to confirm the applicant is an acceptable risk, typically when exercising guaranteed insurability options or for high sums assured

Evidence of insurability includes medical reports, examinations, blood tests, or financial evidence that the insurer requires to assess the risk. It may be required for high sums assured, when exercising guaranteed insurability options on some policies, or when the applicant's health questionnaire reveals potential concerns. The extent of evidence required increases with the sum assured.

Question 10: Critical illness cover typically pays out on the diagnosis of which condition?

Any illness lasting more than two weeks
Specified serious conditions such as cancer, heart attack, or stroke (Correct answer)
Any condition requiring hospital admission
All conditions that prevent the policyholder from working

Correct answer: Specified serious conditions such as cancer, heart attack, or stroke

Critical illness cover pays a lump sum on diagnosis of one of the specified serious conditions listed in the policy, such as cancer, heart attack, stroke, or major organ transplant.

Question 11: What is the purpose of a 'back to day one' claim payment option in income protection?

It allows the policyholder to claim for illnesses that occurred before the policy started
It means the policy covers pre-existing conditions from inception
The premium is backdated to the policyholder's date of birth
If incapacity continues beyond the deferred period, the insurer retrospectively pays benefit from the first day of incapacity (Correct answer)

Correct answer: If incapacity continues beyond the deferred period, the insurer retrospectively pays benefit from the first day of incapacity

The 'back to day one' option means that if the claimant's incapacity extends beyond the deferred period, the insurer will make a retrospective payment covering the entire period from the first day of incapacity. This bridges the financial gap during the deferred period and is particularly valuable for those without employer sick pay.

Question 12: What is 'nursing care' versus 'personal care' in the context of care funding in England?

Both are free at the point of need under the NHS Constitution
There is no distinction — both are fully funded by the NHS
Personal care is free for all over-65s; nursing care is means-tested
NHS-funded nursing care (FNC) contributes to registered nursing care costs in a nursing home; personal care is means-tested and funded by the local authority (Correct answer)

Correct answer: NHS-funded nursing care (FNC) contributes to registered nursing care costs in a nursing home; personal care is means-tested and funded by the local authority

In England, the NHS funds the nursing element of care in a nursing home through Funded Nursing Care (FNC). The personal care element (non-nursing) is subject to local authority means-testing. In Scotland, free personal care is available to all over 65.

Question 13: Under a typical critical illness policy, when is the sum assured paid?

On diagnosis of a specified critical illness that meets the policy definition and after any survival period (Correct answer)
Immediately upon diagnosis of any medical condition
At the end of the policy term regardless of health
Only upon the death of the life assured

Correct answer: On diagnosis of a specified critical illness that meets the policy definition and after any survival period

Critical illness cover pays the sum assured on diagnosis of a specified illness that meets the exact policy definition, subject to any survival period (typically 14-28 days). The claimant must survive this period for the claim to be valid. Not all medical conditions are covered — only those specifically listed in the policy.

Question 14: Under a unit-linked whole of life policy, what happens when investment performance is poor?

A policy review may result in premium increases or a reduction in the sum assured (Correct answer)
The sum assured automatically increases to compensate
The policy converts to a with-profits basis
The insurer pays additional premiums on behalf of the policyholder

Correct answer: A policy review may result in premium increases or a reduction in the sum assured

Unit-linked whole of life policies are subject to regular reviews. Poor investment performance means fewer units are available to fund the mortality charge, potentially requiring higher premiums or a reduced sum assured.

Question 15: A 70-year-old client has £200,000 in savings and is considering long-term care planning. Which of the following would you most likely recommend as a planning strategy?

Consider a combination of self-funding and an immediate needs annuity purchased if and when care is needed (Correct answer)
Consider an immediate needs annuity now to lock in current health-based rates
Invest all savings in a pension to avoid care funding means testing
Spend all savings immediately so local authority funding applies

Correct answer: Consider a combination of self-funding and an immediate needs annuity purchased if and when care is needed

For a 70-year-old with significant assets above the self-funding threshold, a common strategy is to use savings initially (self-fund) and purchase an immediate needs annuity if and when care is actually needed, providing certainty of lifetime funding at that point.

Question 16: What is the key difference between a whole of life policy and a term assurance policy?

Whole of life guarantees a payout whenever death occurs, whereas term assurance only pays out if death occurs within the policy term (Correct answer)
Whole of life pays out only on death within a specified term
Term assurance builds up a cash value over time
Whole of life policies cannot be placed in trust

Correct answer: Whole of life guarantees a payout whenever death occurs, whereas term assurance only pays out if death occurs within the policy term

A whole of life policy provides cover for the entire lifetime of the life assured and will always pay out a death benefit. Term assurance only pays a benefit if the life assured dies within the specified term of the policy.

Question 17: Under the UK welfare system, what is the purpose of the Work Capability Assessment (WCA)?

To calculate the claimant's entitlement to State Pension
To assess whether the claimant can take early retirement
To assess a claimant's suitability for voluntary work
To determine whether a claimant has limited capability for work due to their health condition or disability (Correct answer)

Correct answer: To determine whether a claimant has limited capability for work due to their health condition or disability

The Work Capability Assessment evaluates whether a claimant has limited capability for work and limited capability for work-related activity. It involves a questionnaire and potentially a face-to-face assessment. Based on the outcome, claimants are placed in either the work-related activity group (expected to prepare for work) or the support group (not expected to work).

Question 18: What is the current (2026) capital threshold below which local authorities in England must contribute towards care costs?

£500,000
£23,250 (Correct answer)
£100,000
£125,000

Correct answer: £23,250

In England, the upper capital threshold is £23,250 (as of 2026). Below this level, the local authority must contribute to care costs. Those with assets above this level are expected to self-fund.

Question 19: Under an income protection policy, what is the significance of the 'benefit basis' being 'indemnity' rather than 'agreed value'?

Agreed value requires medical evidence at claim; indemnity does not
There is no difference at time of claim
Indemnity basis pays more than agreed value at claim
Indemnity basis pays based on actual earnings at the time of claim, which could be less than the insured amount (Correct answer)

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

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 20: What is the difference between a guaranteed and reviewable premium income protection policy?

Reviewable premiums are always cheaper throughout the entire policy term
Guaranteed premiums remain the same for the policy term; reviewable premiums can be increased by the insurer at review dates (Correct answer)
There is no difference — all income protection premiums are guaranteed
Guaranteed premiums can be increased at any time without notice; reviewable premiums are fixed

Correct answer: Guaranteed premiums remain the same for the policy term; reviewable premiums can be increased by the insurer at review dates

Guaranteed premiums are fixed for the duration of the policy and cannot be increased by the insurer. Reviewable premiums are initially lower but can be increased at review dates (typically every 5 years) based on the insurer's claims experience. Reviewable premiums may ultimately cost more over the policy term if the insurer increases rates significantly.

Question 21: Which life assurance policy is designed to pay out on both death AND on survival to the end of the policy term?

Term assurance
Endowment policy (Correct answer)
Whole of life assurance
Level annuity

Correct answer: Endowment policy

An endowment policy combines life assurance with a savings element, paying out the sum assured either on death during the term or on survival to maturity.

Question 22: What is the main risk to an insurer when offering guaranteed insurability options on life policies?

Lapses increase
Anti-selection — only those whose health has deteriorated will exercise the option (Correct answer)
Claims are paid too quickly
Investment returns fall short of projections

Correct answer: Anti-selection — only those whose health has deteriorated will exercise the option

Guaranteed insurability options allow policyholders to increase cover without medical evidence. This creates anti-selection risk as those whose health has worsened are more likely to use the option.

Question 23: A group income protection scheme has a 'benefit definition' of 'own occupation' for the first two years of claim. What typically happens after two years?

The definition switches to 'any occupation' after the initial period (Correct answer)
The employer must make additional contributions after two years
The claim automatically ends after two years
The benefit increases by 20% after two years

Correct answer: The definition switches to 'any occupation' after the initial period

Many group income protection policies apply own occupation for the first one to two years of a claim (making it easier to qualify), then switch to a broader 'any occupation' definition, making it harder to continue receiving benefit.

Question 24: What type of life assurance policy provides cover for a fixed term and pays out only if the policyholder dies within that term?

Term assurance (Correct answer)
With-profits bond
Endowment policy
Whole of life assurance

Correct answer: Term assurance

Term assurance covers a specified period and pays the sum assured only on death within that term. If the policyholder survives, no benefit is paid.

Question 25: What is the primary purpose of family income benefit (FIB)?

To pay a regular income to dependants for the remainder of the policy term following death (Correct answer)
To provide critical illness cover alongside life cover
To fund a pension on retirement
To pay a lump sum on the policyholder's death

Correct answer: To pay a regular income to dependants for the remainder of the policy term following death

Family income benefit pays a regular income rather than a lump sum from the date of death to the end of the policy term, helping replace the deceased's earnings for dependants.

Question 26: How does an increasing term assurance policy work?

The premium increases each year while the sum assured stays fixed
The sum assured increases over time, usually in line with inflation or at a fixed percentage (Correct answer)
The number of insured lives increases as children are born
The policy term automatically extends by one year annually

Correct answer: The sum assured increases over time, usually in line with inflation or at a fixed percentage

Increasing term assurance allows the sum assured to rise over the policy term to counter the effects of inflation, maintaining the real value of the benefit.

Question 27: What does 'activities of daily living' (ADLs) assess in the context of long-term care and some protection policies?

The claimant's mortgage repayment ability
The claimant's investment objectives
The claimant's employment history
The claimant's ability to perform physical tasks such as washing, dressing, and eating (Correct answer)

Correct answer: The claimant's ability to perform physical tasks such as washing, dressing, and eating

ADLs are used to assess functional ability — typically six activities: washing, dressing, eating, mobility, continence, and transferring. Inability to perform a specified number triggers care-related benefits.

Question 28: 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?

Yes, the 52-week deferred period has been exceeded by 2 months, so benefit should now be payable (Correct answer)
No, the deferred period has not yet been met
No, back injuries are not covered by income protection
Yes, income protection always pays from day one of disability

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

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.

Question 29: How are proceeds from a relevant life policy normally treated for inheritance tax purposes on the death of the employee?

They attract a 20% lifetime charge as a chargeable lifetime transfer
They form part of the deceased's estate and attract IHT at 40% above the nil-rate band
They are paid free of IHT because the policy is held in a specific relevant life policy trust (Correct answer)
They are subject to IHT only if the sum assured exceeds the employee's pension lifetime allowance

Correct answer: They are paid free of IHT because the policy is held in a specific relevant life policy trust

Because a relevant life policy must be written in a specific trust, the proceeds are paid outside the employee's estate and are therefore free from inheritance tax.

Question 30: A 'suited occupation' definition in an income protection policy means the claimant must be unable to perform:

Only sedentary office work
Any occupation suited to their education, training, and experience (Correct answer)
Any manual occupation
Only their current job role

Correct answer: Any occupation suited to their education, training, and experience

The 'suited occupation' (or 'any suited occupation') definition requires the claimant to be unable to perform any occupation that the insurer considers suited to their education, training, and experience. This is less favourable than 'own occupation' because the insurer could argue the claimant could work in a different but related role.

CII R05 Financial Protection

The CII R05 Financial Protection exam assesses knowledge of life assurance, critical illness, income protection, long-term care, business protection, and state benefits, forming part of the CII Certificate in Financial Planning (RQF Level 3).

Questions

60 min

Time Limit

70%

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