CII R05 Group Insurance Schemes — Questions and Answers
Question 1: What is 'free cover limit' in a group life assurance scheme?
- The maximum benefit that can be provided at no premium cost
- The level of benefit below which individual medical underwriting is not required (Correct answer)
- The amount of cover provided free to part-time workers
- The minimum level of cover that all employees must receive
Correct answer: The level of benefit below which individual medical underwriting is not required
The free cover limit is the maximum benefit that can be provided to an individual group scheme member without the need for individual medical underwriting. Members with benefits above this limit require individual evidence of health.
Question 2: Under a group death-in-service scheme, benefits are expressed as a multiple of salary. Which authority sets the maximum allowable multiple?
- The Financial Conduct Authority
- HMRC, under registered pension scheme rules — typically 4 times salary (Correct answer)
- The Prudential Regulation Authority
- The employer, with no external limits
Correct answer: HMRC, under registered pension scheme rules — typically 4 times salary
Group death-in-service (life assurance) schemes registered as part of an occupational pension scheme are subject to HMRC limits. The maximum tax-free lump sum is 4 times the member's final salary.
Question 3: What is the purpose of a 'master trust' in the context of group life assurance?
- To hold the employer's assets separately from group scheme assets
- To provide a pre-established trust structure that employers can use without setting up their own trust (Correct answer)
- To pool all group life policies across multiple insurers
- To manage employer contributions to group pension schemes
Correct answer: To provide a pre-established trust structure that employers can use without setting up their own trust
A master trust is a pre-written discretionary trust arrangement set up and administered by the insurer, allowing employers to have death-in-service benefits paid outside employees' estates without the cost of establishing their own trust.
Question 4: 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 claim automatically ends after two years
- The definition switches to 'any occupation' after the initial period (Correct answer)
- The benefit increases by 20% after two years
- The employer must make additional contributions 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 5: Which regulation requires employers to provide all employees with access to a qualifying workplace pension scheme?
- The Financial Services and Markets Act 2000
- Auto-enrolment legislation under the Pensions Act 2008 (Correct answer)
- The Equality Act 2010
- The Employment Rights Act 1996
Correct answer: Auto-enrolment legislation under the Pensions Act 2008
The Pensions Act 2008 introduced auto-enrolment, requiring all employers to automatically enrol eligible employees into a qualifying workplace pension scheme and make minimum contributions.
Question 6: What is the tax treatment of a group critical illness benefit paid to an employee under an employer-paid scheme?
- The benefit is paid free of income tax
- The benefit is taxed as employment income (Correct answer)
- The benefit is subject to capital gains tax
- The benefit is exempt up to £30,000 then taxed at the employee's marginal rate
Correct answer: The benefit is taxed as employment income
When an employer pays group critical illness premiums, the benefit paid to the employee is treated as employment income and is subject to income tax and National Insurance contributions.
CII R05 Group Insurance Schemes
What is 'free cover limit' in a group life assurance scheme?