CII R05 Income Protection 2 — Questions and Answers
Question 1: What is the key distinction between income protection and an accident, sickness, and unemployment (ASU) policy?
- ASU policies typically offer short-term cover (usually 12-24 months per claim) while income protection can pay until retirement age (Correct answer)
- Income protection only covers accidents while ASU covers all types of incapacity
- ASU policies are regulated by the FCA while income protection is not
- There is no difference — they are the same product
Correct answer: ASU policies typically offer short-term cover (usually 12-24 months per claim) while income protection can pay until retirement age
The key distinction is the benefit payment period. Income protection is a long-term product that can pay benefits until the policyholder's selected retirement age (e.g., 65 or 68). ASU policies are short-term, typically limiting payments to 12 or 24 months per claim. ASU may also include unemployment cover, which income protection does not.
Question 2: A self-employed client wants income protection. Which factor is MOST important when determining the appropriate level of cover?
- The value of their business premises
- Their net profit or drawings from the business, as this represents their personal income (Correct answer)
- The turnover of their business
- The number of employees they have
Correct answer: Their net profit or drawings from the business, as this represents their personal income
For self-employed individuals, the appropriate level of income protection cover is based on their share of net profit or regular drawings from the business, as this represents their actual personal income. Business turnover is not relevant as it includes costs and overheads. Insurers typically require evidence of earnings via tax returns or accounts.
Question 3: An income protection policy with an 'activities of daily living' (ADL) definition pays benefit when the claimant:
- Is unable to perform their own occupation for 4 consecutive weeks
- Cannot perform a specified number of defined everyday tasks such as washing, dressing, or feeding themselves (Correct answer)
- Has been certified as terminally ill by two medical practitioners
- Has been absent from work for the duration of the deferred period
Correct answer: Cannot perform a specified number of defined everyday tasks such as washing, dressing, or feeding themselves
The ADL definition pays benefit when the claimant is unable to perform a specified number (typically 3 out of 6) of defined activities of daily living, such as washing, dressing, feeding, toileting, mobility, and transferring. This is the most restrictive definition and is generally used for lower-cost policies or higher-risk occupations.
Question 4: What is the purpose of a 'back to day one' claim payment option in income protection?
- It means the policy covers pre-existing conditions from inception
- If incapacity continues beyond the deferred period, the insurer retrospectively pays benefit from the first day of incapacity (Correct answer)
- The premium is backdated to the policyholder's date of birth
- It allows the policyholder to claim for illnesses that occurred before the policy started
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 5: An employer takes out a group income protection policy for employees. What is the typical maximum benefit level as a percentage of salary?
- 100% of gross salary
- Up to 75% of gross salary including employer pension and NI contributions (Correct answer)
- 50% of net salary only
- 25% of gross salary
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 6: What is a 'linked claim' provision in an income protection policy?
- It links the income protection policy to a critical illness policy for a combined discount
- If the policyholder suffers a recurrence of the same condition within a specified period, it is treated as a continuation of the original claim without a new deferred period (Correct answer)
- It links the policy to the policyholder's mortgage so payments are made directly to the lender
- It allows two policyholders to link their claims for a joint benefit
Correct answer: If the policyholder suffers a recurrence of the same condition within a specified period, it is treated as a continuation of the original claim without a new deferred period
A linked claim provision means that if the claimant recovers and returns to work but then suffers a recurrence of the same or related condition within a specified period (typically 12 months), the new period of incapacity is treated as a continuation of the original claim. This means the claimant does not have to serve another deferred period before benefits recommence.
CII R05 Income Protection 2
What is the key distinction between income protection and an accident, sickness, and unemployment (ASU) policy?