CII R05 Income Protection 2

Question 1

What is the key distinction between income protection and an accident, sickness, and unemployment (ASU) policy?

Accepted Answer

ASU policies typically offer short-term cover (usually 12-24 months per claim) while income protection can pay until retirement age

Answer

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?

Accepted Answer

Their net profit or drawings from the business, as this represents their personal income

Answer

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:

Accepted Answer

Cannot perform a specified number of defined everyday tasks such as washing, dressing, or feeding themselves

Answer

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?

Accepted Answer

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

Answer

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?

Accepted Answer

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

Answer

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.

CII R05 Practice Test

CII R05 Practice Test

CII R05 Income Protection 2