CII R05 Income Protection

Question 1

What is the maximum benefit typically payable under an individual income protection policy?

Accepted Answer

Up to 60% of pre-incapacity gross earnings, less any state benefits and other income

Answer

Individual income protection policies typically limit the benefit to a maximum of 50-65% of pre-incapacity gross earnings, with 60% being the most common maximum. Benefits from other sources (state incapacity benefits, employer sick pay, other policies) are usually deducted to prevent over-insurance and moral hazard.

Question 2

What is the purpose of the deferred period in an income protection policy?

Accepted Answer

It is the waiting period between the start of incapacity and when benefit payments begin

Answer

The deferred period is the initial period of incapacity that must elapse before benefit payments commence. Common deferred periods are 4, 8, 13, 26, or 52 weeks. A longer deferred period results in lower premiums because the insurer is less likely to pay short-term claims. The deferred period should align with the policyholder's employer sick pay provision.

Question 3

An 'own occupation' definition of incapacity in an income protection policy means the claimant:

Accepted Answer

Must be unable to perform the material and substantial duties of their own specific occupation

Answer

The 'own occupation' definition is the most favourable for the policyholder. It means the claimant qualifies for benefit if they are unable to perform the material and substantial duties of their own specific occupation at the time of claim. This is considered the gold standard definition and is generally available to those in professional or skilled occupations.

Question 4

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

Accepted Answer

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

Answer

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 5

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

Accepted Answer

Any occupation suited to their education, training, and experience

Answer

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 Practice Test

CII R05 Practice Test

CII R05 Income Protection