CII R05 Life Assurance Products 2 — Questions and Answers
Question 1: What is the primary purpose of family income benefit (FIB)?
- To pay a lump sum on the policyholder's death
- 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
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 2: 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 policy term automatically extends by one year annually
- The number of insured lives increases as children are born
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 3: What is a 'joint life first death' policy?
- A policy that covers two lives and pays out on the first death of either insured (Correct answer)
- A policy that pays on the second death only
- A policy covering a group of employees for life assurance
- A policy where both lives must die before a claim is paid
Correct answer: A policy that covers two lives and pays out on the first death of either insured
A joint life first death policy covers two people and pays the sum assured on the first death of either insured person, after which the policy ends.
Question 4: Which type of term assurance automatically renews at the end of each term without the need for fresh medical evidence?
- Convertible term assurance
- Renewable term assurance (Correct answer)
- Level term assurance
- Decreasing term assurance
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 5: 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 6: Under a unit-linked whole of life policy, what happens when investment performance is poor?
- The insurer pays additional premiums on behalf of the policyholder
- The sum assured automatically increases to compensate
- A policy review may result in premium increases or a reduction in the sum assured (Correct answer)
- The policy converts to a with-profits basis
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.
CII R05 Life Assurance Products 2
What is the primary purpose of family income benefit (FIB)?