CII R05 Life Assurance Products 1 — Questions and Answers
Question 1: What type of life assurance policy provides cover for a fixed term and pays out only if the policyholder dies within that term?
- Term assurance (Correct answer)
- Whole of life assurance
- Endowment policy
- With-profits bond
Correct answer: Term assurance
Term assurance covers a specified period and pays the sum assured only on death within that term. If the policyholder survives, no benefit is paid.
Question 2: Which life assurance policy is designed to pay out on both death AND on survival to the end of the policy term?
- Term assurance
- Whole of life assurance
- Endowment policy (Correct answer)
- Level annuity
Correct answer: Endowment policy
An endowment policy combines life assurance with a savings element, paying out the sum assured either on death during the term or on survival to maturity.
Question 3: What is the key distinguishing feature of a whole of life assurance policy?
- It only pays on death within a specified term
- It guarantees a payout because it covers the entire lifetime of the insured (Correct answer)
- It provides cover linked to a mortgage
- It is only available through employer group schemes
Correct answer: It guarantees a payout because it covers the entire lifetime of the insured
Whole of life assurance provides cover for the entire lifetime of the insured, guaranteeing a payout whenever death occurs, making it certain to pay out eventually.
Question 4: A decreasing term assurance policy is most commonly used to cover which type of debt?
- Credit card debt
- Interest-only mortgage
- Repayment mortgage (Correct answer)
- Student loan
Correct answer: Repayment mortgage
Decreasing term assurance mirrors the outstanding balance of a repayment mortgage, where the sum assured reduces over time in line with the reducing capital balance.
Question 5: What is meant by a 'convertible' term assurance policy?
- It can be cashed in before the end of the term
- It can be converted into a whole of life or endowment policy without further medical evidence (Correct answer)
- It converts to an annuity on maturity
- It automatically renews at the end of each term
Correct answer: It can be converted into a whole of life or endowment policy without further medical evidence
A convertible term assurance gives the policyholder the right to convert the policy to a permanent plan (whole of life or endowment) without providing further evidence of health.
Question 6: Which of the following best describes a 'with-profits' whole of life policy?
- The sum assured is fixed throughout the policy's life
- Bonuses are added to the sum assured based on the insurer's investment performance (Correct answer)
- The policy only pays out if a specified illness is diagnosed
- The premiums reduce annually based on market conditions
Correct answer: Bonuses are added to the sum assured based on the insurer's investment performance
With-profits policies share in the insurer's investment profits through reversionary bonuses added annually and a terminal bonus on claim, enhancing the original sum assured.
CII R05 Life Assurance Products 1
What type of life assurance policy provides cover for a fixed term and pays out only if the policyholder dies within that term?