CII R05 Life Insurance Products

Question 1

What is the key difference between a whole of life policy and a term assurance policy?

Accepted Answer

Whole of life guarantees a payout whenever death occurs, whereas term assurance only pays out if death occurs within the policy term

Answer

A whole of life policy provides cover for the entire lifetime of the life assured and will always pay out a death benefit. Term assurance only pays a benefit if the life assured dies within the specified term of the policy.

Question 2

Under a decreasing term assurance policy, which of the following best describes how the sum assured changes over the policy term?

Accepted Answer

It reduces over the policy term, typically to zero by the end

Answer

Decreasing term assurance is designed so the sum assured reduces over the policy term, typically reaching nil at the end. This mirrors a repayment mortgage where the outstanding balance decreases over time, making it suitable for mortgage protection.

Question 3

A family income benefit policy differs from a standard level term assurance because it pays the benefit as:

Accepted Answer

A regular tax-free income from the date of death until the end of the policy term

Answer

Family income benefit pays a regular income from the date of the life assured's death until the end of the original policy term. The income payments are generally tax-free as they are treated as instalments of capital rather than income.

Question 4

Which of the following is a characteristic of a unit-linked whole of life policy?

Accepted Answer

The sum assured is linked to the performance of an underlying investment fund

Answer

Unit-linked whole of life policies allocate premiums to investment funds. The value of the policy and the level of cover depend on the performance of those underlying funds. Premium reviews may result in increased premiums or reduced cover if fund performance is poor.

Question 5

What is the primary purpose of a relevant life policy?

Accepted Answer

To provide death-in-service benefits for employees outside of a registered pension scheme

Answer

A relevant life policy is a death benefit only policy taken out by an employer on the life of an employee. It provides death-in-service type benefits outside of a registered pension scheme. Premiums are typically a tax-deductible business expense and the benefit is paid free of inheritance tax via a discretionary trust.

CII R05 Practice Test

CII R05 Practice Test

CII R05 Life Insurance Products