CII R05 Business Protection

Question 1

What is the primary purpose of key person insurance for a business?

Accepted Answer

To compensate the business for financial loss caused by the death or critical illness of a vital employee

Answer

To provide personal life cover for the business owner's family

Answer

To fund employee pension schemes on a group basis

Answer

To cover business premises against fire and flood damage

Question 2

In a key person insurance arrangement, who typically pays the premiums?

Accepted Answer

The business, as it is the beneficiary of the policy

Answer

The key person themselves from their salary

Answer

The government via a tax relief scheme

Answer

A discretionary trust set up by the key person

Question 3

Which type of business protection is specifically designed to enable remaining partners to purchase a deceased partner's share of the business?

Accepted Answer

Partnership protection

Answer

Key person insurance

Answer

Relevant life insurance

Answer

Group income protection

Question 4

What is a 'cross-option agreement' in the context of shareholder or partnership protection?

Accepted Answer

An agreement giving surviving shareholders the option to buy and the deceased's estate the option to sell

Answer

An agreement allowing the insurer to cross-check claims with Companies House records

Answer

An agreement between two competing insurers to share risk on large policies

Answer

An agreement to cross-sell complementary financial products to business clients

Question 5

Under HMRC guidance, key person insurance premiums are generally allowable as a business expense only when:

Accepted Answer

The sole purpose of the policy is revenue protection rather than a capital purpose

Answer

The key person owns less than 5% of the company's shares

Answer

The policy term does not exceed five years

Answer

The sum assured does not exceed ten times the key person's annual salary

Question 6

What is the main tax advantage of a 'relevant life policy' for an employer?

Accepted Answer

Premiums qualify for full corporation tax relief as an allowable business expense

Answer

The policy proceeds are always paid free of capital gains tax

Answer

Employees receive the death benefit entirely free of national insurance contributions

Answer

Premiums count against the employer's annual investment allowance

Question 7

Which of the following best describes 'business loan protection'?

Accepted Answer

A policy that repays outstanding business loans if a key person dies or suffers a critical illness

Answer

Insurance covering the personal mortgage of company directors

Answer

Cover that protects the business against customers defaulting on commercial loans

Answer

A policy insuring the business against currency exchange losses on overseas loans