CeMAP - Certificate in Mortgage Advice and Practice Advising on Protection Products Questions and Answers

Question 1

A client has a £200,000 capital and interest repayment mortgage over a 25-year term. They want life insurance to ensure the mortgage is paid off upon their death. Which type of policy would be the most suitable and cost-effective recommendation to meet this specific need?

Accepted Answer

A Decreasing Term Assurance policy

Answer

Decreasing Term Assurance is designed specifically for repayment mortgages. The sum assured decreases over the term of the policy, broadly in line with the outstanding mortgage balance. This makes it more cost-effective than Level Term or Whole of Life policies, which would over-insure the debt in the later years.

Question 2

An adviser is discussing Income Protection (IP) with a self-employed client. The client has significant savings that could cover their expenses for six months. How would this information most likely influence the adviser's recommendation?

Accepted Answer

It would allow for a longer deferred period, reducing the premium.

Answer

The client's savings can act as a buffer, allowing them to self-fund for an initial period of incapacity. By selecting a longer deferred period (e.g., 26 weeks instead of 4 weeks), the premium for the Income Protection policy will be lower, making the cover more affordable. The need for income protection still exists for long-term incapacity.

Question 3

Which of the following statements BEST describes the key difference between Critical Illness Cover (CIC) and Income Protection (IP)?

Accepted Answer

CIC pays a tax-free lump sum on diagnosis of a specified condition, while IP provides a regular replacement income if the policyholder is unable to work.

Answer

The fundamental difference lies in how they pay out and what they are designed for. Critical Illness Cover provides a one-off lump sum to help with major life changes or to pay off a mortgage upon diagnosis of a specific serious illness. Income Protection is designed to replace lost earnings by providing a regular, ongoing income stream during a period of incapacity due to illness or injury.

Question 4

Under the FCA's Consumer Duty, an adviser must 'act to deliver good customer outcomes'. In the context of mortgage protection, what does this primarily require the adviser to do?

Accepted Answer

Discuss and assess the financial risks of death or incapacity, helping the client avoid foreseeable harm.

Answer

The Consumer Duty places a strong emphasis on avoiding 'foreseeable harm'. For a mortgage client, death or loss of income due to illness are foreseeable risks that could lead to losing their home. A key part of delivering a good outcome is making the client aware of these risks and discussing appropriate solutions, even if the client ultimately declines cover.

Question 5

A couple are taking out an interest-only mortgage. They require life assurance to repay the capital at the end of the term should one of them die. Which of the following policies would be most suitable for this purpose?

Accepted Answer

Level Term Assurance

Answer

With an interest-only mortgage, the capital debt remains the same (£250,000) throughout the mortgage term. Therefore, a Level Term Assurance policy is most suitable as it provides a fixed, level sum assured that will be sufficient to repay the full mortgage capital if a claim is made at any point during the policy term.

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP - Certificate in Mortgage Advice and Practice Practice Test

CeMAP - Certificate in Mortgage Advice and Practice Advising on Protection Products Questions and Answers