R01 Protection needs and the life cycle: free practice questions

1. Question 1 of 5

   Which of the following are among the most important factors influencing an individual's protection needs? 1. Age 2. Dependants 3. Existing cover 4. Employment status

   Option A: 1 and 2 onlyOption B: 2, 3 and 4 onlyOption C: 1, 2, 3 and 4Option D: 1, 2 and 4 only

   Show answer

   The answer is C: 1, 2, 3 and 4

   The key factors are age, dependants, income, financial liabilities, employment status and existing cover. They interact and should be considered together.

   Why the other options are wrong

   A

   Existing cover and employment status also matter.

   B

   Age is also one of the most important factors.

   D

   Existing cover must also be taken into account.

2. Question 2 of 5

   At around what stage of life is the need for protection usually greatest?

   Option A: Young single, in their late teensOption B: After retirementOption C: ChildhoodOption D: Mid-20s to early 40s

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   The answer is D: Mid-20s to early 40s

   The greatest need usually falls between the mid-20s and early 40s, when most people have families depending on their income.

   Why the other options are wrong

   A

   Young single people usually have few dependants relying on them.

   B

   By retirement, dependants are usually independent and earnings have stopped.

   C

   Children's needs are usually met by their parents.

3. Question 3 of 5

   A young single person in work has no dependants. What are typically their main financial priorities?

   Option A: Long-term care insurance, while premiums are still cheapOption B: Inheritance tax planning, using lifetime gifts and trustsOption C: An emergency fund and protecting their earnings against illnessOption D: Large amounts of life cover for any dependants they may have later

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   The answer is C: An emergency fund and protecting their earnings against illness

   With no one relying on them, life cover is less important. Priorities are an emergency fund and income protection, perhaps with critical illness cover.

   Why the other options are wrong

   A

   Long-term care insurance is a concern much later in life.

   B

   IHT planning is rarely a priority at this stage.

   D

   With no dependants, there's little need for life cover to protect others.

4. Question 4 of 5

   What rough rule of thumb is often used to estimate the level of life cover needed?

   Option A: The total of the client's savings, investments and pension fundsOption B: Ten times income, less State, pension and other benefits payable on deathOption C: Twice the outstanding mortgage, plus an allowance for funeral costsOption D: Five times annual expenditure, with no deduction for other benefits

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   The answer is B: Ten times income, less State, pension and other benefits payable on death

   A multiple of income (often ten) less any State or pension benefits and cost savings on death is a common rule of thumb. A lifetime cashflow analysis is more appropriate.

   Why the other options are wrong

   A

   Existing savings reduce the need; they aren't the measure of it.

   C

   The mortgage is only one liability; cover is based on replacing income.

   D

   The usual rule of thumb is a multiple of income, after deducting other benefits.

5. Question 5 of 5

   Why must existing cover be taken into account when assessing a client's protection needs?

   Option A: The FCA bans clients from holding cover with more than one insurerOption B: Duplicated cover costs more than necessary and may breach suitability rulesOption C: Insurers refuse to pay a claim if the client holds more than one policyOption D: Existing cover is always more expensive than a new policy would be

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   The answer is B: Duplicated cover costs more than necessary and may breach suitability rules

   There's little point covering a need that's already met. Doing so increases costs and could breach the suitability rules and fair treatment of customers.

   Why the other options are wrong

   A

   There's no rule against holding policies with different insurers.

   C

   Claims can be paid under several policies; the concern is unnecessary cost.

   D

   Existing cover may be cheaper or more expensive; that's not the reason.

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