R05 Assets, liabilities and insurance: free practice questions

1. Question 1 of 5

   When taking account of a client's existing assets in a protection needs analysis, what must the adviser consider besides their value?

   Option A: Which of the assets the client would most like to leave to familyOption B: Whether the assets were inherited or bought with earned incomeOption C: The client's favourite investment fund and its manager's track recordOption D: How liquid the assets are and how quickly they could be accessed

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   The answer is D: How liquid the assets are and how quickly they could be accessed

   Assets may reduce the need for insurance, but not all can be accessed quickly. A property producing modest rent may be of little help during long-term illness unless sold or borrowed against.

   Why the other options are wrong

   A

   Inheritance wishes matter for estate planning, but here what counts is whether the assets can be reached quickly.

   B

   How the assets were acquired matters less than whether they can be accessed quickly.

   C

   A favourite fund has no bearing on whether assets can meet a need.

2. Question 2 of 5

   Ursula has £1.1m of wealth, made up of her £900,000 main home and a £200,000 holiday flat abroad. Her monthly outgoings are £2,500. Does she need income protection?

   Option A: Yes, but she needs life cover rather than income protectionOption B: Possibly, as her wealth is illiquid and hard to turn into income quicklyOption C: No, her total wealth is clearly more than sufficient to cover herOption D: No, because holiday homes always produce enough income to live on

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   The answer is B: Possibly, as her wealth is illiquid and hard to turn into income quickly

   High wealth tied up in property may not provide income when needed. Selling or downsizing takes time and may not be desirable, so income protection may still be relevant.

   Why the other options are wrong

   A

   The question is about replacing income during illness, which is what income protection does; life cover pays on death.

   C

   Her wealth is almost all tied up in property, so it can't easily meet £2,500 a month of outgoings during illness.

   D

   A holiday home isn't guaranteed to produce income, and selling it takes time.

3. Question 3 of 5

   Which of the following would NOT normally reduce the amount of protection cover a client needs?

   Option A: Existing life assurance policiesOption B: Pension arrangements providing death benefitsOption C: Repayment of the mortgageOption D: Taking on a new personal loan

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   The answer is D: Taking on a new personal loan

   Taking on new debt increases the need for cover. Existing policies, pension benefits, State benefits and repaying the mortgage can reduce the capital or income needed.

   Why the other options are wrong

   A

   Existing life policies would pay out too, so they reduce the extra cover needed.

   B

   Death benefits from pensions provide capital or income for dependants, reducing the cover needed.

   C

   Once the mortgage is repaid there's less debt to clear on death, so less cover is needed.

4. Question 4 of 5

   Which client is likely to regard life cover as a HIGH priority?

   Option A: A single person with no debts, no dependants and a healthy savings potOption B: Someone with significant debts, modest assets and financial dependantsOption C: A student living with parents and no loansOption D: A retired person with no liabilities

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   The answer is B: Someone with significant debts, modest assets and financial dependants

   Someone with no liabilities and no dependants is unlikely to need life cover, while significant liabilities, modest assets and dependants make it a high priority.

   Why the other options are wrong

   A

   A single person with no debts or dependants has little need for life cover.

   C

   A student with no loans or dependants has little need for life cover.

   D

   A retired person with no liabilities has little need for life cover for dependants.

5. Question 5 of 5

   How can an adviser properly determine whether a client needs insurance?

   Option A: By asking the insurer to decide what is neededOption B: By relying entirely on the client's own estimate of what they needOption C: By using the same standard recommendation for every clientOption D: By completing a full fact-find of assets, liabilities and dependants

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   The answer is D: By completing a full fact-find of assets, liabilities and dependants

   A standard fact-find covering assets, liabilities and financial dependants is essential to understanding whether and how much protection is needed.

   Why the other options are wrong

   A

   The insurer doesn't assess the client's needs; the adviser does.

   B

   Relying on the client's own estimate is unreliable; people often overestimate their cover.

   C

   Using the same recommendation for everyone ignores each client's circumstances.

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