R05 Accident, sickness and unemployment insurance: free practice questions

1. Question 1 of 5

   What is the key difference between ASU insurance and MPPI?

   Option A: ASU pays a lump sum on deathOption B: ASU is long-term insurance, like income protectionOption C: ASU is not linked to or restricted by a mortgageOption D: ASU does not cover unemployment, only illness

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   The answer is C: ASU is not linked to or restricted by a mortgage

   ASU is very similar to MPPI but is not linked to a mortgage. Many ASU policies are now called short-term income protection.

   Why the other options are wrong

   A

   ASU pays an income if the insured can't work, not a lump sum on death.

   B

   ASU is short-term insurance.

   D

   ASU does cover unemployment; it's in the name.

2. Question 2 of 5

   Xander earns £3,600 a month. His ASU policy limits benefit to 75% of earnings, with a maximum of £2,500 a month. What is the maximum monthly benefit he can receive?

   Option A: £2,500Option B: £1,800Option C: £2,700Option D: £3,600

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   The answer is A: £2,500

   75% of £3,600 is £2,700, but the policy also caps benefit at £2,500 a month, so the lower figure of £2,500 applies.

   Why the other options are wrong

   B

   £1,800 is 50% of his earnings; the policy allows up to £2,500.

   C

   £2,700 is 75% of his earnings, but the £2,500 cap applies.

   D

   £3,600 is his full salary, above both limits.

3. Question 3 of 5

   Why are group ASU schemes popular as part of an employee benefits package?

   Option A: Premiums are fairly low and perceived value high, with bulk-buying termsOption B: They cover all long-term illness right up until retirement ageOption C: They continue automatically after the employee leaves employmentOption D: They are always free of income tax for both employees and employers

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   The answer is A: Premiums are fairly low and perceived value high, with bulk-buying terms

   Group ASU benefits from preferential premiums and underwriting because of the employer's bargaining power, and employees value it highly.

   Why the other options are wrong

   B

   ASU is short-term; it doesn't cover long-term illness until retirement.

   C

   Group ASU ends when employment ends.

   D

   Tax depends on who pays; it isn't always free of income tax.

4. Question 4 of 5

   An employer pays for group ASU cover. How are the premiums and benefits taxed for the employee?

   Option A: Both the premiums and any benefits paid are completely tax-freeOption B: Premiums are a benefit in kind, but the benefits are paid tax-freeOption C: Premiums are tax-free, but any benefits paid are taxed under PAYEOption D: Both the premiums and the benefits are taxable on the employee

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   The answer is B: Premiums are a benefit in kind, but the benefits are paid tax-free

   Employer-paid group ASU premiums are taxed as a benefit in kind through PAYE and allowable for the employer. Benefits paid to the individual are not taxable. Individual policies get no relief and have untaxed benefits.

   Why the other options are wrong

   A

   Employer-paid premiums are a taxable benefit in kind, so both aren't tax-free.

   C

   It's the other way round: employer-paid premiums are a benefit in kind and benefits to the individual aren't taxed.

   D

   Benefits paid to the individual aren't taxable, so both aren't taxed.

5. Question 5 of 5

   Under what name are many accident, sickness and unemployment policies now marketed?

   Option A: Critical illness coverOption B: Family income benefitOption C: Permanent health insuranceOption D: Short-term income protection

   Show answer

   The answer is D: Short-term income protection

   Many ASU policies, which are not tied to a mortgage, are now called short-term income protection (STIP). This should not be confused with long-term IP.

   Why the other options are wrong

   A

   Critical illness cover is a different product.

   B

   Family income benefit is a type of life cover.

   C

   Permanent health insurance is another name for long-term IP.

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