R05 CIC policy types and uses: free practice questions

1. Question 1 of 5

   For most people buying critical illness cover, what is the most common purpose of the lump sum?

   Option A: Paying private school fees for grandchildrenOption B: Funding a future inheritance tax billOption C: Replacing monthly salary until retirementOption D: Paying off the mortgage

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   The answer is D: Paying off the mortgage

   The mortgage is usually the largest commitment, so many critical illness policies are recommended to repay it. Other uses include adapting the home or a car and meeting other major commitments.

   Why the other options are wrong

   A

   Grandchildren's school fees aren't the most common purpose.

   B

   IHT funding is usually done with whole of life cover, not critical illness cover.

   C

   Replacing salary until retirement is the job of income protection.

2. Question 2 of 5

   Why are premiums for stand-alone critical illness cover higher than for basic life cover with the same sum assured?

   Option A: Stand-alone policies must be written under trustOption B: Stand-alone policies are subject to insurance premium taxOption C: Stand-alone policies always include investment contentOption D: The risk of the insurer paying a claim is much higher

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   The answer is D: The risk of the insurer paying a claim is much higher

   A claim on critical illness is far more likely than a death claim during the term, so premiums are higher and underwriting may be stricter.

   Why the other options are wrong

   A

   Stand-alone policies aren't usually written in trust.

   B

   Premium tax isn't the reason; the risk of a claim is much higher.

   C

   Stand-alone critical illness cover is usually pure protection with no investment content.

3. Question 3 of 5

   Kelly's £150,000 combined life and critical illness policy pays out when she is diagnosed with a covered cancer. She survives and still has dependants. What is her position regarding life cover?

   Option A: Her life cover continues at the full £150,000 for the rest of the termOption B: Her life cover is automatically halved to £75,000Option C: The policy has ended, so she has no life cover unless buy-back appliesOption D: Her life cover is reinstated automatically after one year

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   The answer is C: The policy has ended, so she has no life cover unless buy-back applies

   The critical illness payment uses up the sum assured and the policy ends. Some insurers offer a buy-back option to restore limited life cover without underwriting if she survives, typically, two years from the claim.

   Why the other options are wrong

   A

   Accelerated cover uses up the single sum assured, so life cover doesn't continue at £150,000.

   B

   Cover isn't halved; the policy ends when the critical illness benefit is paid.

   D

   Cover isn't reinstated automatically; some insurers offer a buy-back option instead.

4. Question 4 of 5

   When critical illness cover is added to a unit-linked policy, how is the cost of the morbidity risk usually met?

   Option A: By reducing the sum assured at each policy anniversaryOption B: By a separate annual invoice sent to the policyholderOption C: By cancelling units, in the same way as mortality chargesOption D: By deducting it from any eventual claim payment

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   The answer is C: By cancelling units, in the same way as mortality charges

   On unit-linked contracts, the morbidity risk premium is usually paid by cancelling units, just like the cost of life cover.

   Why the other options are wrong

   A

   The sum assured isn't reduced to pay for the risk.

   B

   There's no separate annual invoice on unit-linked contracts.

   D

   The cost isn't deducted from a claim.

5. Question 5 of 5

   Besides diagnosis of an illness, what else may trigger a payment under a critical illness policy?

   Option A: Undergoing certain treatments or joining a transplant waiting listOption B: Reaching State Pension age while still in paid workOption C: Being made redundant by an employer after a long period of illnessOption D: Taking an unpaid career break to care for a relative

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   The answer is A: Undergoing certain treatments or joining a transplant waiting list

   Some policies pay on specific medical procedures, such as aorta surgery or heart valve replacement, or on joining the waiting list for a major organ transplant.

   Why the other options are wrong

   B

   Reaching State Pension age isn't a claim event.

   C

   Redundancy isn't a critical illness claim event.

   D

   A career break isn't a claim event.

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