R05 CIC versus IP and selection: free practice questions

1. Question 1 of 5

   What is the fundamental difference between critical illness cover and income protection?

   Option A: CIC pays an income on diagnosis; IP pays a lump sum on deathOption B: CIC pays a lump sum on diagnosis; IP pays income after a deferred periodOption C: CIC covers mental illness and back pain; IP covers neitherOption D: CIC is general insurance, while IP is regulated as an investment product

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   The answer is B: CIC pays a lump sum on diagnosis; IP pays income after a deferred period

   Critical illness cover pays a lump sum on diagnosis of a specified condition. Income protection replaces income after a deferred period if the insured cannot work through any incapacity. They complement each other.

   Why the other options are wrong

   A

   It's the reverse: critical illness pays a lump sum on diagnosis, and IP pays income, not a death benefit.

   C

   It's IP that covers mental illness and back pain; critical illness rarely does.

   D

   Neither is general insurance or an investment in this sense.

2. Question 2 of 5

   Why is income protection likely to be a higher priority than critical illness cover for most people?

   Option A: IP policies are issued without any underwritingOption B: IP premiums are always lower than CIC premiums for the same personOption C: IP pays a larger lump sum than CIC on diagnosisOption D: IP covers far more conditions, including mental illness

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   The answer is D: IP covers far more conditions, including mental illness

   Income protection pays for any incapacity that stops work, including mental illness and conditions such as back trouble that would not count as a critical illness.

   Why the other options are wrong

   A

   IP is fully underwritten, often more strictly than critical illness.

   B

   IP premiums aren't always lower than critical illness premiums.

   C

   IP pays income, not a lump sum on diagnosis.

3. Question 3 of 5

   Which of the following is NOT a recognised disadvantage of critical illness cover?

   Option A: It is not cheapOption B: People with health issues may find cover hard to obtainOption C: The lump sum must be spent on medical treatmentOption D: A person's actual illness may not be covered

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   The answer is C: The lump sum must be spent on medical treatment

   The lump sum can be used however the insured wishes. The real drawbacks are cost, the chance that a condition is not covered, and difficulty getting cover with a medical history.

   Why the other options are wrong

   A

   Cost is a recognised disadvantage of critical illness cover.

   B

   Difficulty getting cover with a medical history is a recognised disadvantage.

   D

   The chance that an illness isn't covered is a recognised disadvantage.

4. Question 4 of 5

   What limitation of income protection can a critical illness lump sum help to overcome?

   Option A: The deferred period delays IP benefitOption B: IP cannot be written on a single lifeOption C: IP never pays for cancerOption D: IP benefits are always taxable

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   The answer is A: The deferred period delays IP benefit

   IP benefit starts only after the deferred period and is capped. A critical illness lump sum is available soon after diagnosis, subject to any survival period, and can bridge that gap.

   Why the other options are wrong

   B

   IP can be written on a single life.

   C

   IP can pay for cancer if it stops the person working.

   D

   Individual IP benefit is usually tax-free.

5. Question 5 of 5

   Which of the following is NOT a key consideration when selecting a critical illness policy?

   Option A: The definition of survival usedOption B: Whether cover should be stand-alone or combined, joint or single lifeOption C: Whether children's cover and waiver of premium are includedOption D: The fund management charge on the policy's investment element

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   The answer is D: The fund management charge on the policy's investment element

   Critical illness cover is normally pure protection with no investment element. Key considerations include TPD wording, options, survival definitions, policy structure, premium basis and the insurer's claims record.

   Why the other options are wrong

   A

   The survival definition is a key consideration.

   B

   Whether cover is stand-alone or combined, joint or single is a key consideration.

   C

   Whether children's cover and waiver of premium are included is a key consideration.

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