R05 Demand drivers and the protection gap: free practice questions

1. Question 1 of 5

   Which of the following is a driver of aggregate demand for life assurance?

   Option A: The number of insurers listed on the stock exchangeOption B: Movements in the housing marketOption C: The weather in the previous yearOption D: The number of bank branches

   Show answer

   The answer is B: Movements in the housing market

   Aggregate demand is driven by affordability, the housing market, income per head and other economic factors, and whether people have dependants.

   Why the other options are wrong

   A

   The number of listed insurers doesn't drive how much cover people want.

   C

   Last year's weather isn't a driver of demand for life cover.

   D

   The number of bank branches isn't one of the demand drivers.

2. Question 2 of 5

   In which age range is income, a key determinant of the amount of cover taken, normally highest?

   Option A: 25–34Option B: 55–64Option C: 35–44Option D: 45–54

   Show answer

   The answer is D: 45–54

   Income is normally highest in the 45–54 age range. Rising income and family responsibilities mean the amount of protection sought tends to correlate with the age of the main earner.

   Why the other options are wrong

   A

   Income is normally highest later in working life, in the 45–54 range.

   B

   Income tends to fall back as people approach retirement.

   C

   Income is still usually rising in the 35–44 range.

3. Question 3 of 5

   According to Swiss Re, what is the estimated size of the UK life protection gap?

   Option A: £24bnOption B: £240bnOption C: £24trnOption D: £2.4trn

   Show answer

   The answer is D: £2.4trn

   Swiss Re estimates the UK life protection gap at £2.4 trillion. The income protection gap, based on banded earnings, was estimated at £200bn a year.

   Why the other options are wrong

   A

   £24bn is far too small; Swiss Re estimates £2.4 trillion.

   B

   £240bn is still too small; the estimate is £2.4 trillion.

   C

   £24 trillion is ten times too large.

4. Question 4 of 5

   What is the typical effect on demand when the cost of mortality cover falls?

   Option A: The amount of cover purchased increases significantlyOption B: Demand falls because people distrust cheap coverOption C: There is no effect on demandOption D: People cancel existing policies

   Show answer

   The answer is A: The amount of cover purchased increases significantly

   Affordability influences demand. When the price of mortality cover falls, as it has in recent years, the amount of cover purchased increases significantly.

   Why the other options are wrong

   B

   Cheaper cover increases demand rather than reducing it.

   C

   Price does affect demand; affordability is a key driver.

   D

   Lower prices don't cause people to cancel cover.

5. Question 5 of 5

   A World Bank study found what relationship between inflation and life assurance in force?

   Option A: Inflation has no measurable effectOption B: A one percentage point rise in inflation increased cover in force by 1.4%Option C: Inflation only affects annuity salesOption D: A one percentage point rise in inflation reduced cover in force by 1.4%

   Show answer

   The answer is D: A one percentage point rise in inflation reduced cover in force by 1.4%

   The study found a negative correlation: each percentage point increase in inflation reduced life assurance in force by 1.4%. Inflation undermines confidence in long-term arrangements and makes people feel poorer.

   Why the other options are wrong

   A

   The study did find an effect, and it was a negative one, of about 1.4% per percentage point of inflation.

   B

   The direction is wrong: higher inflation reduced the amount of life cover in force rather than increasing it.

   C

   The finding was about life assurance in force, not annuities: inflation undermines confidence in long-term contracts.

R0 Exam Prep is an independent revision tool. It is not produced, endorsed by or affiliated with the Chartered Insurance Institute (CII). Questions and explanations are original. Use it alongside the official study text. About R0 Exam Prep