R05 Disability and health needs: free practice questions

1. Question 1 of 5

   When analysing disability needs, what is usually the first question to ask?

   Option A: How long the family could cope without incomeOption B: Which insurer offers the lowest premiumOption C: How much critical illness cover is affordableOption D: Whether the client smokes

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   The answer is A: How long the family could cope without income

   The analysis starts with how long the family could cope without income, then how long the employer would pay, the income level needed, and deductions for savings and a partner's earnings.

   Why the other options are wrong

   B

   Price comes later, after the need is established.

   C

   Affordability of critical illness cover isn't the first question in a disability analysis.

   D

   Smoking status affects price, not the first step of assessing need.

2. Question 2 of 5

   Which statement correctly compares income protection with critical illness cover?

   Option A: CIC benefits are linked to earnings, while IP benefits are notOption B: CIC provides an income until retirementOption C: IP pays a lump sum on diagnosisOption D: IP pays for many illnesses not covered by CIC, such as mental illness

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   The answer is D: IP pays for many illnesses not covered by CIC, such as mental illness

   IP pays for long-term incapacity from many causes, including mental illness and musculoskeletal conditions. CIC pays a lump sum on diagnosis, unrelated to earnings.

   Why the other options are wrong

   A

   It's the reverse: IP is linked to earnings and critical illness cover isn't.

   B

   Critical illness cover pays a lump sum, not an income.

   C

   IP pays an income, not a lump sum on diagnosis.

3. Question 3 of 5

   Kai, 25, has income protection paying £15,000 a year, level with no increases. If he were incapacitated until age 65, what total benefit would be paid, ignoring the deferred period?

   Option A: £375,000Option B: £1,800,000Option C: £600,000Option D: £900,000

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   The answer is C: £600,000

   Forty years at £15,000 is £600,000. With indexation the total would be far higher, which shows the real need IP meets for young people facing long-term illness.

   Why the other options are wrong

   A

   £375,000 is 25 years; from 25 to 65 is 40 years.

   B

   £1,800,000 is far too high: 40 years × £15,000 is £600,000.

   D

   £900,000 is 60 years of benefit; the term is 40 years.

4. Question 4 of 5

   Why should pension provision be considered when a client is planning income protection?

   Option A: Without earnings, relievable contributions are limited to £3,600 gross a yearOption B: IP benefits are automatically paid into the client's pension scheme as contributionsOption C: Pension schemes stop paying any benefits once the member reaches 60Option D: IP benefits are taxed in the same way as pension income

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   The answer is A: Without earnings, relievable contributions are limited to £3,600 gross a year

   A disabled person with no earnings can only make small tax-relieved contributions of up to £3,600 gross a year. Extra IP to fund contributions, or CIC as an alternative retirement fund, can help.

   Why the other options are wrong

   B

   IP benefits aren't automatically paid into a pension.

   C

   Pension schemes don't stop paying benefits at 60.

   D

   IP benefit from an individual policy is usually tax-free, unlike pension income; the issue is funding contributions.

5. Question 5 of 5

   What is the tax position when an employer provides PMI for an employee, as described in advice planning?

   Option A: There are no tax consequences at all for the employeeOption B: Any claims paid are taxed as the employee's incomeOption C: The employee receives tax relief on the premiums paidOption D: It is taxable on the employee and subject to Class 1A NICs

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   The answer is D: It is taxable on the employee and subject to Class 1A NICs

   Employer-provided PMI has few tax advantages because the premium is taxable and subject to Class 1A NICs. Economies of scale can still make it good value.

   Why the other options are wrong

   A

   Employer-provided PMI does have tax consequences for the employee.

   B

   Claims aren't taxed as income; the premium is the taxable benefit.

   C

   The employee doesn't get tax relief on the premiums.

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