R05 Selecting an IP policy: free practice questions

1. Question 1 of 4

   When advising on income protection, what should the adviser establish first?

   Option A: Whether the client would prefer a with-profits investment policyOption B: Whether IP, rather than another product such as CIC, meets the needOption C: Which available insurer pays the highest rate of commissionOption D: Which deferred period gives the very lowest monthly premium

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   The answer is B: Whether IP, rather than another product such as CIC, meets the need

   The adviser should first confirm that income protection is the right type of cover for the need. Only then should they compare the deferred period, definition, benefit level, payment term, increases and premium basis.

   Why the other options are wrong

   A

   A with-profits investment doesn't meet a need for income protection.

   C

   Commission shouldn't drive the recommendation.

   D

   The cheapest deferred period may not suit the client's resources.

2. Question 2 of 4

   Which of the following is NOT a key policy term to compare when selecting an income protection policy?

   Option A: Guaranteed or reviewable premiumsOption B: The policy's surrender valueOption C: The deferred periodOption D: The definition of incapacity

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   The answer is B: The policy's surrender value

   IP is pure protection with no surrender value. Key comparisons are the deferred period, definition of incapacity, benefit level, payment term, indexation and premium basis, and the insurer's claims record can also help.

   Why the other options are wrong

   A

   Whether premiums are guaranteed or reviewable is a key term to compare.

   C

   The deferred period is a key term to compare.

   D

   The definition of incapacity is a key term to compare.

3. Question 3 of 4

   Which is a recognised disadvantage of income protection for claimants?

   Option A: The benefit limit may still leave a shortfall in the claimant's financesOption B: Benefits are taxable under individual policiesOption C: Benefits stop automatically after 12 months on all policiesOption D: The insurer can cancel the policy after repeated or lengthy claims

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   The answer is A: The benefit limit may still leave a shortfall in the claimant's finances

   Limiting benefit to a percentage of earnings encourages a return to work but can leave a gap. Critics also point to stringent underwriting and cost for lower earners.

   Why the other options are wrong

   B

   Individual IP benefits are normally tax-free, so this isn't a disadvantage.

   C

   Benefits don't stop after 12 months on all policies; many pay until return to work or the end of the term.

   D

   The insurer can't cancel an IP policy because of repeated claims.

4. Question 4 of 4

   Ian can only afford enough IP to cover his mortgage and essential bills rather than the maximum benefit. What should his adviser make clear?

   Option A: The deferred period will be waivedOption B: His mortgage lender will pay the restOption C: His lifestyle spending would not be covered if he claimedOption D: His policy will be cancelled if he increases cover later

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   The answer is C: His lifestyle spending would not be covered if he claimed

   Budget cover for essential costs is cheaper but may leave too little income to maintain his current lifestyle during a long claim. He needs to understand this trade-off.

   Why the other options are wrong

   A

   Budget cover doesn't waive the deferred period.

   B

   The lender won't pay the difference.

   D

   Choosing lower cover doesn't mean the policy is cancelled if he increases it later.

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