R05 IP underwriting and premiums: free practice questions

1. Question 1 of 5

   Income protection underwriters are mainly concerned with which type of risk?

   Option A: Mortality riskOption B: Morbidity riskOption C: Longevity riskOption D: Investment risk

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   The answer is B: Morbidity risk

   IP pays when someone is too ill to work, so underwriters assess morbidity, the incidence of illness and disability, rather than mortality.

   Why the other options are wrong

   A

   Mortality is the main concern for life cover; IP pays during illness, so morbidity matters.

   C

   Longevity risk matters for pensions and annuities, not IP underwriting.

   D

   Pure protection IP has no investment element.

2. Question 2 of 5

   What is the most important factor in income protection premium rating?

   Option A: GenderOption B: Marital statusOption C: PostcodeOption D: Occupation

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   The answer is D: Occupation

   Occupation drives both the risk of incapacity and how easily someone can return to work with a disability, so insurers rate by occupation class.

   Why the other options are wrong

   A

   Gender can no longer be used to price individual policies.

   B

   Marital status isn't the main IP rating factor.

   C

   Postcode isn't the main IP rating factor.

3. Question 3 of 5

   Which of the following is an example of moral hazard rather than physical hazard?

   Option A: Driving 40,000 miles a year for work on busy roadsOption B: Working at height on construction sites every dayOption C: Taking part in amateur boxingOption D: Deliberately over-insuring in the hope of extra benefit

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   The answer is D: Deliberately over-insuring in the hope of extra benefit

   Moral hazard relates to the insured's honesty and integrity, such as over-insuring or applying while knowingly in poor health. The other options are physical hazards, which can be seen from the application.

   Why the other options are wrong

   A

   High work mileage is a physical hazard shown on the application.

   B

   Working at height is a physical, occupational hazard.

   C

   Amateur boxing is a physical hazard from a hobby.

4. Question 4 of 5

   Ellie took out income protection while employed as an accountant. She is between jobs when she falls ill and claims. What might she find?

   Option A: Her policy is automatically cancelled for failing to report the changeOption B: Her deferred period is waivedOption C: Her claim is assessed on her own occupation as an accountant, as at outsetOption D: Benefit may be limited to a guaranteed amount, or nil, as she wasn't working

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   The answer is D: Benefit may be limited to a guaranteed amount, or nil, as she wasn't working

   Incapacity is judged on the occupation immediately before the claim. A claim made during unemployment may be limited to any benefit guarantee or, under some policies, paid nothing. Insurers generally no longer require notification of a job change.

   Why the other options are wrong

   A

   Insurers generally no longer require notice of a job change, so the policy isn't cancelled.

   B

   The deferred period isn't waived because she's between jobs.

   C

   Incapacity is judged on her occupation just before the claim, and she wasn't working then.

5. Question 5 of 5

   What is the key feature of a renewable income protection policy?

   Option A: Premiums are fixed for life at the original rate, whatever happensOption B: Benefit is payable only until the end of the current renewal termOption C: The insurer can refuse to renew the policy after any claimOption D: A short term with guaranteed renewal at the insurer's then current rates

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   The answer is D: A short term with guaranteed renewal at the insurer's then current rates

   Renewable IP runs for a short term with a guaranteed right to renew. The insurer cannot decline renewal, but premiums are recalculated at its current rates.

   Why the other options are wrong

   A

   Premiums aren't fixed for life; they're recalculated at renewal.

   B

   Benefit isn't cut off at the end of a renewal term during a valid claim.

   C

   The insurer can't refuse renewal; that's the key feature.

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