R05 Long-term care insurance products: free practice questions

1. Question 1 of 5

   What is an immediate needs plan for long-term care?

   Option A: A regular premium policy bought in middle age to fund any later careOption B: A lifetime mortgage taken out on the home and used to pay care feesOption C: An impaired life annuity, bought with a lump sum, paying care fees for lifeOption D: A health cash plan

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   The answer is C: An impaired life annuity, bought with a lump sum, paying care fees for life

   An immediate needs plan is a single premium impaired life annuity. The provider assesses life expectancy and pays a set amount for care for as long as the person lives, with no time limit.

   Why the other options are wrong

   A

   A regular premium policy bought in middle age describes pre-funded LTCI.

   B

   A lifetime mortgage is equity release, not an immediate needs plan.

   D

   A health cash plan pays small sums towards routine treatment.

2. Question 2 of 5

   How does the insured's state of health affect an immediate needs annuity?

   Option A: Poorer health produces a greater annuity for the same lump sumOption B: Applicants must be in good health to be acceptedOption C: Health has no effect on the annuityOption D: Poorer health produces a lower annuity for the same lump sum

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   The answer is A: Poorer health produces a greater annuity for the same lump sum

   The poorer the health, the shorter the expected payment period, so a larger annuity can be provided for the same premium. Applicants must fail at least one ADL or have a cognitive impairment.

   Why the other options are wrong

   B

   Applicants must already have care needs, so they aren't in good health.

   C

   Health has a direct effect on the annuity.

   D

   Poorer health means a shorter expected payment period, so the annuity is larger, not smaller.

3. Question 3 of 5

   When are the benefits of an immediate needs annuity paid free of tax?

   Option A: Only during the first year of the planOption B: When paid directly to a CQC-registered care providerOption C: Always, whoever the benefits happen to be paid toOption D: Only when paid to the policyholder personally

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   The answer is B: When paid directly to a CQC-registered care provider

   Benefits are tax-free when paid directly to a registered care provider, which covers virtually all homes and agencies. Paid to the policyholder, they are taxed like a purchased life annuity.

   Why the other options are wrong

   A

   Tax-free treatment isn't limited to the first year.

   C

   Benefits paid to the policyholder rather than the provider are taxed like a purchased life annuity.

   D

   Payments to the policyholder personally are taxable; tax-free treatment needs payment to the provider.

4. Question 4 of 5

   Tess can afford to self-fund her care for about five years but fears living longer and running out of money. Which product best suits this concern?

   Option A: An immediate needs annuity starting now to pay her feesOption B: A home reversion planOption C: A health cash planOption D: A deferred care plan that starts paying after five years

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   The answer is D: A deferred care plan that starts paying after five years

   A deferred care plan pays only after a set period, so it is much cheaper than an immediate plan and acts as a back-stop against living longer than expected.

   Why the other options are wrong

   A

   An immediate plan starting now is much more expensive and pays while she can still self-fund.

   B

   Home reversion releases equity; it doesn't insure against living longer.

   C

   A health cash plan doesn't fund long-term care.

5. Question 5 of 5

   What is the current market position for pre-funded long-term care insurance policies?

   Option A: No new policies are being written, though existing ones continueOption B: They are compulsory for everyone over the age of 50Option C: They are the most popular form of care funding in the UK todayOption D: They are only available through employers

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   The answer is A: No new policies are being written, though existing ones continue

   No providers currently offer new pre-funded LTCI, though existing policies continue. Benefits are typically triggered by failing a set number of ADLs or cognitive impairment.

   Why the other options are wrong

   B

   It isn't compulsory for anyone.

   C

   Pre-funded LTCI isn't popular; no new policies are being written.

   D

   It isn't limited to employers; no new policies are available at all.

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