R05 Mortgage payment protection insurance: free practice questions

1. Question 1 of 5

   What is the purpose of mortgage payment protection insurance (MPPI)?

   Option A: To pay for repairs to the mortgaged property after damageOption B: To repay the whole mortgage in a single payment if the borrower diesOption C: To meet mortgage payments if accident, sickness or unemployment stops workOption D: To protect the lender against any fall in the value of the house

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   The answer is C: To meet mortgage payments if accident, sickness or unemployment stops work

   MPPI pays a monthly benefit to help keep up mortgage payments if the borrower cannot work because of accident, sickness or involuntary unemployment.

   Why the other options are wrong

   A

   Property damage is covered by buildings insurance.

   B

   Repaying the whole mortgage on death is life cover.

   D

   MPPI protects the borrower's payments, not the lender against falling prices.

2. Question 2 of 5

   Which of the following is NOT a reason people commonly give for buying MPPI?

   Option A: The mortgage is their most important regular bill each monthOption B: It is easy to buy, with limited underwritingOption C: It covers unemployment as well as accident and sicknessOption D: It pays benefit until the mortgage ends, however long the claim

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   The answer is D: It pays benefit until the mortgage ends, however long the claim

   MPPI benefits are limited to a short period, usually one or two years. Reasons for buying include unemployment cover, easy application and the importance of the mortgage payment.

   Why the other options are wrong

   A

   The mortgage being the most important bill is a common reason for buying MPPI.

   B

   Easy buying with limited underwriting is a common reason for buying MPPI.

   C

   Covering unemployment as well as accident and sickness is a common reason for buying MPPI.

3. Question 3 of 5

   Wyn, who is self-employed, has MPPI with unemployment cover. His orders dry up and he decides to stop trading. Is he likely to receive unemployment benefit?

   Option A: No, as self-employed people are not allowed to buy MPPI at allOption B: Yes, once a standard 30-day deferred period has passed since he stoppedOption C: Yes, because he is no longer earning any income from the businessOption D: No, as cover usually needs the business to go into involuntary liquidation

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   The answer is D: No, as cover usually needs the business to go into involuntary liquidation

   For the self-employed, unemployment cover usually pays only if the business goes into involuntary liquidation. Simply ceasing to trade because work has dried up is not usually covered.

   Why the other options are wrong

   A

   Self-employed people can buy MPPI; the unemployment test for them is stricter.

   B

   A deferred period doesn't help if the claim doesn't meet the self-employed unemployment test.

   C

   No longer earning isn't enough; the business usually has to go into involuntary liquidation.

4. Question 4 of 5

   Which MPPI premium arrangement is NOT permitted for new sales?

   Option A: Annual premiumsOption B: Monthly premiumsOption C: A single premium added to the mortgage loanOption D: Premiums guaranteed for two to five years

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   The answer is C: A single premium added to the mortgage loan

   Single premiums added to the loan gave poor value if the loan was repaid early, and the FCA has banned them. Monthly or annual premiums are normal, and some insurers offer rate guarantees.

   Why the other options are wrong

   A

   Annual premiums are permitted.

   B

   Monthly premiums are permitted and normal.

   D

   Rate guarantees of a few years are permitted and offered by some insurers.

5. Question 5 of 5

   Why can the term 'short-term income protection' (STIP) cause confusion?

   Option A: It can be confused with long-term IP that has a limited payment periodOption B: STIP is regulated as an investment product rather than insuranceOption C: STIP only ever covers accidents, not sickness or unemploymentOption D: STIP is always sold as a single premium product added to a loan

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   The answer is A: It can be confused with long-term IP that has a limited payment period

   Because MPPI can no longer be sold alongside a mortgage, benefit is often linked to income and the product called STIP. This is easily confused with long-term IP that runs to retirement but limits payments to two or five years.

   Why the other options are wrong

   B

   STIP is insurance, not an investment product.

   C

   STIP isn't limited to accidents; it can cover sickness and unemployment.

   D

   STIP isn't sold as a single premium added to a loan; those have been banned.

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