R05 Personal accident and sickness: free practice questions

1. Question 1 of 5

   What fundamental feature distinguishes short-term protection policies such as PMI and PAS from long-term policies such as income protection?

   Option A: They are qualifying policies for income tax purposesOption B: They're renewable, so terms and premiums can change or renewal be refusedOption C: They cannot be cancelled by the insurer once they have been put in forceOption D: They always pay a lump sum on death as well as on illness

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   The answer is B: They're renewable, so terms and premiums can change or renewal be refused

   Short-term (general) insurance contracts are renewed yearly or monthly, so the insurer can decide whether to renew and on what terms. A long-term insurer must continue cover on the original terms while premiums are paid.

   Why the other options are wrong

   A

   Qualifying status applies to life policies, not short-term general insurance.

   C

   It's the reverse: short-term policies can be changed or not renewed by the insurer.

   D

   Short-term policies such as PMI don't pay a lump sum on death.

2. Question 2 of 5

   How is weekly sickness benefit under a PAS policy typically structured?

   Option A: A fixed weekly sum, after a short wait, for a maximum number of weeksOption B: An amount that increases with inflation for the rest of the claimant's lifeOption C: A lump sum equal to one year's salaryOption D: A percentage of earnings, paid until the claimant's State Pension age

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   The answer is A: A fixed weekly sum, after a short wait, for a maximum number of weeks

   PAS sickness benefit is usually a fixed sum not linked to earnings. It follows a short deferred period, such as four weeks, and is limited to perhaps 26, 52 or 104 weeks.

   Why the other options are wrong

   B

   PAS benefit is time-limited and not usually inflation-linked for life.

   C

   Weekly sickness benefit isn't a lump sum of a year's salary.

   D

   PAS benefit is usually fixed, not earnings-linked, and doesn't run to State Pension age.

3. Question 3 of 5

   Some PAS policies extend cover to the insured's children. What restriction commonly applies?

   Option A: Children are covered only until age 5Option B: Children must be fully medically underwrittenOption C: Children's claims reduce the adult's sum insured to nilOption D: Cover for children may be restricted to accident cover only

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   The answer is D: Cover for children may be restricted to accident cover only

   Where PAS covers a spouse, partner or children, usually up to 16 or 18, cover may be limited to accidents only.

   Why the other options are wrong

   A

   Children are usually covered up to 16 or 18, not just 5.

   B

   Children aren't usually fully underwritten under PAS.

   C

   Claims for children don't reduce the adult's cover to nil.

4. Question 4 of 5

   What is the tax treatment of a PAS policy paid for by an individual?

   Option A: Premiums qualify for relief at the basic rateOption B: Tax relief on premiums, but benefits are taxableOption C: No relief on premiums, but benefits are taxable as incomeOption D: No tax relief on premiums and no tax on benefits

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   The answer is D: No tax relief on premiums and no tax on benefits

   For an individually paid PAS policy there is no tax relief on premiums, and the benefits are not taxed.

   Why the other options are wrong

   A

   There's no basic-rate relief on PAS premiums.

   B

   Individually paid PAS gets no tax relief, and benefits aren't taxed.

   C

   Benefits from individually paid PAS aren't taxable.

5. Question 5 of 5

   For which client might PAS insurance be particularly appropriate?

   Option A: A retired person looking to fund future long-term care costsOption B: A client who wants income replacement for the rest of their lifeOption C: A client who needs to fund a future inheritance tax liabilityOption D: A self-employed person wanting cover for one-off events

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   The answer is D: A self-employed person wanting cover for one-off events

   PAS suits people who want cover for one-off events or activities not covered elsewhere, and can be particularly appropriate for the self-employed. Clients must understand its precise definitions and exclusions.

   Why the other options are wrong

   A

   Long-term care costs aren't what PAS is designed for.

   B

   PAS pays for limited periods, not income for life.

   C

   IHT funding needs whole of life cover.

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