R05 Product and provider selection: free practice questions

1. Question 1 of 5

   What must a firm offering restricted advice do?

   Option A: Advise across the whole of the marketOption B: Disclose the nature of the restriction to the customerOption C: Only recommend products from a single providerOption D: Charge fees rather than receive commission on protection

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   The answer is B: Disclose the nature of the restriction to the customer

   Restricted firms may limit their advice as they choose, from one provider to a much wider range, but must disclose the nature of the restriction. Independent advisers must consider the whole market.

   Why the other options are wrong

   A

   Advising across the whole market is what independent firms do.

   C

   Restricted firms aren't limited to a single provider; it's their choice.

   D

   Pure protection commission is still allowed.

2. Question 2 of 5

   Which of the following is NOT one of the main factors an independent adviser should consider when selecting a protection provider?

   Option A: Financial strength of the providerOption B: The provider's advertising budgetOption C: Underwriting requirementsOption D: Scope of cover

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   The answer is B: The provider's advertising budget

   Selecting a product is not just about price. Advisers should consider scope of cover, underwriting requirements, premium rates, quality of service and financial strength.

   Why the other options are wrong

   A

   Financial strength is a main factor in choosing a provider.

   C

   Underwriting requirements are a main factor in choosing a provider.

   D

   Scope of cover is a main factor in choosing a provider.

3. Question 3 of 5

   What is meant by an insurer's retention limit?

   Option A: The largest sum assured the insurer keeps before reassuring the restOption B: The period for which an insurer keeps applicants' medical recordsOption C: The maximum age at which the insurer will let cover startOption D: The minimum premium the insurer will accept for a policy

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   The answer is A: The largest sum assured the insurer keeps before reassuring the rest

   Above the retention limit, the insurer passes part of the risk to reassurers, which can delay acceptance. Insurers also set limits for GP reports and medical examinations.

   Why the other options are wrong

   B

   How long records are kept isn't the retention limit.

   C

   The maximum entry age isn't the retention limit.

   D

   The minimum premium isn't the retention limit.

4. Question 4 of 5

   Why might the provider quoting the cheapest ordinary rate premium not be the best choice for a client with health issues?

   Option A: Ordinary rate premiums are never guaranteed by insurersOption B: Ordinary rates are only ever offered to applicants in employmentOption C: The cheapest premiums are always on a reviewable basis that can riseOption D: The client may not get ordinary rates, and another insurer may be kinder

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   The answer is D: The client may not get ordinary rates, and another insurer may be kinder

   Insurers have different attitudes to health conditions. An adviser's skill includes finding the office most likely to accept the risk at a competitive rate with the least medical evidence.

   Why the other options are wrong

   A

   Ordinary rate premiums can be guaranteed.

   B

   Ordinary rates aren't limited to employed applicants.

   C

   The cheapest premiums aren't always reviewable.

5. Question 5 of 5

   Which of the following is NOT a reason why the free asset ratio has been questioned as a measure of financial strength?

   Option A: Actuarial discretion in valuing assets and liabilitiesOption B: It is published by independent ratings agenciesOption C: Reserves for guarantees on past business may be inadequateOption D: Liabilities can be reduced through reassurance

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   The answer is B: It is published by independent ratings agencies

   FAR is taken from regulatory returns, not ratings agencies. Its limitations include actuarial discretion, reassurance reducing liabilities and possible under-reserving for guarantees. Advisers also use agency ratings.

   Why the other options are wrong

   A

   Actuarial discretion in valuations is a genuine reason the FAR has been questioned.

   C

   Possible under-reserving for guarantees is a genuine reason the FAR has been questioned.

   D

   Reassurance reducing liabilities is a genuine reason the FAR has been questioned.

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