R05 Term assurance: free practice questions

1. Question 1 of 5

   Which type of term assurance provides a sum assured that stays the same throughout the policy term?

   Option A: Level term assuranceOption B: Increasing term assuranceOption C: Family income benefitOption D: Decreasing term assurance

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   The answer is A: Level term assurance

   Level term assurance pays the same fixed sum on death at any point within the term.

   Why the other options are wrong

   B

   Increasing term raises its sum assured over the term.

   C

   Family income benefit pays an income, and the total payable falls over time.

   D

   Decreasing term reduces its sum assured over the term.

2. Question 2 of 5

   Ahmed has a 20-year family income benefit policy paying a level £2,000 a month. He dies exactly 12 years after the policy started. Ignoring any commutation, what total benefit will his family receive?

   Option A: £96,000Option B: £192,000Option C: £480,000Option D: £288,000

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   The answer is B: £192,000

   Benefit is paid from death to the end of the term: 8 years remain, so 96 payments × £2,000 = £192,000.

   Why the other options are wrong

   A

   £96,000 is only 4 years; 8 years remain, which is £192,000.

   C

   £480,000 is the full 20 years; only the rest of the term after death is paid.

   D

   £288,000 counts the 12 years already passed; benefit is paid for the 8 years remaining.

3. Question 3 of 5

   At the end of a renewable term assurance, the life assured starts a new term. How will the new premium typically compare with the original?

   Option A: It will be lower, because the risk has already been underwritten onceOption B: It will depend entirely on a new full medical examinationOption C: Higher, reflecting the older age, but no new evidence of health is neededOption D: It will be unchanged, because renewal at the same premium is guaranteed

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   The answer is C: Higher, reflecting the older age, but no new evidence of health is needed

   Renewability guarantees the right to further cover without new underwriting, but the premium is recalculated for the life assured's increased age.

   Why the other options are wrong

   A

   The premium rises with age; it doesn't fall.

   B

   Renewability means no new medical evidence is needed.

   D

   Renewal is guaranteed, but the premium reflects the older age.

4. Question 4 of 5

   A gift inter vivos term assurance is designed so that its sum assured follows which liability?

   Option A: The IHT that would be due on a failed potentially exempt transfer, reducing with taper reliefOption B: An IHT liability on the whole estate that is expected to rise as the estate growsOption C: The capital outstanding on a capital and interest repayment mortgage over its full termOption D: The cost of private school fees for a fixed number of years until a child leaves

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   The answer is A: The IHT that would be due on a failed potentially exempt transfer, reducing with taper relief

   IHT on a failed PET is reduced by taper relief when death occurs between three and seven years after the gift, so the sum assured decreases in line with that pattern over seven years.

   Why the other options are wrong

   B

   A rising liability on the whole estate needs whole of life or increasing cover, not gift inter vivos.

   C

   A capital and interest mortgage reduces on a different pattern, and over a much longer term.

   D

   School fees are a fixed-term income need, not a failed PET.

5. Question 5 of 5

   What happens under a standard level term assurance if the life assured is still alive when the term ends?

   Option A: All premiums are refundedOption B: The sum assured is paid as a maturity valueOption C: The policy automatically becomes whole of life coverOption D: Cover ends and nothing is paid

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   The answer is D: Cover ends and nothing is paid

   Standard term assurance is pure protection with no investment value, so it simply expires. Refunds only apply to return of premium contracts.

   Why the other options are wrong

   A

   Only return of premium cover refunds premiums.

   B

   Term assurance has no maturity value.

   C

   It doesn't become whole of life unless a conversion option is used.

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