R05 Whole of life and bonds: free practice questions

1. Question 1 of 5

   What is the defining feature of a whole of life assurance policy?

   Option A: It returns the premiums paid if the life assured survives to a stated ageOption B: It pays a regular income from death until a fixed future dateOption C: It pays a lump sum only if death occurs within a specified termOption D: It pays a lump sum on death whenever it occurs, provided the policy is in force

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   The answer is D: It pays a lump sum on death whenever it occurs, provided the policy is in force

   Whole of life cover has no end date: the sum assured is paid whenever death occurs while the policy remains in force. A fixed-term payout describes term assurance, and an income to a fixed date describes family income benefit.

   Why the other options are wrong

   A

   Returning premiums on survival describes return of premium cover, not whole of life.

   B

   An income from death to a fixed date describes family income benefit.

   C

   Paying only within a fixed term describes term assurance.

2. Question 2 of 5

   Margaret, aged 66, took out a guaranteed acceptance over-50s plan. Ten months later she dies of a heart attack. What would typically be paid?

   Option A: Nothing, as the plan has not yet acquired a valueOption B: The full sum assuredOption C: A return of the premiums paidOption D: Half of the sum assured

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   The answer is C: A return of the premiums paid

   These plans usually only pay the full sum assured on accidental death during an initial period of 12 or 24 months. Death from other causes in that period normally results in the premiums being returned.

   Why the other options are wrong

   A

   Premiums are normally returned in this situation, so it isn't nothing.

   B

   The full sum assured is usually paid only for accidental death in the first 12 or 24 months.

   D

   There's no standard half payment; a return of premiums is typical.

3. Question 3 of 5

   How much life cover does a single premium unit-linked investment bond typically provide?

   Option A: 101% of the bid value of the units at the date of deathOption B: A fixed sum assured chosen at outsetOption C: 125% of the premiums paidOption D: 100% of the original investment, regardless of fund value

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   The answer is A: 101% of the bid value of the units at the date of death

   Bonds are investment contracts, so only nominal life cover is included, usually 101% of the bid value of the units. This keeps the cost of cover from eroding investment growth.

   Why the other options are wrong

   B

   Bond cover isn't a fixed sum; it's linked to the unit value.

   C

   Bonds carry only nominal cover, not 125% of premiums.

   D

   Cover follows the value of the units, not the original investment.

4. Question 4 of 5

   Under a unit-linked whole of life policy with a constant premium, why may the value of units cancelled each month to pay for life cover increase over time?

   Option A: The sum assured automatically reduces each yearOption B: Frequency loadings are applied more heavily in later yearsOption C: The life assured's risk of death rises with ageOption D: The annual management charge increases every year

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   The answer is C: The life assured's risk of death rises with age

   Units are cancelled to meet the cost of the life cover. As the life assured gets older the mortality risk rises, so the cost of providing the same sum assured increases.

   Why the other options are wrong

   A

   The sum assured doesn't automatically reduce; it's maintained, which is why the cost rises.

   B

   Frequency loadings relate to how often premiums are paid, not the rising cost of cover.

   D

   Management charges don't necessarily rise each year; the rising cost is mortality.

5. Question 5 of 5

   Which of the following is NOT typically a feature of a guaranteed acceptance over-50s plan?

   Option A: Full cover for death from any cause from the first dayOption B: No or simplified health questionsOption C: Premiums that may cease at a stated advanced age such as 90Option D: Relatively low sums assured

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   The answer is A: Full cover for death from any cause from the first day

   Because acceptance is guaranteed, these plans commonly restrict the full sum assured to accidental death for the first 12 or 24 months. The other features are typical.

   Why the other options are wrong

   B

   This is typical: they ask no or very few health questions, which is why acceptance can be guaranteed.

   C

   This is typical: premiums often stop at a stated age such as 90 while cover continues.

   D

   This is typical: guaranteed acceptance plans usually offer fairly low sums assured.

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