Incorrect Mock Answers

Question 1

The types of protection policy that are most readily open to commoditisation are those where

A. comparisons between policies are simple and purchase is determined mainly by price.
B. comparisons between policies require expert advice.
C. policies of the same type may have significantly different conditions regarding underwriting.
D. policies of the same type may have significantly different conditions regarding valid claims.

Answer 1

A. comparisons between policies are simple and purchase is determined mainly by price.

Commoditisation refers to companies trying to be on the 1st/ 2nd page of an online portal like GoCompare etc - applicants font want to look further than that for basic commodity product

Question 2

Within a life assurance fund, what rate of tax, if any, applies to the interest received from corporate bonds?
A. None.
B. 20%
C. 40%
D. 45%

Answer 2

B. 20%

Question 3

Lucasta, single, has £500,000 assurance cover through her employment. She also has loans amounting to £750,000. Currently, she pays the interest on her loans from her regular earnings.
Her mother, recently widowed, has assets of £2,000,000. Lucasta is the sole beneficiary of her mother’s will. What, if anything, can rightly be inferred regarding Lucasta’s current life assurance
needs?
A. Nothing can rightly be inferred.
B. She has no need for any life assurance cover.
C. She needs life assurance cover of at least £250,000.
D. She needs life assurance cover of not more than £750,000

Answer 3

A. Nothing can rightly be inferred.

Question 4

Michael earns £40,000 per annum and has just started to pay £6,000 gross per annum into his personal pension plan. What is the maximum gross tax-relievable premium, if any, he can pay per annum to a new term assurance policy, given his current pension payment?
A. None.
B. £600
C. £4,000
D. £6,000

Answer 4

A. None.

Question 5

The cost of the life cover provided by a whole of life unit-linked policy is typically met by
A. a fixed level of unit cancellation throughout the life of the policy.
B. a variable level of unit cancellation throughout the life of the policy.
C. an increased level in the standard annual management charge.
D. regular deductions from the standard annual management charge.

Answer 5

B. a variable level of unit cancellation throughout the life of the policy.

Question 6

In the tax year 2024/2025, Simon, a higher-rate taxpayer, receives a terminal illness payment under a level term assurance policy and survives beyond the expiry date of the policy. He has fully used his dividend allowance and personal savings allowance for the tax year. What happens to the
payment?
A. The payment remains his as a tax-free lump sum.
B. The payment remains his, but with a possible Capital Gains Tax liability.
C. The payment remains his, but with a possible Income Tax liability.
D. He must refund the payment to the life office.

Answer 6

A. The payment remains his as a tax-free lump sum.

A terminal illness payment is not a chargeable event and so there is no income tax liability

Question 7

Melissa has a whole of life policy on a standard sum assured basis and is using it as a way of saving over the longer term. Why is this NOT sensible?
A. The savings element is designed to avoid premium increases.
B. The savings element is available only on death of the life assured.
C. The policy cannot be assigned.
D. The policy lacks any surrender value

Answer 7

A. The savings element is designed to avoid premium increases.

Question 8

What type of interest do the beneficiaries of a trust have with regard to the assets?
A. Equitable.
B. Insurable.
C. Legal.
D. Power of appointment

Answer 8

A. Equitable.

Question 9

Which possible tax advantage would most likely be sought when using a will for financial planning purposes?
A. A better use of the potentially exempt transfer (PET) rules.
B. A Capital Gains Tax reduction.
C. An Income Tax reduction.
D. An Inheritance Tax reduction.

Answer 9

D. An Inheritance Tax reduction.

Different rules around IHT if have a will or not

Question 10

A wealthy client intends to reduce his potential Inheritance Tax liability by making regular gifts using a life assurance policy written in trust for the benefit of his daughter. Ignoring the normal expenditure exemption, in order to maximise use of other exemption(s), the annual premium
should be
A. £250
B. £3,000
C. £3,250
D. £4,000

Answer 10

B. £3,000

The gift for IHT purposes is each premium as and when it is paid. Thus a premium of up to £3,000 a year will be exempt for IHT purposes as it falls within the annual IHT exemption
assuming it is not being used elsewhere).

Question 11

Justine, an additional-rate taxpayer, invested £100,000 into an onshore life assurance bond just over four years ago. The bond’s current value is £150,000 and she now wants to make her first withdrawal. What is the maximum sum that she may withdraw without any risk of an immediate
tax liability?
A. £20,000
B. £25,000
C. £30,000
D. £37,500

Answer 11

B. £25,000

Question 12

Cecil is over age 55 at the outset of an endowment policy. Under qualifying rules, at least 75% of total premiums is normally payable on death, but is reduced by what percentage for each year that
Cecil exceeds age 55?
A. 2%
B. 3%
C. 4%
D. 5%

Answer 12

A. 2%

Where the life assured is over 55
at outset, for each year over 55, the 75% minimum falls by 2%

Question 13

Gerard assigned to Lucia a non-qualifying life assurance policy. Ignoring Inheritance Tax implications, what condition(s), if any, must hold in order for there to be no tax charge purely in virtue of the assignment?
A. There are no conditions.
B. Only that the assignment must be an outright gift.
C. That Gerard and Lucia are married at the time of the assignment.
D. That the assignment must be an outright gift and the surrender value at the time does not
exceed £325,000

Answer 13

B. Only that the assignment must be an outright gift.

Question 14

When considering an income protection insurance policy, the key difference between a guaranteed
plan and a reviewable plan primarily relates to the
A. benefit level.
B. criteria used to assess a claim.
C. criteria used to underwrite an increment in benefits.
D. premium level

Answer 14

D. premium level

Guaranteed premiums tend to have higher premiums

Question 15

Under a group income protection insurance scheme, free cover relates to the cover provided
A. during the deferred period, after a claim is made.
B. to each member without cost.
C. without any evidence of earnings being required.
D. without any evidence of health being required.

Answer 15

D. without any evidence of health being required.

Question 16

Rachel, a bank employee, has developed a disability resulting from arthritis and had her claim under an income protection insurance policy accepted. However, she only receives a reduced amount of
the total benefit possible from the policy. What is the most likely reason for this?
A. Her employer is paying her sick pay.
B. She disclosed the arthritis at the outset of the policy.
C. The policy is still within the deferred period.
D. She is only unable to perform her own occupation.

Answer 16

A. Her employer is paying her sick pay.

Question 17

Sam is applying for an income protection insurance policy. His only declared health issue is back pain, which has occurred intermittently over the last 10 years and he has taken 6 months off work during that period. How is this likely to affect treatment of his application?
A. It will be accepted with an exclusion applied.
B. It will be accepted on standard terms, but the deferred period will have to be at least 6 months.
C. It will usually be accepted on standard terms.
D. It will always be rejected.

Answer 17

A. It will be accepted with an exclusion applied.

IP policies can be issued subject to an exxlusin because of past illness etc

Question 18

Robert, a self-employed plumber, has a net profit of £200,000 per annum and is paying £1,000 per month for cover under an individual income protection insurance policy. How much Income Tax relief, if any, can he claim per month on the premium?
A. None.
B. £200
C. £400
D. £450

Answer 18

A. None.

Question 19

The key underwriting factor for a group critical illness scheme is
A. the anticipated number of new entrants.
B. morbidity.
C. the nature of the business.
D. the number of members of the scheme.

Answer 19

B. morbidity.

CIC is based on morbidity, how likely you are to get sick

Question 20

An uncle has recently given his niece a Lasting Power of Attorney (LPA) to deal with his welfare needs if he loses mental capacity. What action should the niece take in anticipation of that possible
loss?
A. Apply for a deed of variation.
B. Appoint a co-attorney.
C. Register the LPA with the Office of the Public Guardian.
D. Require him to complete a Property and Financial Affairs LPA depositing both LPAs with his
solicitor.

Answer 20

C. Register the LPA with the Office of the Public Guardian.

Once the client becomes unwilling or unable to handle their own affairs, the attorney can take over only after registering the LPA with the OPG, which can be done any time, even if the client still has mental capacity

Question 21

John and Amy, both aged 42, are getting divorced. They currently have a family income benefit policy which is effected on a joint life first death basis. As a result of the divorce, what will happen to the policy, if anything?
A. Nothing, the policy may continue unaltered.
B. The policy must be cancelled.
C. The policy will be transferred into one of their names, as decided by the court.
D. The terms of the policy must be revised.

Answer 21

A. Nothing, the policy may continue unaltered.

Divorce may not change the policy.

Question 22

Private medical insurance premiums are being paid by the employer for an employee who is a higher-rate taxpayer. What is the employee’s tax position with regard to these premiums?
A. The employee is not liable to tax on the premiums.
B. The employee must pay Income Tax at his marginal rate.
C. The employer must pay all the tax due on behalf of the employee.
D. The employer must pay the tax due, only up to the basic-rate level, on behalf of the employee

Answer 22

B. The employee must pay Income Tax at his marginal rate.

If the employer pays the premiums the employees are subject to income tax on them as benefits in kind. Such premium payments are also subject to employer’s (though
not employee’s) National Insurance contributions (NICs).

Question 23

Under an accident, sickness and unemployment insurance policy, how does the maximum benefit payment term for long-term sickness usually compare with the maximum benefit payment term for
unemployment?
A. The benefits will always be payable for longer in the event of long-term sickness.
B. The benefits will always be payable for longer in the event of unemployment.
C. The benefits will be payable for restricted terms of similar duration.
D. The benefits will be payable for the entire duration of the event in both cases.

Answer 23

C. The benefits will be payable for restricted terms of similar duration.

ASU is like short term IP, benefits are paid for a shorter duration (usually 2 years) regardless of whether it is sickness or unemployment

Question 24

What is the essential feature of a capitation scheme relating to a dental plan?
A. It places special restrictions on dental treatments covered.
B. It provides the possibility of cashback.
C. It is a means for people to budget for their dental costs.
D. It is a means of insuring against dental costs.

Answer 24

C. It is a means for people to budget for their dental costs.

a dental capitation scheme is a way of budgeting for expected dental costs rather than a true insurance against incurring dental costs.

These plans work in a similar way to health cash plans, but cover is restricted
to dental treatment and thus should be less costly.

Question 25

Habib has such a significant role as an employee of a pharmaceutical company that the company has recently effected a key person policy on his life. Habib has since written a will. If he were to die during the term of the policy, typically to whom would the death benefits initially be payable? A. The company. B. The company’s nominated beneficiaries according to the policy. C. The executors of Habib’s will. D. Habib’s nominated beneficiaries according to the policy.

Answer 25

A. The company. Policies written for key person assurance should be written on a life of another basis. In this scenario, the company is the proposer and owner. The life assured is the key employee. Should the key employee die, the benefits will be paid to the company.

Question 26

Which underwriting factor has a greater impact on an income protection insurance policy than on a critical illness policy? A. Family medical history. B. Geographical location in the UK. C. Level of existing cover. D. Type of occupation.

Answer 26

D. Type of occupation. Occupation more relevant to assess if they will need to take time off work, rather than becoming critically ill.

Question 27

Hannah is about to effect an income protection insurance policy and is unsure how, if at all, insurance companies take into account any State benefits received because of sickness or disability, when determining the maximum benefit available to her. She should be aware that such State benefits A. are not taken into account. B. are taken into account only if they are taxable. C. are taken into account only if the applicant is self-employed. D. may be taken into account, irrespectively of her tax and employment status

Answer 27

D. may be taken into account, irrespectively of her tax and employment status

Question 28

Anthea effected a life assurance policy on the life of her business partner Benedict. She then assigned the policy to her husband Clive, who then assigned it to his mother Dawn. Who will be entitled to the policy’s proceeds? A. Anthea. B. Benedict. C. Clive. D. Dawn.

Answer 28

D. Dawn. Dawn has ultimately been assigned the policy. The Policies of Assurance Act 1867 regulates the assignment of life policies. It provides that any person becoming entitled by assignment to a life policy has the legal power to sue in their own name to recover the monies payable.

Question 29

The life assurance fund of a UK insurer has realised a £300,000 gain on disposal of some shares. Which tax, if any, could apply to this gain? A. None. B. Capital Gains Tax. C. Corporation Tax. D. Income Tax

Answer 29

C. Corporation Tax.

Question 30

Sarah is a higher-rate taxpayer whose realised gains already fully use up her Capital Gains Tax (CGT) exemption for the tax year 2024/2025. Her dividend income exceeds her dividend allowance and her savings income exceeds her personal savings allowance. She has her own private medical insurance which is paying for the treatment of an acute condition. What is her tax liability, if any, regarding these payments during this year? A. None. B. 24% CGT. C. 20% Income Tax. D. 40% Income Tax.

Answer 30

A. None.

Question 31

Life assurance technically mitigates personal financial risk by A. providing a means for individuals to cover the risk through investing. B. providing a means for individuals to cover the risk through saving. C. transferring the risk from an individual to a group of individuals. D. transferring the risk from an individual to a public limited company.

Answer 31

C. transferring the risk from an individual to a group of individuals. Insurance is all about pooling premiums from wide spread of individuals to mitigate risk.

Question 32

Lionel, aged 80, has assets exceeding £1,000,000 which he wants his daughter to inherit on his death. He has recently assigned by way of gift a £200,000 life assurance bond to her. It is the only gift he has made. Solely with regard to any Inheritance Tax liability that may indirectly arise because of the gift, what type of policy, if any, would it be reasonable to effect? A. None. B. Decreasing term assurance. C. Level term assurance. D. Whole of life assurance.

Answer 32

C. Level term assurance.

Question 33

Alex suffers an accident that leaves him disabled. After six months he begins to receive £150 per month from an income protection insurance policy. How will this affect his Personal Independence Payment, if at all? A. The payment will be stopped. B. The full payment will be paid for the first six months and will then be reduced by £75 per month. C. The full payment will be paid for the first six months and will then be reduced by £150 per month. D. The payment will not be affected.

Answer 33

D. The payment will not be affected. Having an IP policy doesn't affect PIP payments

Question 34

During the underwriting stage of an application for life assurance, it is determined that the sum assured exceeds the retention limit. What are the implications of this? A. Additional medical evidence must be requested. B. The application must be declined. C. The cover must be set up on a decreasing basis. D. Part of the risk needs to be reassured.

Answer 34

D. Part of the risk needs to be reassured. If the cover goes above the insurer's retention limit (amount co will cover - the excess the policyholder pays) , the insurer may need to reassure this risk

Question 35

A traditional low-cost whole of life policy is a combination of a A. decreasing term assurance policy and a non-profit policy. B. decreasing term assurance policy and a with-profits policy. C. unit-linked policy and a non-profit policy. D. unit-linked policy and a with-profits policy.

Answer 35

B. decreasing term assurance policy and a with-profits policy. Amount assured decreases and no investment element to pay fees on

Question 36

To what extent, if at all, are the costs of life cover taken into account by the reduction in yield figures of a whole of life policy? A. They are excluded. B. They are fully included. C. They are only included on a maximum sum assured basis. D. They are only included on a standard sum assured basis.

Answer 36

A. They are excluded.

Question 37

Kezia purchased a life assurance policy that she placed in a flexible trust for the benefit of her daughter, Belinda. The trustee is Kezia’s husband, Cedric. Who has equitable ownership of the policy? A. Belinda only. B. Cedric only. C. Kezia only. D. Belinda and Cedric.

Answer 37

A. Belinda only. In the context of trusts, an equitable interest refers to the BENEFICIAL ownership or right to benefit from property held in trust, separate from the legal ownership held by the trustee - beneficiaries have equitable ownership

Question 38

What type of tax liability, if any, may arise at the time solely as a result of a higher-rate taxpayer gifting her £200,000 life assurance bond, having made no other gifts, to a discretionary trust by way of assignment? A. None. B. Inheritance Tax only. C. Inheritance Tax and Capital Gains Tax. D. Inheritance Tax and Income Tax.

Answer 38

A. None. IHT charge can't arise as within nil rate band

Question 39

Under an employer’s group life assurance policy, what is the normal tax treatment of the death benefit? A. It is liable to Capital Gains Tax. B. It is liable to Income Tax. C. It is liable to Inheritance Tax. D. It is not liable to any form of taxation

Answer 39

D. It is not liable to any form of taxation.

Question 40

Martina is liable to Inheritance Tax, but only on her assets located in the United Kingdom. This shows that for Inheritance Tax purposes she is A. not deemed to be domiciled in the UK. B. deemed to be domiciled in the UK. C. not resident in the UK. D. resident in the UK.

Answer 40

A. not deemed to be domiciled in the UK.

Question 41

What event, if any, must occur for the possibility of a Capital Gains Tax liability eventually arising on surrender of a qualifying life assurance policy? A. An assignment by way of gift only. B. An assignment for money or money’s worth only. C. Any assignment when at the time the policy shows a gain. D. A Capital Gains Tax liability cannot arise.

Answer 41

B. An assignment for money or money’s worth only The one time there may be a CGT charge on the realised gain on a policy is where if the disposer is not the original owner and they acquired the policy for money or money’s worth. This is the situation on the disposal of many policies known as second-hand policies.

Question 42

Two business partners each require an individual income protection insurance policy. What is the position with regard to tax relief on the premiums? A. No tax relief is available. B. Tax relief is always available. C. Tax relief is available, but only if premiums are paid from the business account. D. Tax relief is available, but only if the policy is written in trust for each individual partner.

Answer 42

A. No tax relief is available.

Question 43

If the deferred period on an income protection insurance policy is increased from 13 weeks to 26 weeks, what effect would this usually have on the monthly premium? A. It would be payable for a longer policy term. B. It would be payable for a shorter policy term. C. It would decrease. D. It would increase.

Answer 43

C. It would decrease. Longer length of time for person to recover and office to not pay out means would decrease premiums

Question 44

A client starts a 20-year income protection insurance policy which operates on a reviewable 5-year basis. During the first 5 years, a benefit lasting in excess of 6 months was paid in accordance with the policy’s terms and conditions. In what circumstances, if any, can the insurer refuse to continue cover solely on the grounds of this benefit having been paid? A. In no circumstances. B. Only if the claim lasted for more than 12 months. C. Only if the benefit paid out exceeded a threshold stated in the policy. D. In all circumstances.

Answer 44

A. In no circumstances. Even where a significant number of claims have been made on a policy, this would not be grounds for an increase in premiums. Only where the overall claims experience of the insurer is higher than anticipated would a review result in an increase in premiums

Question 45

When writing a combined life assurance and critical illness policy under trust, what is the main advantage of using a split trust instead of an ordinary trust? A. The assured is allowed to be a trustee. B. The assured will receive any critical illness benefit. C. The beneficiary may be related to the life assured. D. The beneficiary will receive the benefits free of tax.

Answer 45

B. The assured will receive any critical illness benefit. Where a life policy includes critical illness cover, generally a split trust would be used. This separates the life and critical illness elements, recognising that in the event of suffering a critical illness, the settlor is likely to want the benefits themselves rather than have them paid to a third party.

Question 46

A long-term care contract that involves a life assurance bond has just gone on risk. What is the minimum number of days during which the policyholder may cancel without penalty? A. 14 days. B. 21 days. C. 28 days. D. 30 days.

Answer 46

A. 14 days.

Question 47

What is the most appropriate policy for an employee who is concerned only with maintaining her mortgage repayments over the short term should she become ill? A. A critical illness insurance policy. B. An income protection insurance policy. C. A mortgage payment protection insurance policy. D. A mortgage protection insurance policy.

Answer 47

C. A mortgage payment protection insurance policy.

Question 48

Income-related State benefits normally start to be reduced when savings exceed what amount? A. £3,000 B. £6,000 C. £16,000 D. £23,000

Answer 48

B. £6,000

Question 49

What is the tax advantage to an employee in effecting an income protection insurance policy on an individual basis rather than being covered by her employer’s group scheme? A. The benefits in payment are pensionable. B. The benefits in payment are tax free. C. The premiums paid can be offset against Income Tax at the basic rate. D. The premiums paid can be offset against Income Tax at her marginal rate.

Answer 49

B. The benefits in payment are tax free.

Question 50

The sum assured for a life assurance policy with an accelerated critical illness benefit is £100,000. How much, if anything, would be payable on subsequent death during the original term, if a successful critical illness claim had been made 9 months earlier? A. Nothing. B. £25,000 C. £50,000 D. £100,000

Answer 50

B. £25,000

Question 51

A client with long-term care requirements effected an immediate needs annuity without capital guarantee. He died two years later. What death benefit, if any, will usually be payable in these circumstances? A. No death benefit will be payable. B. The bid value of units. C. The offer value of units. D. The sum assured.

Answer 51

A. No death benefit will be payable. A capital guarantee is a way to guarantee all the capital is not lost if the individual dies shortly after taking out the plan.

Question 52

Jane, an additional-rate taxpayer, is receiving residential care in the UK, and has bought an immediate needs annuity. In what circumstances, if any, may the annuity be paid free of tax? A. In no circumstances. B. Only when the annuity payments are made directly to the registered care provider. C. Only when the annuity payments are made directly to Jane, without further conditions. D. Only when the annuity payments are made directly to Jane who then pays them to the registered care provider.

Answer 52

B. Only when the annuity payments are made directly to the registered care provider. The monthly benefits of these policies are free of tax when paid directly to a care provider registered with the Care Quality Commission. This covers virtually all care homes and home care agencies in the UK. If benefits are paid directly to the policyholder, they are taxed in the same way as a purchased life annuity.

Question 53

A long-term care contract that involves a life assurance bond has just gone on risk. What is the minimum number of days during which the policyholder may cancel without penalty? A. 14 days. B. 21 days. C. 28 days. D. 30 days.

Answer 53

A. 14 days. On risk means the policy has started - it is asking for the cancellation period which is 14 days

Question 54

Apart from the attraction to employees, for what main reason would a company consider effecting a group private medical insurance policy? A. To avoid discrimination against older employees. B. To increase the likelihood of sick employees returning to work more quickly. C. To provide for replacement income when its employees are sick. D. To secure Corporation Tax relief.

Answer 54

B. To increase the likelihood of sick employees returning to work more quickly.

Question 55

Apart from comparing cover and costs, which other key factor should usually be considered if a financial adviser intends to recommend that a client cancels an existing own life term assurance policy and replaces it with a new one? A. The insurable interest. B. The potential chargeable gains. C. The secondhand policy market value. D. The underwriting requirements.

Answer 55

D. The underwriting requirements.

Question 56

Lara is single and self-employed. She has just started a personal accident and sickness policy to provide cover for her needs if she is unable to work due to accident or sickness. Ignoring the level of cover, this policy may be inadequate for her because A. it fails to cover long-term inability to work only. B. it fails to cover long-term inability to work and is subject to annual renewals. C. its benefits are taxable and it fails to cover long-term inability to work. D. its benefits are taxable and it is subject to annual renewals.

Answer 56

B. it fails to cover long-term inability to work and is subject to annual renewals. PAS is like short term IP and is subject to annual renewals

Question 57

Bertha is in a local authority care residential home. Her personal expense allowance is: a. added to her Basic State Pension. b. set by the Government each year. c. added to her Attendance Allowance. d. decided by her local authority

Answer 57

b. set by the Government each year. When assessing an individual’s level of contribution, a local authority must always leave a person with a sum of money to cover some of their own personal expenses such as newspapers and toiletries. This sum, called the personal expenses allowance (PEA), is set by the Government each year. The amount of the PEA for 2024/25 is £30.15 per week in England

Question 58

Premiums for a personal accident and sickness insurance policy are: a. not subject to insurance premium tax and the benefits are paid tax-free. b. subject to insurance premium tax and the benefits are subject to income tax. c. not subject to insurance premium tax but the benefits are subject to income tax. d. subject to insurance premium tax but the benefits are paid tax-free.

Answer 58

d. subject to insurance premium tax but the benefits are paid tax-free. There is no tax relief on premiums or taxation on benefits for a PAS policy paid by an individual. For non-contributory group PAS, if the employer pays premiums this is a benefitin-kind which will be subject to income tax under PAYE. From the employer’s perspective, the cost is allowable as a business expense.

Question 59

When setting up a new lasting power of attorney [LPA], the role of 'certificate provider' is to certify that the: a. donor has the mental capacity to make the LPA. b. attorney understands the role and responsibilities. c. donor understands the LPA and is not being coerced. d. attorney fulfils their role and responsibilities under the LPA.

Answer 59

c. donor understands the LPA and is not being coerced. Certificate provider: selected by the donor. The certificate provider must confirm that the donor understands the LPA and that the donor is not under any pressure to make it. This is another important safeguard

Question 60

Payments under an immediate needs plan made direct to the policyholder are: a. paid free of all taxes. b. paid net of 10% tax. c. taxed as a purchased life annuity. d. paid gross but subject to income tax.

Answer 60

c. taxed as a purchased life annuity. If paid to a care home they're tax free, if benefits are paid directly to the policyholder, they are taxed in the same way as a purchased life annuity

Question 61

If Asma is struggling on the income from a low-paid job, which State benefit could she potentially claim? a. Income Support. b. Jobseeker's Allowance. c. Universal Credit. d. Employment and Support Allowance

Answer 61

c. Universal Credit.

Question 62

Freya has just sold 25% of her home to a company and now pays it a peppercorn rent. This arrangement is a: a. roll-up mortgage. b. lifetime lease-back scheme. c. home reversion plan. d. sale and buy-back scheme

Answer 62

c. home reversion plan. Home reversion plans are selling all or part of the home to a home reversion company, but gives you a lifetime tenancy in the property. Usually don't recxeive mareket value and some plans require you to pay a 'peppercorn rent'

Question 63

Peter has been told that he does not qualify for the Guarantee element of the State Pension Credit. This is most likely because he has: a. an income of over £300 per week. b. high levels of personal savings. c. not paid enough National Insurance contributions. d. reached State Pension age.

Answer 63

a. an income of over £300 per week. State pension credit is paid to pensioners, how much they receive is based on age & has 2 components. Guarantee credit - min ionocme provided to those over a certain age - The amount for 2024/25 is £218.15 for a single person Savings credit - for those 65 pre April 2016 - provides a lower level of credit

Question 64

If an employer pays the premiums on a group accident, sickness and unemployment policy, how are the premiums treated for tax purposes? a. They are not allowable as a business expense for the employer. b. The benefits are paid to employees gross but are subject to income tax. c. The benefits must be paid direct to the employer in the first instance. d. They are treated as a benefit in kind for the employees.

Answer 64

d. They are treated as a benefit in kind for the employees. In the case of individual policies, premiums do not attract tax relief and benefits are not taxed. Where an employer pays the premium under a group policy, the premium payments are benefits in kind subject to income tax under PAYE,

Question 65

M&B Ltd has decided that, on the death of a shareholder, the business will purchase the deceased shareholder's shares by using life assurance on the life of each shareholder. If M&B Ltd does NOT receive HMRC approval for the arrangement, how will the proceeds from the policies be taxed? a. They would always be subject to income tax. b. They would potentially be subject to income tax. c. They would potentially be subject to capital gains tax. d. They would potentially be subject to corporation tax

Answer 65

a. They would always be subject to income tax. If no HMRC approval then can't be tax free as own life in trust policies would usually be

Question 66

State Pension Credit is: a. an alternative term for qualifying years. b. available to those over State Pension age to further assist with travel costs. c. available to those over State Pension age to further assist with mortgage costs. d. available to those over State Pension age to assist with rental costs.

Answer 66

c. available to those over State Pension age to further assist with mortgage costs. Through the State Pension Credit system, those over SPA may also be able to claim further assistance with mortgage and other housing costs

Question 67

When applying for local authority funded care, which source of income will NOT typically be taken into account as part of the financial assessment? a. The value of any personal possessions. b. Any Pension Credit. c. The State Pension. d. Any Attendance Allowance.

Answer 67

a. The value of any personal possessions. Sources if income include pension income, investment income & state benefits - but not personal possessions

Question 68

An income protection policy that includes 'back to day one' cover ensures that: a. each day off work is covered, starting with the first day the insured is unable to work. b. the policy terms and conditions cannot change during the life of the policy. c. each day off work is covered after being off work for a specified number of days. d. the policyholder has the option to amend the policy terms and conditions once during its term and have the costs calculated as if the revised policy had been set up this way on day one.

Answer 68

c. each day off work is covered after being off work for a specified number of days. For ‘back to day one’ policies the benefit is not paid until a specified period (such as 30 days of continuous sickness) has elapsed but, when the policy does pay out, the claim is backdated to the first day of illness.

Question 69

A client has a with-profits insurance bond. If they were to die, what would be the minimum amount paid out as life cover? a. 101% of the amount originally invested. b. 100% of the amount originally invested, plus any accumulated bonuses. c. 101% of the value of the policy at death. d. 100% of the amount originally invested, less any withdrawals

Answer 69

c. 101% of the value of the policy at death. As the contract is designed primarily for investment purposes, only nominal life cover will be provided, typically just 101% of the bid value of the units held at the point of death

Question 70

Critical illness cover can be extended to cover the policyholder's children. In this case: a. the amount of cover is limited to a fixed percentage of the sum assured only. Chapter reference 7C2 b. only a few providers offer this form of cover. c. the requisite survival period does not apply in the case of children. d. typically, no additional underwriting is required.

Answer 70

d. typically, no additional underwriting is required. Children’s cover offers an additional sum assured payable on the diagnosis of a critical illness in the child of the policyholder, subject to the child meeting the requisite survival period. This is an underwriting-free ‘added value’ extra

Question 71

Why is a client most likely to benefit from having private medical insurance? a. To access treatment quicker. b. To access specialist doctors. Chapter reference 9B1 c. To receive emergency treatment. d. To access cheaper medical treatment.

Answer 71

a. To access treatment quicker.

Question 72

A 'named person' on a lasting power of attorney [LPA] is the: Question 8Select one: a. person who completes the Part B Certificate in the LPA form. b. person to be notified when the LPA is registered. c. attorney. d. donor.

Answer 72

b. person to be notified when the LPA is registered. Named person(s): chosen by the donor and specified by the LPA to be notified when an application is made to register it. They have the right to object to the registration if they Chapter 8 8/20 R05/July 2024 Financial protection have concerns. This is one of the key safeguards to protect an individual if they make an LPA.

Question 73

A chargeable event may occur on a qualifying policy where: a. an endowment plan is assigned to a traded endowment company. b. a whole of life policy is assigned in connection with a divorce settlement as a result of a divorce court order. c. benefits are paid on a convertible term life policy. d. benefits are paid on a critical illness policy.

Answer 73

a. an endowment plan is assigned to a traded endowment company Chapter reference 5C1

Question 74

Dean, aged 38, is a director of a small firm and he intends to arrange protection against death and serious illness. How can he best achieve this? Question 22Select one: a. A critical illness policy only, written under a single-option trust, for a term up to his retirement. b. A critical illness policy only, written under a double-option trust, for a term of up to five years. c. A death and critical illness policy, written under a double-option agreement, for a term of up to five years. d. A death and critical illness policy, written under a single-option agreement, for a term up to his retirement

Answer 74

d. A death and critical illness policy, written under a single-option agreement, for a term up to his retirement

Question 75

How are the gains taxed on a maturing second-hand endowment policy? a. They are subject to income tax. b. They are subject to inheritance tax. c. They are subject to capital gains tax. d. They are tax-free

Answer 75

c. They are subject to capital gains tax. When the buyer of a second-hand policy receives the policy proceeds on maturity or the death of the life assured or sells the policy again, there could be a charge to CGT under the normal rules for this tax.

Question 76

The sale of a life assurance policy by a terminally ill person to an intermediary for a cash benefit is known as a[n]: a. termination settlement. b. viatical settlement. c. advanced settlement. d. initial settlement.

Answer 76

.b. viatical settlement. A viatical settlement is the sale of an existing life assurance policy by a terminally ill person to an intermediary – the viatical company – for an immediate cash benefit, expressed as a percentage of the expected value of the policy to be paid out on death. This effectively converts a life assurance policy benefit into a critical illness benefit.

Question 77

John died leaving an estate of £500,000, which does not include a residential property. He left £200,000 to his civil partner, James, and the remainder to his nephew. How much inheritance tax, if any, is payable on John's estate? a. £70,000. b. Nil. c. £120,000. d. £100,000.

Answer 77

b. Nil. £300k left over falls within nil rate band

Question 78

Matthew makes a potentially exempt transfer of £500,000 to his son, Ralph, and dies four years later. What would the position be? a. There is no inheritance tax liability as Matthew died more than three years after the transfer was made. b. Any inheritance tax liability is payable by Ralph. c. There is no inheritance tax liability as the gift was a potentially exempt transfer. d. Any inheritance tax liability is payable out of Matthew's estate

Answer 78

b. Any inheritance tax liability is payable by Ralph an individual’s death may result in an IHT bill for their beneficiaries and there may be a need for protection against this.

Question 79

Raud, an additional-rate taxpayer in the UK, has surrendered an offshore bond. What tax, if any, will he be subject to on the gain? a. No tax is payable. b. 45%. c. 20%. d. 40%.

Answer 79

b. 45%. When an offshore bond is surrendered, a UK policyholder is chargeable to income tax on the gain at the basic, higher and additional rates where applicable.

Question 80

In a local authority financial assessment for care, assets that exceed the lower limit savings threshold by £8,000 will be assessed as giving 'tariff income' of: a. £40 per week. b. £8 per week. c. £32 per week. d. £16 per week

Answer 80

c. £32 per week. If a person’s assets are between the upper and lower thresholds, each £250 of assets (or part thereof) over the threshold is assessed as giving £1 a week of ‘tariff income’. 8000/ 250 = 32

Question 81

Payments from the new State Pension are: a. taxable and may be limited by means-testing. b. tax-free and not means-tested. c. tax-free but may be limited by means-testing. d. taxable and not means-tested.

Answer 81

d. taxable and not means-tested. The benefit is taxable, not means-tested and unaffected by the receipt of other social security benefits

Question 82

A convertible term assurance is a term assurance that includes an option to convert the policy into a[n]: a. whole life or renewable term assurance. b. family income benefit or an endowment assurance. c. increasing or decreasing term assurance. d. whole life or endowment assurance.

Answer 82

d. whole life or endowment assurance. Converts a term assurance product to a WOL product

Question 83

A private medical insurance policy that is subject to moratorium underwriting: a. increases the real value of the cover. b. makes it more simple to arrange. c. can only be executed on a group cover basis. d. allows certain pre-existing conditions to be covered under the policy.

Answer 83

b. makes it more simple to arrange.

Question 84

Teresa has put £400,000 into a discretionary trust for her daughter. What is the immediate tax charge, if any, that would be payable by the trustees? a. No immediate tax liability. b. £30,000. c. £22,500. d. £15,000.

Answer 84

d. £15,000. This is a chargeable lifetime transfer - If an individual makes lifetime gifts to a trust (other than an absolute/bare or disabled trust) and such transfers over a seven-year period exceed the available amount of the nil-rate band, there is an immediate tax charge of 20% of the excess

Question 85

The capital account of each partner in a business: a. does not form part of the assets of each partner's estate. b. reflects any profits retained in the business. c. is contained in the profit and loss account. d. generally consists of liquid assets.

Answer 85

b. reflects any profits retained in the business. capital account is (the original capital invested in the business, any further investments of capital and the net profit retained within the business);

Question 86

The highest level of cover provided by an income protection policy is one where incapacity is defined as: a. suited occupation. b. revised occupation. c. own occupation. d. any occupation.

Answer 86

c. own occupation. Own occupation Unable to perform one’s own occupation and not following any other employment – this is the widest definition and provides the highest level of cove

Question 87

Jade and Peter have recently finalised their divorce. When they consider the future post-divorce, they should be aware that: a. neither will have an automatic insurable interest in the other's life. b. an obligation to make maintenance payments does not necessarily create an insurable interest. c. Peter will have an insurable interest in Jade's life if he is paying her maintenance. d. Jade will continue to automatically have an insurable interest in Peter's life until he remarries.

Answer 87

a. neither will have an automatic insurable interest in the other's life. Ex-spouses/partners no longer automatically have an insurable interest in each other’s lives, but the existence of an obligation to make maintenance payments does create such an interest.

Question 88

XYZ Ltd is paying the premiums in a share protection arrangement on behalf of the directors. As a result the premiums are treated as: a. a benefit in kind but exempt from income tax and National Insurance contributions. b. a benefit in kind for the directors and subject to income tax but exempt from National Insurance contributions. c. additional income for the directors and subject to both income tax and National Insurance contributions. d. additional income for the directors and subject to income tax but exempt from National Insurance contributions.

Answer 88

c. additional income for the directors and subject to both income tax and National Insurance contributions. Where the company pays the premiums on the director’s behalf, the amounts are treated as extra income and are therefore subject to both income tax and National Insurance contributions (NICs). The company can treat the amount paid as a business expense, but will be liable to extra employer’s NICs on the payments

Question 89

George and Mildred have always lived in rented accommodation. George died in May 2024 leaving £130,000 of his £800,000 estate to his son and the rest to his wife Mildred. If Mildred died in August 2024, how much inheritance tax will be payable, assuming that the taxable value of her estate is the amount bequeathed to her by George? a. £8,000. b. £60,000. c. £138,000. d. £86,000.

Answer 89

b. £60,000.

Question 90

As a result of the Retail Distribution Review [RDR], it is INCORRECT to say that: a. financial advisers must maintain a 'statement of professional standing' with an approved body. b. pure protection products are not covered by the main requirements of the RDR. c. financial advisers have been divided into two main groups - restricted and independent advisers. d. firms can receive commission on any new products that they sell.

Answer 90

d. firms can receive commission on any new products that they sell. Under RDR firms may no longer receive commission on most products they recommend.

Question 91

The premiums paid for a policy set up to fund the cost of a potential inheritance tax liability are considered to be gifts, but will usually be exempt under the: a. spouse transfer exemption. b. small gift exemption. c. normal expenditure exemption. d. residence nil rate band.

Answer 91

c. normal expenditure exemption. These premiums are gifts but will normally be exempt under either the £3,000 annual IHT exemption or the normal expenditure from income IHT exemption.

Question 92

On what type of policy is critical illness cover NOT normally available as an optional extra? a. A whole life policy. b. An endowment policy. c. A term assurance. d. A private medical insurance policy.

Answer 92

b. An endowment policy. CIC is available as a stand-alone contract, although most CIC is an optional extra on a term assurance or, occasionally, on a whole life policy or on private medical insurance - Not endowments

Question 93

Sue has applied for Attendance Allowance but her application has been turned down. This is because she: a. has a mental rather than a physical disability. b. is in a care home, which she self-funds. c. has been suffering a disability for three months. d. is 67 years old.

Answer 93

c. has been suffering a disability for three months. Attendance Allowance is payable to people aged over SPA who have been suffering from severe disability for a period of six months or longer.

Question 94

ased on the information provided, which applicant may qualify for the Working Tax Credit? a. Tig, aged 23, has no children and works 25 hours a week. b. Tom, aged 26, does not have children and works 32 hours per week. c. Tina who is a single mother working 10 hours a week. d. Tim who has two children and works 14 hours a week.

Answer 94

b. Tom, aged 26, does not have children and works 32 hours per week. WTC is a payment to top up the earnings of working people on low incomes, available to those without children, who themselves are over 25 and work at least 30 hours per week