Mock Exam

Question 1

What effect will an increase in the rate of inflation have on the demand for protection policies?

Select one:

a.
There will be an increase in their uptake

b.
There will be a decrease in their uptake

c.
There will be an increase in policies with WOC built in

d.
There will be a decrease in policies with WOC built in

Answer 1

If the rate of inflation increases, there is usually a decrease in the number of protection policies taken out. This is due to a variety of factors including the fact that consumers feel their policies will soon become less valuable and ‘out of date’ so are less likely to take out policies.

The correct answer is: There will be a decrease in their uptake

Question 2

You are giving advice to a wealthy couple in their 60s. They have two non-dependent children. What assumptions could be made about their future financial protection needs?

Select one:

a.
They will have no need for any financial protection policies

b.
Critical illness cover is likely to be required

c.
A decision cannot currently be reached due to a lack of information

d.
A decision cannot currently be reached due to healthcare issues

Answer 2

No assumptions can be made, or decisions reached about this couple. We have insufficient information and a full fact-find would be required before any conclusions are reached.

The correct answer is: A decision cannot currently be reached due to a lack of information

Question 3

Paul is going into hospital for eight days for an operation that he is funding himself. What benefits will he receive from his hospital cash plan?

Select one:

a.
Full compensation

b.
The costs of his stay

c.
Cash for each night in hospital

d.
The costs of his surgeon

Answer 3

A hospital cash plan does not offer the same level of cover as PMI. It will not cover all of Paul’s costs, or indeed specific ones such as surgeon’s fees, but is likely to pay him a fixed cash sum for each night’s stay up to a capped overall annual amount.

The correct answer is: Cash for each night in hospital

Question 4

If mortality is the biggest expense for a life office when determining life assurance premiums, which of the following is the second most expensive?

Select one:

a.
Life office expenses

b.
Financial adviser commissions

c.
Underwriting medical fees

d.
Administration costs

Answer 4

The second biggest expense when determining premiums, after mortality costs, is life office expenses.

The correct answer is: Life office expenses

Question 5

Edward has an estate valued at £900,000, £100,000 of which relates to a pension fund. His liabilities are currently £300,000. What can you conclude from this in relation to life cover?

Select one:

a.
Edward would benefit from life cover of £200,000

b.
Edward would benefit from life cover of £300,000

c.
Edward would benefit from life cover of £500,000

d.
Nothing can be concluded, a full fact-find is required

Answer 5

Edward has liabilities of £300,000 but there is no mention of any dependants or his personal circumstances. He has a sufficiently large gross estate to cover his £300,000 liabilities. With the information that we have, nothing can be concluded – a full fact-find need to be completed.

The correct answer is: Nothing can be concluded, a full fact-find is required

Question 6

Julia has transferred assets into a trust and used up her nil rate band. She now wishes to add another £20,000 to this trust. What rate of tax is likely to be due?

Select one:

a.
20%

b.
36%

c.
40%

d.
45%

Answer 6

The question stem does not tell us what type of trust Julia is using. But a 0% option is not given as one of the potential answers, therefore the assumption must be that this transfer is chargeable. The best answer of those given will therefore be the lifetime rate of 20%.

The correct answer is: 20%

Question 7

A client has a moratorium attached to his cover. This means that…

Select one:

a.
Pre-existing conditions for the last five years are excluded for the next two years

b.
Pre-existing conditions for the last two years are excluded for the next five years

c.
Pre-existing conditions for the last three years are excluded for the next two years

d.
Pre-existing conditions for the last year are excluded for the next five years 

Answer 7

A moratorium means that pre-existing conditions from the previous five years are likely to excluded for the first two policy years.

The correct answer is: Pre-existing conditions for the last five years are excluded for the next two years

Question 8

Mavis has requested financial advice but has limited money to spend. Her financial adviser should…

Select one:

a.
start with protection recommendations

b.
ask her what her priorities are, and follow those

c.
follow FCA guidelines

d.
use a holistic approach

Answer 8

Mavis has asked for financial advice, so the adviser needs to give some advice. The most important area in financial planning is protection so this would be the obvious place to start.

The correct answer is: start with protection recommendations

Question 9

Stan is claiming a weekly benefit from his Personal Accident, and Sickness policy. This is most likely to be due to…

Select one:

a.
the loss of a limb

b.
temporary disablement

c.
permanent disablement

d.
terminal illness

Answer 9

A weekly benefit payment from a PAS policy is most likely to be paid if the policyholder is suffering from temporary disablement. A lump sum is more likely to be paid in the three other situations given.

The correct answer is: temporary disablement

Question 10

Which of the following individuals is likely to have a definition of disability on an income protection policy linked to an inability to carry out a defined number of Activities of Daily Living?

Select one:

a.
Jane aged 24 who is a self-employed mobile hairdresser

b.
Rob aged 35 who is currently a mature student

c.
Janine aged 42 who has no employer sickness benefits

d.
Pauline aged 22 who has just started her first job with a bank

Answer 10

Rob, in answer B, has no occupation, as he is a student. His cover benefit is likely to be a set monetary amount, and paid based on his inability to carry out a specified number of ADLs.

The correct answer is: Rob aged 35 who is currently a mature student

Question 11

James has established an income protection policy with two different deferred periods. This is most likely to be because James is…

Select one:

a.
self employed

b.
an employee

c.
a partner

d.
unemployed

Answer 11

Different deferred periods relating to IPI policies are associated with employees receiving sick pay from their employer. A common amount is six months full pay followed by six months half pay, leading to a requirement for different IPI cover levels and deferred periods.

The correct answer is: an employee

Question 12

Rosie has a critical illness policy that also includes terminal illness benefit. These types of cover are BEST described as…

Select one:

a.
one covers specified illnesses, the other shortened life expectancy

b.
both cover specified illnesses

c.
one covers long term care, the other specified illnesses

d.
both cover shortened life expectancy

Answer 12

Rosie’s critical illness policy covers specified illnesses whereas her terminal illness benefit will pay out if she has shortened life expectancy.

The correct answer is: one covers specified illnesses, the other shortened life expectancy

Question 13

James has taken out an endowment policy aged 56. This is a qualifying policy. The minimum sum assured % of premiums paid will be?

Select one:

a.
75%

b.
73%

c.
71%

d.
69%

Answer 13

James is aged 56 at the inception of his qualifying endowment policy. For each year he is aged over 55 the 75% minimum sum assured requirement decreases by 2%. His minimum sum assured will therefore be 73%.

The correct answer is: 73%

Question 13

Anthony has placed his investment bond into a bare trust for his son. What should he be aware of?

Select one:

a.
There may be an immediate IHT charge

b.
There may be an immediate CGT charge

c.
At age 18 his son can access the bond

d.
At age 21 his son can access the bond

Answer 13

A bare or absolute trust allows the beneficiary to access the trust assets at age 18. They have an ‘absolute right’ under this trust type at this age. Anthony’s son will therefore be able to access the trust assets when he attains age 18.

The correct answer is: At age 18 his son can access the bond

Question 14

Jo was diagnosed with bowel cancer on the 20th January 2023. How long will it be before her claim is paid from her critical illness policy?

Select one:

a.
The earliest date the claim will be paid is from 3rd February, subject to receipt of the necessary paperwork by the provider

b.
Her claim will be paid as soon as the necessary paperwork is received by the provider

c.
The earliest date the claim will be paid is from 19th February, subject to receipt of the necessary paperwork by the provider

d.
Bowel cancer is a standard exclusion on most critical illness policies, so the claim will not be paid

Answer 14

A survival period of between 14 – 30 days will be applied before a CIC payment is made, subject to receipt of medical evidence. Therefore, the earliest date the claim can be paid is 3rd February.

The correct answer is: The earliest date the claim will be paid is from 3rd February, subject to receipt of the necessary paperwork by the provider

Question 15

One of your clients has received an inheritance that they are considering passing on to their children. What is the maximum number of years after death that a deed of variation can be served?

Select one:

a.
Two

b.
Three

c.
Five

d.
Seven

Answer 15

A deed of variation must be served within two years of death.

The correct answer is: Two

Question 16

Carol has a £100,000 whole of life plan with bolt on critical illness cover. She has been diagnosed with one of the specified illness. What will happen to this plan?

Select one:

a.
£100,000 will be paid as an accelerated death benefit and the plan will cease

b.
£100,000 will be paid as an advance payment of the death sum assured and the plan will be maid paid-up

c.
£100,000 will be paid as an accelerated policy payment and the plan will continue

d.
£100,000 will be paid as an advance payment of the death sum assured and the plan will continue

Answer 16

£100,000 would be paid to Carol as an accelerated death benefit, and her policy would then cease.

The correct answer is: £100,000 will be paid as an accelerated death benefit and the plan will cease

Question 17

Mary is claiming a loan under Support for Mortgage Interest. Which of the following statements is CORRECT in relation to this DWP benefit?

Select one:

a.
Payments will start after the first 13 weeks

b.
Mary’s full mortgage will be covered whatever its size

c.
Nothing will be paid for the first 39 weeks

d.
Only the first £100,000 of her mortgage will be covered

Answer 17

Nothing will be paid via SMI for the first 39 weeks. All the other options given are incorrect.

The correct answer is: Nothing will be paid for the first 39 weeks

Question 18

Clare has set up an interest in possession trust with Jo as the default beneficiary. Andie, her friend, is the sole trustee currently. In terms of this trust…

Select one:

a.
both Jo and Andie are equitable owners

b.
both Jo and Andie are legal owners

c.
Jo is the legal and Andie the equitable owner

d.
Andie is the legal and Jo the equitable owner

Answer 18

trustee is the legal owner of trust assets, so this will be Andie. Jo, as the default beneficiary, is the equitable owner of the trust assets.

The correct answer is: Andie is the legal and Jo the equitable owner

Question 19

Jackie and Stan are both taking out an income protection policy. They are the same age, looking for the same cover levels and the same policy end date. The features they are including are identical. In terms of their premiums…

Select one:

a.
they will be the same

b.
they will be different

c.
Jackie’s will be higher

d.
Jackie’s will be lower

Answer 19

If everything is the same on their IPI policies, there can be no differences due to gender. Premiums for both policies would therefore be the same.

The correct answer is: they will be the same

Question 20

An employer provides group accident, sickness, and unemployment insurance for employees, with premiums being met by the company. What tax liability does that mean for individual employees?

Select one:

a.
Premiums paid will not trigger any tax liability, but benefits will be taxed via PAYE

b.
Premiums paid will be taxed on the employer as a benefit in kind and benefits will be tax-free

c.
Premiums paid will be an employer allowable business expense, but benefits will be taxed via PAYE

d.
Premiums paid will be taxed on the employee as a benefit in kind, but benefits will be tax-free

Answer 20

Employer sponsored ASU, where premiums are paid for the employee, will be classed as a benefit in kind and liable to income tax on the employee. Benefits will be paid tax-free.

The correct answer is: Premiums paid will be taxed on the employee as a benefit in kind, but benefits will be tax-free

Question 21

You are a financial adviser. A local engineering practice have asked you to arrange some financial protection for one of their senior managers. This is MOST likely to be which of the following types of protection?

Select one:

a.
Partnership

b.
Key person

c.
Dependent

d.
Shareholder

Answer 21

The correct answer is: Key person

Question 22

Personal accident and sickness policies pay out benefits if the life assured is off work due to an accident or illness. Which of the following types of cover is also likely to be included?

Select one:

a.
100% of any medical expenses

b.
Children’s accident cover up to age 18

c.
Lump sum critical illness benefit

d.
Lump sum payments

Answer 22

A lump sum payment can also be paid from a PAS policy. This could be due to loss of a limb or death of the insured

The correct answer is: Lump sum payments

Question 23

Sam has an investment bond. He is currently being assessed for long term care support by his local authority. He invested £10,000 five years ago and the current value of the bond is £23,200. What amount will be taken into account in this assessment?

Select one:

a.
Current value less any tax charge

b.
Original investment value

c.
None. It is not ignored completely

d.
Original investment less any tax charge

Answer 23

An investment bond does not count in the means-testing assessment carried out by a local authority, in assessing LTC financial support. This is because it contains an element of life cover.

The correct answer is: None. It is not ignored completely

Question 24

What does the term ‘free cover’ mean?

Select one:

a.
The amount of cover without paying a premium

b.
The amount of cover without underwriting

c.
The amount of cover provided by an employer for an employee

d.
The amount of cover provided by an employer for a key person

Answer 24

Free cover is the amount of cover available without underwriting. It has nothing to do with charges or costs! Free cover also relates to payment of benefits if the customer is in certain locations outside the UK, but this was not one of the options in the potential answers. Group schemes are often ‘free cover’ because there is no underwriting involved

The correct answer is: The amount of cover without underwriting

Question 25

Which of the following would NOT be considered a direct descendant under the main residence nil rate band rules?

Select one:

a.
A spouse

b.
A child aged 22

c.
A foster child

d.
A brother or sister

Answer 25

A direct descendant is: a child (including foster children and adopted children), grandchild, great-grandchild or great-great grandchild of the deceased

The correct answer is: A brother or sister

Question 26

John has a hospital cash plan. What benefit level is this likely to provide?

Select one:

a.
A variable cash sum for each day of hospitalisation, payable immediately the plan is effected

b.
A fixed cash sum for each day of hospitalisation, payable immediately the plan is effected

c.
A fixed cash sum for each day of hospitalisation, payable once the plan has been in force for at least 6 months

d.
A variable cash sum for each day of hospitalisation, payable once the plan has been in force for at least 6 months

Answer 26

This plan type pays a fixed monetary amount for each day of hospitalisation, after an initial period, usually 6 months.

The correct answer is: A fixed cash sum for each day of hospitalisation, payable once the plan has been in force for at least 6 months

Question 27

The purpose of a moratorium on a private medical insurance (PMI) policy is to…

Select one:

a.
prevent valid claims in the first two policy years

b.
prevent claims due to pre-existing conditions

c.
prevent any claims in the first two policy years

d.
prevent any claims for experimental treatments

Answer 27

With PMI policies the point of a moratorium is to prevent claims on pre-existing conditions.

The correct answer is: prevent claims due to pre-existing conditions

Question 28

Marilyn has gifted her daughter a £400,000 Gilt and her son a £500,000 investment bond. Assuming Marilyn has not used all her nil rate band, and wants to insure against possible IHT, which (if any) of these gifts, should she consider insuring?

Select one:

a.
Both of them

b.
Solely the Gilt

c.
Neither of them

d.
Solely the bond

Answer 28

Both gifts Marilyn has made are above her £325,000 nil rate band. If she wants to mitigate inheritance tax, insurance would be required on both of these gifts.

The correct answer is: Both of them

Question 29

Perry had recently taken out a whole of life plan with a sum assured of £200,000. He died after one year and the policy paid out £150,000. This reduced payment is MOST likely to be for which of the following reasons?

Select one:

a.
There was an exclusion on the policy

b.
Perry was given a rating

c.
There was a debt on the policy

d.
Perry was given a loading

Answer 29

The MOST likely reason £150,000 was paid out on Perry’s death and not £200,000 is that there was a debt on the policy. This is one method of managing greater risk in the early policy years, by an underwriter. The other options given would either invalidate the claim or increase the premiums.

The correct answer is: There was a debt on the policy

Question 30

Jack was gifted £450,000 by Edith, who died three and a half years later in May 2023 leaving no other estate or gifts? What IHT liability is there on this transfer?

Select one:

a.
40% inheritance tax is due on the balance over the nil rate band. This is paid by Edith’s executors

b.
20% inheritance tax is due on the balance over the nil rate band. This is paid by Edith’s executors

c.
40% inheritance tax is due on the balance over the nil rate band subject to taper relief of 20%. This must be paid by Edith’s executors

d.
40% inheritance tax is due on the balance over the nil rate band subject to taper relief of 20%. This must be paid by Jack

Answer 30

Edith has survived gifting by 3 ½ years which means 80% of the IHT is due, meaning a reduction of 20% from taper relief application. This will be paid by the recipient (donee) of the gift, which is Jack.

The correct answer is: 40% inheritance tax is due on the balance over the nil rate band subject to taper relief of 20%. This must be paid by Jack

Question 31

Steve has died, leaving a gross estate without property of £800,000. He has left behind four children who he wanted to benefit equally. Assuming no gifts and no NRB roll over, how much will each child receive after IHT?

Select one:

a.
£200,000

b.
£177,500

c.
£152,500

d.
£120,000

Answer 31

The £800,000 gross estate must be reduced by the £325,000 NRB leaving £475,000 liable to 40% IHT. This is a liability of £190,000. £800,000 - £190,000= £610,000.

£610,000 ÷ 4 = £152,500 inherited by each child.
The correct answer is: £152,500

Question 32

Rav is a self-employed doctor who has taken out an income protection insurance policy. How will any benefits be taxed if Rav is a higher rate taxpayer?

Select one:

a.
They will be taxable through self-assessment

b.
Basic rate income tax will be deducted at source

c.
Higher rate income tax will be deducted at source

d.
Benefits will be paid tax-free

Answer 32

Rav has taken out an individual IPI policy. As such, the benefits will be paid to him tax-free regardless of his income tax status.

The correct answer is: Benefits will be paid tax-free

Question 33

Joe has a life assurance plan with critical illness cover included. Which of the following trust types should he be advised to use with this policy?

Select one:

a.
Flexible power of appointment

b.
Absolute or bare

c.
Interest in possession

d.
Split

Answer 33

Only a split trust would be suitable for this policy structure. A split trust allows Joe to benefit from any CIC, whilst leaving any life cover in trust outside his estate

The correct answer is: Split

Question 34

John has set up a policy which covers him for treatment in relation to HIV/AIDs. This is MOST likely to be if he contracts these conditions through…

Select one:

a.
an operation at a private hospital

b.
his job as a doctor

c.
his job as a solicitor

d.
through legal drug usage

Answer 34

Conditions as a result of HIV/AIDS will usually only be covered under a policy if they are contracted either as a result of a UK blood transfusion or through a job as part of the emergency services such as doctors, nurses etc.

The correct answer is: his job as a doctor

Question 35

Rick has died intestate leaving an estate valued at £500,000. He has never married and has no children or grandchildren. Who has first call on his estate assets under the laws of intestacy?

Select one:

a.
Any brothers and sisters

b.
His parents

c.
His grandparents

d.
Any cousins

Answer 35

First in line for any inheritance would be Rick’s parents, if they are still alive.

The correct answer is: His parents

Question 36

What is the general function of the Court of Protection?

Select one:

a.
To register and monitor all trusts

b.
To ensure all donor gifts are deemed reasonable

c.
To authorise an individual to administer affairs and make gifts

d.
To protect individuals of unsound mind under the Mental Health Act 1983

Answer 36

The Court of Protection is concerned with the affairs of individuals who no longer have mental capacity, and their protection.

The correct answer is: To protect individuals of unsound mind under the Mental Health Act 1983

Question 37

Sam has put his life policy into trust with his wife Ellie as the beneficiary and daughter Penny as one of the trustees. He also has an LPA with his son Frank appointed as his attorney. When Sam dies which of the following will claim the policy proceeds from the life office?

Select one:

a.
Ellie, Penny and Frank

b.
Frank alone

c.
Penny and any other trustees

d.
Ellie alone

Answer 37

When policy proceeds are put into a trust, the legal owners are the trustees. As such, Penny and any other trustees would be responsible for claiming policy proceeds from the life office. They do need input from the attorney.

The correct answer is: Penny and any other trustees

Question 38

What is the principle of a single option in relation to critical illness partnership protection?

Select one:

a.
Where critical illness cover is a bolt on to a whole of life policy

b.
Where critical illness cover is used for limited liability partnerships

c.
Where only the ill partner has the option to force the other partners to buy out their partnership share

d.
Where the other partners have the option to force the ill partner to sell their partnership share

Answer 38

This is where an ill partner can force other partners to buy out their partnership share.

The correct answer is: Where only the ill partner has the option to force the other partners to buy out their partnership share

Question 39

Personal Independence Payment consists of two components. What are these two components?

Select one:

a.
Daily living and mobility

b.
Daily mobility and caring

c.
Daily caring and living

d.
Daily living and disability

Answer 39

Daily living and mobility are the two components of PIP.

The correct answer is: Daily living and mobility

Question 40

John has an IPI policy and wishes his benefits to rise in line with average salaries. As a result, which of the following would he link his benefit level increases to?

Select one:

a.
Retail Prices Index

b.
London Inter Bank Offered Rate

c.
Consumer Prices Index

d.
National Average Earnings Index

Answer 40

The NAEI should be used to increase IPI benefit levels in line with earnings

The correct answer is: National Average Earnings Index

Question 41

The State Pension is mainly made up of the Single Tier State Pension. Which of the following additional payments may still be available?

Select one:

a.
Guaranteed Pension Credit

b.
State Earnings Related Pension

c.
State Second Pension

d.
Savings Pension Credit

Answer 41

Only Guaranteed Pension Credit is still available from 6th April 2016.

The correct answer is: Guaranteed Pension Credit

Question 42

Nettie has given her brother £400,000 in Gilts and her son £400,000 in shares. What policy should her brother and son take out for protection purposes?

Select one:

a.
Whole of life

b.
Gift inter vivos

c.
Renewable term

d.
Endowment

Answer 42

Both of these payments are gifts so will be categorised as PETs. The brother and son need to take out a gift inter vivos policy, which is seven year decreasing term, to cover any possible IHT liability.

The correct answer is: Gift inter vivos

Question 43

John has died intestate. Which of the following will be required to distribute his estate?

Select one:

a.
Grant of probate

b.
Letters of administration

c.
Grant of administration

d.
Grant of letters of administration

Answer 43

If an individual dies intestate a grant of letters of administration is required before the estate can be distributed.

The correct answer is: Grant of letters of administration

Question 44

Which of the following types of dependency is MOST likely to have a finite term?

Select one:

a.
A dependent spouse or partner

b.
Dependent children

c.
A dependent civil partner

d.
A married couple co-dependent on each other’s earnings

Answer 44

Dependent children are only so up to age 23, unless they can prove dependency past this age, or are physically or mentally disabled. Of the answers given, option B is the best.

The correct answer is: Dependent children

Question 45

John, a financial advisor, is assessing the protection needs of Jeff and Sue a young married couple with no children. Which of the following factors is LEAST likely to affect their protection needs in their current circumstances?

Select one:

a.
Their state of health

b.
Income and capital levels

c.
State benefit entitlement

d.
Their gender

Answer 45

The couple’s gender will least affect their protection needs.

The correct answer is: Their gender

Question 46

Which of the following is an important measure of a life office’s financial strength?

Select one:

a.
Gross taxable profits

b.
Net taxable profits

c.
Credit rating

d.
Free asset ratio

Answer 46

Free asset ratio shows the financial strength of a life office: how much ‘surplus assets’ it has if it has to meet all liabilities

The correct answer is: Free asset ratio

Question 47

Which of the following policies has a benefit level that is restricted by an individual’s earnings?

Select one:

a.
Mortgage payment protection insurance

b.
Income protection insurance

c.
Private medical insurance

d.
Family income benefit

Answer 47

IPI benefit is capped according to earnings, to ensure there is an incentive to return to work.

The correct answer is: Income protection insurance

Question 48

Laura is a higher rate taxpayer and has received £18,200 as the proceeds of her non-qualifying onshore policy. Her monthly premiums were £52 and the plan term 10 years. What tax liability does Laura have?

Select one:

a.
£4,784

b.
£3,640

c.
£2,392

d.
She has no further liability

Question 49

Jessie is a higher rate taxpayer and has made a gain of £22,000 on the maturity of her qualifying ten-year endowment plan. What tax is due on this gain?

Select one:

a.
10% of the £22,000 gain

b.
20% of the £22,000 gain

c.
40% of the £22,000 gain

d.
There is no further tax to pay on the policy proceeds

Answer 49

The qualifying rules do not appear to have been broken, therefore there is no tax due on the endowment proceeds.

The correct answer is: There is no further tax to pay on the policy proceeds