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RO5 2017-2018 TESTS > TEST 1 > Flashcards

TEST 1 Flashcards

1
Q

In relation to insuring against risk, it is most effective when addressing risks that are:

A

Low frequency and high impact

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2
Q

Martin took out a life assurance policy on the life of his wife Karen. How will the policy be affected if they get divorced at some point in the future?

A

There will be no change unless a court orders otherwise

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3
Q

Who of the following would be eligible for Statutory Sick Pay?
A. Philip, employed part-time and not paying any National Insurance contributions
B. Steven, self-employed and paying Class 2 and Class 4 National Insurance
contributions
C. Brenda, currently on a career break and paying Class 3 National Insurance
contributions
D. Miriam, employed and paying Class 1 National Insurance contributions

A

D. Miriam, employed and paying Class 1 National Insurance contributions

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4
Q

Income support can be claimed by individuals between the ages of?

A

16 and State pension age

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5
Q

A personal independence payment (PIP) comprises of what components?

A

A daily living component and a mobility component

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6
Q

To qualify for a full single-tier State pension an individual must have a total of how
many years’ NIC contributions or credits?

A

35

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7
Q

Arlene has taken out a unit-linked whole of life assurance policy on a standard cover
basis. In which of the following situations would the premiums need to be increased?
A. If her state of health changed
B. If the unit prices fall by more than 1.0% over a six-month period
C. Every ten years in line with her increased age
D. If the underlying fund did not meet a pre-determined rate of return each year

A

D. If the underlying fund did not meet a pre-determined rate of return each year

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8
Q

In calculating the amount of premium to be paid for a life assurance policy, what is
normally added to a loaded premium to arrive at the final premium payable?

A

Policy charge

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9
Q

Sheila is being advised to place her life assurance policy in trust. If she does this,
which of the following statements is true?
A. The policy remains in Sheila’s ownership until her death
B. The proceeds will go directly to the beneficiaries on her death after probate
C. The policy is not normally protected from creditors if Sheila is declared bankrupt
D. The premiums and the proceeds are normally exempt from inheritance tax

A

D. The premiums and the proceeds are normally exempt from inheritance tax

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10
Q

The Policies of Assurance Act 1867 covers all forms of assignment except?

A

Assignments by operation of law

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11
Q

Caroline held an own life with-profits life assurance policy. On her death, the amount
payable on the claim will vary depending on which of the following factors?
A. The amount of premiums paid over the term
B. Her age
C. The sum assured
D. The exact date of death

A

D. The exact date of death

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12
Q

Most life offices will pay death claims without a grant where the sum assured and the value of the estate is small, if the proceeds are being paid to?

A

A surviving spouse

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13
Q

How is the cover provided under a whole of life policy affected if premiums cease at a stated age?

A

It is not affected – the cover continues until death

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14
Q

Beverly and Ian have limited disposable income. They want a life assurance policy as protection for their children but do not know how long they will need the protection for. Which of the following options would be the most suitable?
A. A term assurance policy with a renewability option
B. A term assurance policy with a convertible option
C. A whole of life policy
D. A family income benefit policy

A

A. A term assurance policy with a renewability option

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15
Q

Frank has received the terminal illness benefit payment from his term assurance
policy. Explain the tax treatment of
the payment at the time it is made?

A

C. There is no liability for income tax or inheritance tax

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16
Q

Alan has made a gain of £6,000 on his non-qualifying life assurance policy. This gain could be liable for:

A

Higher or additional rates of income tax only

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17
Q

Melvin has a ten-year qualifying life assurance policy. Which of the following
situations would give rise to a chargeable event?
A. Assignment for money’s worth in year 9
B. Payment of any critical illness benefit
C. A policy loan to buy a life annuity where the interest is eligible for tax relief
D. A surrender of the policy after 6 years

A

D. A surrender of the policy after 6 years

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18
Q

Colin and Evelyn want a life assurance policy to meet the potential inheritance tax bill on their joint estate of £1,000,000 which they own in equal shares and includes the
family home. On the first death, they plan to leave their estate to each other and then
on the second death to their children. If they were both to die in the current tax year, the most effective policy would be a:

A

A joint life second death policy for £60,000

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19
Q

Marie has an onshore life assurance policy and Claire has an offshore life assurance
policy. The difference in the tax treatment of their funds is:

A

Marie’s fund will be taxed at roughly the basic rate of income tax, while Claire’s
fund will have gross roll-up

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20
Q

Paul made a PET of £450,000 in June 2013. If he dies in September 2017, how much inheritance tax would the donee be liable for? (Assume no annual allowances are available).

A

£30,000

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21
Q

A life office is making a payment to a policyholder on the surrender of a life assurance policy that involved a chargeable gain. How will the life office pay the proceeds?

A

Without deduction of any tax due

22
Q

Carol is making her third claim on her income protection policy. How her insurer will treat the policy?

A

The policy will continue on the original terms and premiums

23
Q

Which of the following definitions of incapacity used by insurance companies gives the widest definition and provides the highest level of cover?

A

Current occupation

24
Q

Who, from the following list of applicants for an income protection policy is likely to
be charged the highest premium?
A. Derek, aged 45, with a deferred period of 13 weeks
B. Chloe, aged 52, with a deferred period of 26 weeks
C. Arthur, aged 47, with a deferred period of 8 weeks
D. Julia, aged 48, with a deferred period of 4 weeks

A

D. Julia, aged 48, with a deferred period of 4 weeks

25
Q

In which of the following circumstances might an income protection policy provider
pay a commuted lump sum rather than continue paying the benefits on a regular
basis?
A. Where the insured is not expected to recover from their incapacity
B. Where the insured has a life expectancy of less than 6 months
C. Where the insured recovered from a condition initially expected to be terminal
D. Where the insured is aged over 55 at the time of the first claim

A

A. Where the insured is not expected to recover from their incapacity

26
Q

Tom is receiving benefits from his employer’s group income protection scheme. How will these be treated in relation to his personal tax liability?

A

They will be taxed in the same way as normal pay

27
Q

Emma took out an income protection policy in June 2006 and has now been living
and working in Thailand for the last 15 months. How is this likely to affect her policy?

A

It is likely to be cancelled

28
Q

Where a life office is calculating a proportionate benefit under an income protection policy, how will they usually define previous earnings?

A

Average earnings for the year or six months prior to incapacity

29
Q

Karen has a combined life assurance and critical illness policy. What will happen to
the sum assured on death if she makes a claim on the diagnosis of a critical illness?

A

It will not exist as the policy has paid out an accelerated death payment

30
Q

If a claim is made on a critical illness policy, which of the following factors will NOT
be checked by the office that issued the policy?
A. That the diagnosed illness is likely to cause death
B. That the diagnosed illness is covered by the policy
C. That the diagnosed illness was not a pre-existing condition
D. That the policyholder disclosed all relevant facts when applying for the policy

A

A. That the diagnosed illness is likely to cause death

31
Q

Income Protection is likely to be a higher priority than Critical Illness cover for most
people because:

A

It covers significantly more medical conditions

32
Q

Who has to prove that a CIC claim is payable?

A

The policyholder

33
Q

Which of the following is true in relation to critical illness premiums?
A. Premiums are more expensive for women
B. Premiums are based on mortality statistics
C. Reviewable premiums are dependent on the health of the insured
D. Guaranteed premiums tend to be higher than reviewable premiums

A

D. Guaranteed premiums tend to be higher than reviewable premiums

34
Q

Where an employer takes out group critical illness cover for their employees, a claim
will usually only be paid where the employee survives for how many days after
diagnosis?

A

30

35
Q 
Which of the following is disregarded for long term care purposes according to the
CRAG rules?
A. Investment bonds
B. Capital redemption bonds
C. Individual Savings Accounts
D. Unit trusts
A

A. Investment bonds

36
Q

Doreen has savings and investments of £20,000. How much tariff income will her
local authority deem her to have?

A

£23.00 per week

37
Q 
Maureen has taken out a budget plan private medical insurance policy. If she makes a claim, which of the following costs is unlikely to be covered?
A. Home nursing
B. Doctor’s fees
C. Drugs
D. Accommodation
A

A. Home nursing

38
Q

Susan has a mortgage payment protection insurance policy. If she makes a claim on
becoming unemployed, the maximum amount of time for which benefits will be paid is usually:

A

D. 24 months

39
Q

Graeme has set up an accident, sickness and unemployment insurance policy. Explain the payment of his premiums and
the tax treatment of the benefits?

A

There is no tax relief on the premiums and the benefits are tax free

40
Q 
40. Which of the following is one of the typical exclusions under a personal accident and sickness insurance policy?
A. Loss of a leg
B. Permanent disablement
C. Death
D. Normal pregnancy
A

D. Normal pregnancy

41
Q

Ben has a budget private medical insurance policy and Claire has a comprehensive plan. Which of the following statements is TRUE?
A. Ben’s policy has limited extra benefits
B. Claire’s policy will have limits on the costs of treatments covered in any one year
C. If there is an excess on the policy it will be higher on Ben’s
D. There will be no exclusions on Claire’s policy

A

D. There will be no exclusions on Claire’s policy

42
Q

A mortgage payment protection insurance provider can cancel the policy at a
minimum of how many days’ notice?

A

90

43
Q

For which type of protection policy could future risk be a factor?
A. All contracts for longer than 10 years
B. Contracts with reviewable premiums
C. Contracts with add on benefits
D. All contracts where the insured is over age 40 at the outset

A

B. Contracts with reviewable premiums

44
Q

After a full review an adviser has recommended to their client that they take out both term assurance cover and income protection insurance. The client only agrees to the term assurance cover. What is best practice as to how the adviser should proceed?

A

Proceed with the term assurance but ask the client to confirm in writing that they did not want the income protection insurance

45
Q

Which of the following statements is a drawback of using the multiple of salary basis to calculate the amount of key person insurance required by a company?
A. It does not take account of the key person’s age
B. It can only be based on a multiple of 5
C. It is only loosely related to the key person’s contribution to profits
D. It only takes a short-term time factor into account

A

C. It is only loosely related to the key person’s contribution to profits

46
Q

The transferring of a shareholding on the death of a shareholder can be facilitated by all of the following except?

A

Switching arrangement

47
Q

A cross option arrangement for a partnership is most beneficial for?

A

Preserving business property relief for IHT

48
Q

Peter a self-employed plumber has taken out a loan of £40,000 to buy new
equipment for his business. Why might he want any associated insurance policy to
repay it on his death to have a sum assured greater than the amount of the loan?

A

There may be early redemption penalties involved

49
Q

If a company has an agreement to purchase its own shares on the death of a
shareholder, subject to HMRC agreement the sale will normally count as:

A

A disposal for capital gains tax purposes

50
Q

The type of trust usually used with shareholder protection is a:

A

Flexible trust

RO5 2017-2018 TESTS (2 decks)

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