QFA Loans common mistakes
QFA Loans · Understand the traps and how to avoid them.
Treating a whole-of-life policy's surrender value as the amount the policyholder receives on surrender, rather than applying the early-surrender deduction and any outstanding policy loan first.
Candidates memorise the definition of surrender value but not the mechanics of how payment on surrender is actually calculated, so they pick the gross figure offered in the scenario.
What to do instead
For any surrender question, write down three lines before answering: (1) surrender value, (2) minus outstanding loan and interest, (3) minus any surrender charge, and select the net figure.
Assuming a life policy pays out immediately on death without checking whether the policy was still within a contestability or suicide-exclusion period.
The scenario gives a death shortly after inception, but candidates jump to 'the sum assured is payable' because they pattern-match on 'death benefit'.
What to do instead
Always note the time between inception and death. If it is within the contestability window, state that the insurer may investigate or limit the payout, and choose the option reflecting that condition.
Confusing the annual allowance, money purchase annual allowance and lifetime allowance (or their successors) when calculating how much of a contribution attracts a tax charge.
The limits have changed repeatedly, and candidates rely on a half-remembered figure rather than the figure in force for the tax year given in the scenario.
What to do instead
Before calculating, write the three limits for the stated tax year at the top of your working, then subtract carry-forward and unused allowance explicitly.
Treating a pension commencement lump sum as always tax-free up to 25% of the fund without checking whether the individual has already used any of their lump sum allowance.
The 25% rule is overlearned, and candidates overlook prior crystallisation events described in the scenario.
What to do instead
Scan the scenario for earlier benefit crystallisation events or transfers; if any exist, calculate the remaining lump sum allowance before concluding the payment is tax-free.
Ignoring the effect of charges and fund growth on an investment projection and simply comparing the headline returns quoted for two products.
Candidates compare gross returns because they are the most visible numbers, forgetting that the question is asking for the net outcome to the investor.
What to do instead
Convert every quoted return to a net figure by deducting the stated annual charge and any initial charge before comparing, and show the calculation.
Applying the wrong basis of sum insured (reinstatement versus indemnity) when assessing a commercial property claim, leading to over- or under-payment conclusions.
The terms look interchangeable to candidates, and the scenario deliberately mentions 'reinstatement' in the policy wording while describing an indemnity settlement.
What to do instead
Identify the basis stated in the policy schedule first, then apply the corresponding measure of loss; if reinstatement, check the condition requiring the sum insured to be adequate.
Forgetting that average (underinsurance) applies to commercial property claims when the sum insured is below the reinstatement value at the time of loss.
Candidates calculate the loss and stop, missing the second stage of applying the proportion.
What to do instead
After calculating the loss, divide the sum insured by the full reinstatement value and multiply the loss by that fraction; state the reduced settlement.
Assuming a private medical insurance policy will cover pre-existing conditions or chronic conditions because the treatment is medically necessary.
Candidates reason from clinical need rather than from underwriting terms, and most PMI policies exclude or restrict pre-existing and chronic conditions.
What to do instead
For each PMI question, check the underwriting basis (moratorium or full medical underwriting) and whether the condition predates cover; only then decide what is payable.
Treating a home reversion plan as equivalent to an equity release lifetime mortgage when answering questions about ownership, sale proceeds and inheritance.
Both are equity release products, so candidates apply lifetime mortgage logic to a reversion plan.
What to do instead
Memorise the key distinction: in a reversion plan the provider buys a share of the property at a discount and owns that share, so the borrower sells rather than borrows and the estate receives only the retained share of proceeds.
Classifying a consumer credit agreement as regulated or exempt without checking the credit limit, the debtor's status and the purpose of the credit.
Candidates apply a single threshold figure and ignore that exemptions depend on multiple conditions being met together.
What to do instead
For each consumer credit question, run a checklist: is the borrower an individual, is the purpose non-business, is the credit above the exemption threshold, and is the agreement of a type that is exempt regardless?