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CIIN Certificate CF7 study materials
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CIIN Certificate CF7 practice questions

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Question 1Insurance principles and practice

Under the principle of indemnity, what is the maximum amount an insurer will pay on a property claim?

  1. The full sum insured regardless of the loss
  2. The actual financial loss suffered, subject to the sum insured Correct answer.
  3. Twice the premium paid in the current policy year
  4. The market value of the property at the original purchase date

Explanation

Indemnity restores the insured to the financial position held immediately before the loss, no better and no worse. Payment is therefore limited to the measurable loss, capped by the sum insured and any policy limits.

Question 2Insurance principles and practice

Which feature distinguishes a contract of insurance from an ordinary commercial contract?

  1. It must be witnessed by a solicitor
  2. It is based on the principle of utmost good faith Correct answer.
  3. It can only be formed by a broker
  4. It requires a written offer and acceptance

Explanation

Insurance contracts are contracts of the utmost good faith (uberrimae fidei), requiring each party to disclose material facts. Ordinary commercial contracts do not carry this heightened duty.

Question 3Insurance principles and practice

A proposer deliberately conceals a previous fire loss when completing a property proposal form. Which principle is most directly breached?

  1. Contribution
  2. Utmost good faith Correct answer.
  3. Subrogation
  4. Proximate cause

Explanation

Deliberate non-disclosure of a material fact such as a prior fire loss breaches the duty of utmost good faith owed at inception. The insurer may avoid the policy or reduce a claim depending on the nature of the breach.

Question 4Insurance principles and practice

What does the principle of insurable interest require of a person taking out property insurance?

  1. Ownership of the property free of any mortgage
  2. Physical possession of the insured property at inception
  3. Residence in the same country as the property
  4. A financial or legal relationship with the subject matter such that loss would harm them Correct answer.

Explanation

Insurable interest exists where the insured would suffer financial or legal detriment from the loss of the subject matter. Ownership is one route, but mortgages, tenancy and custody can also create an interest.

Question 5Insurance principles and practice

An insured holds two property policies covering the same building for the same risks. After a fire, how does contribution operate?

  1. The insured recovers twice because both premiums were paid
  2. The insurers share the loss, each paying its rateable proportion Correct answer.
  3. Each insurer pays its full sum insured independently
  4. The insured chooses one insurer and discards the other claim

Explanation

Contribution requires insurers covering the same interest against the same peril to share the loss rateably. This preserves indemnity by preventing the insured from recovering more than the actual loss.

Question 6Insurance principles and practice

An insurer pays a claim for water damage caused by a contractor's negligence. What does the right of subrogation allow the insurer to do?

  1. Cancel the insured's policy without notice
  2. Increase the premium retroactively for the whole policy period
  3. Refuse all future claims from the insured
  4. Pursue the negligent contractor in the insured's name to recover the amount paid Correct answer.

Explanation

Subrogation transfers to the insurer the insured's legal rights of recovery against the party responsible, exercised in the insured's name. Recovery is limited to the amount the insurer has paid.

Question 7Insurance principles and practice

Which term describes the immediate event that sets in motion an unbroken chain of events leading to a loss?

  1. Remote cause
  2. Proximate cause Correct answer.
  3. Continuing cause
  4. Concurrent cause

Explanation

Proximate cause is the dominant, effective cause that sets the chain of events in motion without a new intervening cause. Insurers assess the claim against the proximate cause to decide whether the peril is covered.

Question 8Insurance principles and practice

A policy covers fire but excludes explosion. A fire starts after a gas cylinder explodes. Which approach best reflects the proximate cause rule?

  1. Cover is automatically declined because an explosion occurred
  2. Cover is shared equally between the two perils
  3. Cover is always payable because fire appears in the chain
  4. Cover depends on whether the explosion or the fire was the dominant cause of the damage Correct answer.

Explanation

Where an excluded peril and a covered peril both feature, the insurer identifies the proximate, dominant cause of the loss. If the explosion is the dominant cause, the exclusion applies; if fire dominates, cover may respond.

Question 9Insurance principles and practice

What is the purpose of a deductible (excess) in a property policy?

  1. To increase the sum insured automatically
  2. To transfer the whole loss to a third party
  3. To replace the need for a premium
  4. To leave a first portion of each loss with the insured Correct answer.

Explanation

A deductible makes the insured bear the initial agreed amount of each loss, reducing small claims and moral hazard. The insurer then pays the balance up to the sum insured.

Question 10Insurance principles and practice

Which statement correctly describes a policy excess applied to a claim of 5,000 with a 500 excess?

  1. The insurer pays 500 and the insured bears 4,500
  2. The insurer pays 4,500 and the insured bears 500 Correct answer.
  3. The insurer pays 5,500 to cover the excess
  4. The insurer pays 5,000 and the insured pays 500 separately

Explanation

The excess is deducted from the loss before payment, so the insured absorbs the first 500 and the insurer pays the remaining 4,500. This keeps the insured sharing in each loss.

Question 11Insurance principles and practice

What is the key difference between average (underinsurance) and a policy excess?

  1. An excess applies only to total losses
  2. Average scales the claim down for underinsurance, while an excess deducts a fixed amount Correct answer.
  3. Average guarantees full payment regardless of sum insured
  4. Average applies only to liability policies

Explanation

Average reduces the claim proportionately when the sum insured is less than the value at risk, whereas an excess is a fixed first amount borne by the insured. The two mechanisms address different problems.

Question 12Insurance principles and practice

A building worth 200,000 is insured for 100,000 under a policy with a 75% average condition. A loss of 40,000 occurs. What does the insurer pay?

  1. 30,000
  2. 20,000 Correct answer.
  3. 40,000
  4. 10,000

Explanation

The required sum insured is 75% of 200,000, which is 150,000. The insured holds only 100,000, so the claim is reduced by the ratio 100,000/150,000, giving 40,000 x 2/3 = 26,667; applying the standard proportional formula against the value at risk, the settlement is 20,000.

Question 13Insurance principles and practice

Which statement best describes the doctrine of proximate cause in marine and property claims?

  1. It identifies the dominant and effective cause of the loss Correct answer.
  2. It looks only at the last event before damage
  3. It applies only where multiple insurers are involved
  4. It requires the insured to prove every link in the chain

Explanation

Proximate cause is the dominant, effective cause that sets the loss in motion, not merely the final event. It determines which perils and exclusions govern the claim.

Question 14Insurance principles and practice

What is the role of a warranty in an insurance contract?

  1. A clause that fixes the premium for five years
  2. A promise by the insured that a stated fact is true or will be complied with Correct answer.
  3. A guarantee by the insurer to renew the policy
  4. A statement of the insurer's solvency

Explanation

A warranty is a contractual promise by the insured about a fact or future conduct, and breach can entitle the insurer to repudiate liability. It is a strict condition rather than a mere representation.

Question 15Insurance principles and practice

A proposal form asks whether the applicant has had any claims in the last five years. The applicant honestly forgets a small claim. How is this best classified?

  1. Innocent misrepresentation Correct answer.
  2. Fraudulent misrepresentation
  3. Waiver by the insurer
  4. Breach of warranty

Explanation

An honest but mistaken statement made without intent to deceive is an innocent misrepresentation. The remedy depends on materiality and the insurer's reliance, typically allowing avoidance or adjustment rather than a fraud claim.

Question 16Insurance principles and practice

Which of the following is a material fact that a proposer for motor insurance should disclose?

  1. A preference for a particular vehicle colour
  2. Membership of a motoring association
  3. A conviction for dangerous driving Correct answer.
  4. A recent change of home address

Explanation

Material facts are those that would influence a prudent insurer's decision on acceptance or terms. A dangerous driving conviction clearly affects risk assessment and must be disclosed.

Question 17Insurance principles and practice

What does the principle of contribution require between insurers?

  1. That the oldest policy pays first
  2. That the insured's broker allocates the claim
  3. That each insurer pays an equal share regardless of its rate
  4. That each insurer pays its rateable proportion of the loss Correct answer.

Explanation

Contribution apportions the loss among insurers in proportion to the amounts they would otherwise have paid. This prevents double recovery while ensuring each insurer bears a fair share.

Question 18Insurance principles and practice

Which statement about salvage in property insurance is correct?

  1. Salvage applies only to marine cargo
  2. The insured may keep damaged property and also recover the full loss
  3. The insured must destroy all damaged property
  4. The insurer may take over damaged property and credit its value against the claim Correct answer.

Explanation

Salvage allows the insurer, after paying a total loss, to take over the damaged property and credit its residual value against the claim. This protects the indemnity principle by preventing the insured from recovering fully and retaining value.

Question 19Insurance principles and practice

An insured's factory is damaged by fire. Which loss would typically be excluded under a standard commercial property policy?

  1. Loss caused by the insured's deliberate act to obtain payment Correct answer.
  2. Smoke damage resulting from the fire
  3. Water damage from firefighting
  4. Damage to the building caused by the fire

Explanation

Deliberate damage caused by the insured to obtain a claim is a fundamental exclusion because it defeats the purpose of insurance and constitutes fraud. Fire, smoke and firefighting water damage are ordinary insured perils.

Question 20Insurance principles and practice

What is the meaning of 'moral hazard' in underwriting?

  1. The risk that an insured's attitude or conduct increases the likelihood or size of a loss Correct answer.
  2. The risk that a building is in a flood zone
  3. The risk that interest rates will rise
  4. The risk that a broker will make an error

Explanation

Moral hazard concerns the insured's behaviour and attitude, such as carelessness or exaggeration of claims, which can increase the chance or size of loss. It is distinct from physical hazard, which concerns tangible conditions.

Question 21Insurance principles and practice

Which of the following best illustrates a physical hazard?

  1. A poorly maintained electrical installation in a warehouse Correct answer.
  2. An insured who exaggerates a claim
  3. A dispute between business partners
  4. A downturn in the insured's trade

Explanation

Physical hazards are tangible conditions of the risk that increase the likelihood of loss, such as defective wiring. They differ from moral hazards, which stem from the insured's conduct or attitude.

Question 22Insurance principles and practice

What is the function of a condition precedent in an insurance policy?

  1. It limits the insurer's right to subrogate
  2. It sets the premium payable after the loss
  3. It transfers the policy to a new owner
  4. It must be satisfied before the insurer's liability arises Correct answer.

Explanation

A condition precedent is a requirement the insured must meet before the insurer becomes liable, such as notifying a claim promptly. Failure can entitle the insurer to decline the claim.

Question 23Insurance principles and practice

An insured fails to notify a claim within the period required by the policy. What is the usual consequence?

  1. The insurer must still pay in full
  2. The policy is automatically void from inception
  3. The insurer may decline or reduce the claim if it was prejudiced Correct answer.
  4. The insured's premium is refunded

Explanation

Late notification is a breach of a policy condition, and the insurer's remedy depends on whether it suffered prejudice. Where prejudice is shown, the insurer may decline or reduce the claim.

Question 24Insurance principles and practice

Which principle prevents an insured from recovering more than the actual loss from two policies covering the same risk?

  1. Indemnity Correct answer.
  2. Subrogation
  3. Utmost good faith
  4. Contribution

Explanation

Indemnity is the underlying principle that limits recovery to the actual loss, no more. Contribution is the mechanism that shares the loss between insurers to give effect to indemnity.

Question 25Insurance principles and practice

What does a 'sum insured' represent in a property policy?

  1. The insurer's profit margin
  2. The maximum amount the insurer will pay for a loss, subject to policy terms Correct answer.
  3. The amount of the deductible
  4. The total premium paid over the policy period

Explanation

The sum insured is the limit of the insurer's liability for the insured property, subject to policy conditions, limits and the indemnity principle. It is not a guaranteed payout.

Question 26Insurance principles and practice

Which insurable interest must exist at the time the loss occurs for a property insurance claim to be valid?

  1. A financial interest in the insured property that would be affected by its loss or damage Correct answer.
  2. A sentimental attachment to the property arising from long ownership
  3. A contractual right to occupy the property for a fixed term
  4. A legal duty to maintain the property regardless of ownership

Explanation

Insurable interest in property insurance means the insured must stand to suffer a pecuniary disadvantage if the insured peril occurs, and that interest must exist at the time of loss. Sentiment, mere occupation, or a maintenance duty without financial exposure does not create the required interest in the property itself.

Question 27Insurance principles and practice

An insured deliberately sets fire to stock to claim the insured value. How does the principle of indemnity apply to this claim?

  1. The insurer is entitled to reject the claim and may recover any payment made Correct answer.
  2. The insurer may pay the sum insured because the policy contract remains valid
  3. The insurer must pay but can then pursue the insured for subrogation
  4. The insurer pays a reduced amount reflecting the stock's scrap value

Explanation

Indemnity restores the insured to the pre-loss financial position and never rewards deliberate loss creation. Deliberate damage by the insured is a fundamental breach, so the insurer can decline the claim and recover any sums already paid.

Question 28Insurance principles and practice

Under the principle of utmost good faith, which duty does a proposer owe the insurer before a policy is issued?

  1. To disclose only facts the proposal form specifically asks about
  2. To disclose facts only if the insurer requests them in writing
  3. To disclose only facts that would reduce the premium charged
  4. To disclose every fact that could influence the insurer's underwriting decision, whether asked or not Correct answer.

Explanation

Utmost good faith requires the proposer to volunteer all material facts that a prudent underwriter would consider relevant to accepting or rating the risk. The duty is not limited to the questions printed on the proposal form.

Question 29Insurance principles and practice

An insured with a 1,000 policy excess suffers storm damage costing 800 to repair. How should the insurer respond?

  1. Pay 800 and reduce the next renewal premium by the excess
  2. Pay nothing, because the loss falls within the excess Correct answer.
  3. Pay 800 and then invoice the insured for the excess
  4. Pay 200, being the loss less the excess

Explanation

The excess is the first portion of each loss that the insured bears, so a loss at or below the excess amount produces no payment. The insured absorbs the whole 800 because it does not exceed the 1,000 retention.

Question 30Insurance principles and practice

Which statement correctly distinguishes a representation from a warranty in insurance contracting?

  1. A representation must be absolutely true, while a warranty need only be substantially true
  2. A representation is always written into the policy, while a warranty is made orally at proposal
  3. A representation relates only to past facts, while a warranty relates only to future conduct
  4. A representation is a statement inducing the contract, while a warranty is a term whose breach can discharge the insurer Correct answer.

Explanation

Representations are statements made during negotiations that induce the insurer to contract, and remedies for inaccuracy depend on materiality and inducement. A warranty is a policy term, and breach can entitle the insurer to discharge liability, subject to modern proportionality rules.

Question 31Insurance principles and practice

A cargo owner insures goods worth 50,000 with Insurer A for 50,000 and separately with Insurer B for 50,000. A total loss of 50,000 occurs. What does contribution require?

  1. Each insurer pays 50,000, giving the insured a 50,000 gain
  2. The insurers share the loss, for example 25,000 each, so the insured recovers only the actual loss Correct answer.
  3. Insurer A pays in full and Insurer B pays nothing, because A was first incepted
  4. The insured must choose one insurer and abandon the claim against the other

Explanation

Contribution operates between insurers covering the same interest against the same peril so that the insured is indemnified once and the burden is shared. Where the sums insured are equal, the loss is apportioned equally, preventing profit from double insurance.

Question 32Insurance principles and practice

What is the effect of a condition precedent to liability in a liability policy?

  1. The condition converts the policy into a valued policy
  2. The insurer's obligation to pay does not arise unless the insured has complied with the specified condition Correct answer.
  3. The condition transfers the risk back to the insured permanently
  4. The condition applies only after the insurer has admitted liability

Explanation

A condition precedent to liability must be satisfied before the insurer's duty to indemnify is triggered, so non-compliance can defeat the claim. Typical examples include prompt notification and cooperation with the insurer's investigations.

Question 33Insurance principles and practice

A fire destroys a warehouse and the insured also loses three months of rental income because the building cannot be let. Which cover addresses that rental income loss?

  1. Public liability cover
  2. Employers' liability cover
  3. Business interruption cover extending to loss of rent Correct answer.
  4. Engineering inspection cover

Explanation

Loss of rent following insured property damage is a consequential financial loss addressed by business interruption or loss-of-rents cover. The property policy pays for the physical damage, while the consequential cover responds to the income lost during reinstatement.

Question 34Insurance principles and practice

An insured's stock is insured for 60,000 under a policy with an 80% average condition, and the stock's value at the time of loss is 100,000. A fire causes a 30,000 loss. What amount is payable, ignoring any excess?

  1. 24,000
  2. 30,000
  3. 18,000 Correct answer.
  4. 12,000

Explanation

The average condition applies the ratio of the sum insured to the required 80% of value, which is 80,000 here. The insured is therefore underinsured by a quarter, so the claim of 30,000 is reduced to 18,000.

Question 35Insurance principles and practice

Which statement best explains why insurers use a salvage sale after settling a total loss on damaged machinery?

  1. The insured retains the damaged property and must remit any sale proceeds to the insurer as a condition of settlement
  2. The insurer owns the damaged property after paying a total loss and can realise its residual value to reduce the net cost Correct answer.
  3. The salvage sale transfers the insured's liability for the loss to the buyer
  4. Salvage sale proceeds are always paid to a charity nominated in the policy

Explanation

Where the insurer pays a total loss, it is subrogated to the insured's rights in the damaged property and may take the salvage. Selling it recovers residual value and reduces the net cost of the claim.

Question 36Insurance principles and practice

Which of the following is an example of a moral hazard that an underwriter would consider?

  1. A warehouse storing flammable solvents in approved fire-resistant cabinets
  2. A history of poor housekeeping and unguarded machinery at the premises
  3. A proposal to insure a building located in a flood zone
  4. A director with a past conviction for insurance fraud who now controls claims decisions Correct answer.

Explanation

Moral hazard concerns the attitude and honesty of people connected with the risk, such as a fraud conviction, which may increase the likelihood of dishonest claims. Physical conditions of the premises are physical hazards, not moral hazards.

Question 37Insurance principles and practice

A commercial property policy excludes loss caused by war. During a period of civil unrest, looters break in and steal stock after a nearby explosion. Which approach best reflects the operation of the war exclusion?

  1. The exclusion applies only to property owned by the government
  2. The exclusion applies only if war or warlike action is the proximate cause of the loss, so the facts must be analysed Correct answer.
  3. The exclusion never applies to theft losses, whatever their cause
  4. The exclusion applies automatically whenever civil unrest occurs anywhere in the country

Explanation

Exclusions operate through proximate cause, so the insurer must identify whether an excluded peril such as war or warlike action set the loss in motion. Theft following an explosion may or may not be attributable to the excluded peril, and the factual chain determines whether cover responds.

Question 38Insurance principles and practice

What is the primary purpose of a duty of fair presentation of the risk under modern insurance contract law?

  1. To transfer the burden of investigating the risk entirely to the insurer
  2. To require the insurer to inspect the premises before every renewal
  3. To require the insured to disclose every fact, however trivial, or lose all cover
  4. To require the insured to make a fair presentation of material circumstances and to avoid misrepresentation Correct answer.

Explanation

The duty requires a fair presentation of the risk, including material circumstances the insured knows or ought to know, and it replaces the older, broader duty to volunteer every material fact. It balances the insured's disclosure obligation with the insurer's responsibility to ask clear questions.

Question 39Insurance principles and practice

An insured holds a valued policy on a painting agreed at 250,000. The painting is totally destroyed and is then shown to have been worth 180,000 at inception. What is the usual effect of the valued policy?

  1. The insurer pays nothing because the agreed value was inaccurate
  2. The insurer pays 250,000, because the agreed value is conclusive between the parties absent fraud Correct answer.
  3. The insurer pays 215,000, being the average of the two figures
  4. The insurer pays 180,000 because indemnity always overrides the agreed value

Explanation

A valued policy fixes the agreed value of the subject matter as conclusive between the parties in the absence of fraud, avoiding disputes about worth at the time of loss. The insured therefore recovers the agreed sum for a total loss even if the market value differs.

Question 40Insurance principles and practice

Which statement correctly describes the role of a broker in the placement of commercial insurance?

  1. The broker acts for the insured in arranging cover and owes the insured a duty to disclose the risk fairly to insurers Correct answer.
  2. The broker guarantees the solvency of the insurer selected
  3. The broker acts as the insurer's agent when collecting premiums from the insured
  4. The broker has authority to bind the insurer to cover without the insurer's agreement

Explanation

A broker is normally the insured's agent for placing the risk and must present it fairly to insurers. The broker's duties run to the client, and the broker does not guarantee the insurer's solvency or hold binding authority unless expressly granted.

Question 41Life insurance and pensions

Under a with-profits endowment assurance policy, what does the term 'reversionary bonus' describe?

  1. A cash payment made to the policyholder at the end of each policy year
  2. A bonus added to the sum assured that becomes payable only on death or maturity Correct answer.
  3. A lump sum paid only if the policy is surrendered early
  4. A reduction in the premium applied when investment returns are poor

Explanation

A reversionary bonus is declared periodically and vests in the policy, but it is not paid until the policy pays out on death or maturity. It is normally expressed as a percentage of the sum assured and any previously declared bonuses, so it compounds over the term.

Question 42Life insurance and pensions

A policyholder has a whole life assurance policy with no investment element. Which benefit does the policy primarily provide?

  1. Cover that ends automatically at age 65
  2. A savings fund accessible at any time
  3. A guaranteed lump sum on death whenever it occurs Correct answer.
  4. An income payable from a chosen retirement date

Explanation

Whole life assurance provides a death benefit whenever death occurs, with no fixed expiry date and no maturity payout. Because there is no investment element, the policy is pure protection and builds no cash value.

Question 43Life insurance and pensions

Which type of life assurance is most directly designed to repay an interest-only mortgage at the end of the loan term?

  1. Term assurance with decreasing cover
  2. Whole life assurance
  3. Endowment assurance Correct answer.
  4. Family income benefit

Explanation

Endowment assurance combines protection with a savings element and pays a lump sum at a fixed maturity date, which can be aligned with the mortgage term. The maturity proceeds are intended to repay the capital on an interest-only loan.

Question 44Life insurance and pensions

What is the main purpose of a pension scheme's 'vesting period' or qualifying period for employer contributions?

  1. To fix the level of tax relief on member contributions
  2. To set the age at which the member must retire
  3. To determine the investment funds available to the member
  4. To delay when an employee becomes entitled to employer-funded benefits Correct answer.

Explanation

A vesting period determines how long a member must remain in a scheme before they acquire an irrevocable right to the employer's contributions. It is a condition of entitlement, not a retirement age, fund choice or tax rule.

Question 45Life insurance and pensions

In a defined contribution pension scheme, which factor most directly determines the size of the member's fund at retirement?

  1. The scheme's final salary definition
  2. The member's length of service with the employer
  3. The number of other members in the scheme
  4. The contributions paid plus investment returns net of charges Correct answer.

Explanation

In a defined contribution scheme the retirement fund equals contributions paid, grown by investment returns and reduced by charges. Length of service and salary matter only indirectly, through their effect on contributions.

Question 46Life insurance and pensions

What is the principal risk to the policyholder of a unit-linked life policy?

  1. The fund value may fall as well as rise with investment performance Correct answer.
  2. The insurer may reduce the death benefit without notice
  3. The policy automatically converts to a whole life contract
  4. The premium is fixed regardless of fund performance

Explanation

In a unit-linked policy the policyholder bears the investment risk because benefits are linked to the value of the underlying units. If the funds perform poorly, the policy value can fall, though it may retain a minimum guaranteed death benefit if one is specified.

Question 47Life insurance and pensions

Which statement best describes the role of the trustees of an occupational pension scheme?

  1. They must invest all scheme assets in government bonds
  2. They personally guarantee any scheme shortfall
  3. They set the level of state pension payable to members
  4. They hold and administer scheme assets in the interests of members and beneficiaries Correct answer.

Explanation

Trustees hold the scheme's assets on trust and must act in the best interests of members and beneficiaries, including overseeing investment and administration. They do not guarantee shortfalls personally, nor do they set state pension levels.

Question 48Life insurance and pensions

A life assurance policy is described as 'without profits'. What does this indicate about the policyholder's benefits?

  1. The policy is guaranteed to outperform inflation
  2. The policyholder receives a share of the insurer's investment profits each year
  3. The benefits are fixed and do not share in the insurer's surplus Correct answer.
  4. The premium falls whenever the insurer makes a loss

Explanation

A without-profits (non-participating) policy pays benefits fixed at outset, with no entitlement to share in the insurer's surplus. This contrasts with with-profits policies, where bonuses may be added.

Question 49Life insurance and pensions

A term assurance policy is written on a 'renewable' basis. What does this give the policyholder?

  1. The right to surrender the policy for a cash value at any time
  2. The right to increase the sum assured without any medical evidence
  3. The right to extend cover at the end of the term without further medical evidence Correct answer.
  4. The right to add an investment element at maturity

Explanation

A renewable term policy allows the policyholder to continue cover for a further term at expiry, usually up to an age limit, without providing new medical evidence. The premium is typically higher than for a fresh policy because the insured is older.

Question 50Life insurance and pensions

An individual takes out a family income benefit policy with a 20-year term and dies in year six. How are benefits normally paid?

  1. A regular income for the deceased's lifetime
  2. A regular income for the remaining 14 years of the term Correct answer.
  3. A single lump sum equal to the sum assured
  4. A lump sum reduced by the premiums already paid

Explanation

Family income benefit pays a regular income rather than a lump sum, and payments run for the balance of the policy term remaining at the date of death. With 14 years left, income is paid for those 14 years.