Life Insurance Products

• Topic 01

  Life Insurance Products

  69 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. For which type of mortgage is decreasing term assurance most suitable?

   • A
     A buy-to-let mortgage
   • B
     A capital repayment mortgage
     Correct answer
   • C
     An interest-only mortgage
   • D
     A variable rate mortgage
   Explanation

   Decreasing term assurance is specifically designed to mirror the reducing outstanding balance of a capital repayment mortgage. As the mortgage balance reduces with each monthly payment, the sum assured on the policy also decreases broadly in line with this. For an interest-only mortgage, the balance does not reduce and level term assurance is more appropriate.

2. How is a family income benefit (FIB) policy paid out on the death of the life assured?

   • A
     As a lump sum paid at the end of the original policy term
   • B
     As a lump sum paid to the beneficiaries at the date of death
   • C
     As income payments deferred for 6 months and then paid until the end of the term
   • D
     As regular income payments from the date of death until the end of the original policy term
     Correct answer
   Explanation

   A family income benefit policy pays a regular income from the date of death to the end of the original policy term, rather than a lump sum. This provides the family with a predictable income stream to replace the breadwinner's earnings. The total benefit received depends on when death occurs; dying early in the term means more payments, while dying near the end means fewer payments remain.

3. What happens to the sum assured under a level term assurance policy over the policy term?

   • A
     It fluctuates according to the performance of the underlying investment fund
   • B
     It grows by adding bonuses declared by the insurer
   • C
     It decreases at a fixed rate set by the insurer at inception
   • D
     It remains constant throughout the policy term
     Correct answer
   Explanation

   Under a level term assurance policy, the sum assured remains the same throughout the entire policy term. If the life assured dies at any point during the term, the same fixed lump sum is paid. This makes level term assurance suitable for interest-only mortgages (where the outstanding balance does not reduce) and for providing a fixed capital sum to dependants.