Insurance Product Features

• Topic 01

  Insurance Product Features

  54 questions

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

1. An applicant for life assurance has a history of high blood pressure, well managed with medication for 10 years. The insurer completes a full review. Which underwriting decision is MOST likely?

   • A
     Acceptance with a premium loading, reflecting the higher mortality risk associated with a history of hypertension
     Correct answer
   • B
     Postponement, as the insurer must wait for the condition to resolve before accepting the risk
   • C
     Acceptance at standard rates, as well-managed conditions are never rated by underwriters
   • D
     Acceptance with an exclusion for all cardiovascular causes of death
   Explanation

   A well-managed history of hypertension typically results in acceptance with a premium loading (rating). The insurer acknowledges the higher statistical mortality risk and charges an extra premium to compensate. It would be unusual to decline for well-controlled hypertension, and a blanket cardiovascular exclusion may be disproportionate if the condition is mild. Standard rates would only apply if the insurer deemed the risk acceptable without adjustment.

2. A client has an income protection policy with an own occupation definition and a separate waiver of premium benefit that uses an 'any occupation' definition of incapacity. They develop a condition preventing them from working as an accountant but they could do simpler office work. They claim IP benefit successfully under own occupation. Is the waiver of premium triggered?

   • A
     No; WOP and IP benefit can never operate simultaneously on the same policy
   • B
     Yes; the own occupation test is used for both the IP benefit and the waiver of premium as this is the policy definition
   • C
     No; the waiver of premium uses a different (stricter) definition of incapacity; as the client could do other work, the any occupation test is not met and premiums are not waived
     Correct answer
   • D
     Yes; once the main IP benefit claim is accepted, the waiver of premium is automatically triggered as well
   Explanation

   Waiver of premium may use a different (often stricter) definition of incapacity than the main IP benefit. Here, the IP benefit is paid because the client cannot do their own occupation (accountant). But for WOP, the any occupation test is not met — the client can still do other work. Therefore, the WOP benefit is not triggered and premiums remain due. Advisers must specifically check the WOP definition on every policy they recommend.

3. What is the typical deferred period before the waiver of premium benefit begins, and what happens to premiums due during that period?

   • A
     Typically 26 weeks; premiums are normally due during this period unless the insurer backdates the waiver to the start of incapacity once the deferred period expires
     Correct answer
   • B
     Premiums are suspended during the deferred period and then repaid from the policy proceeds when the claim ends
   • C
     The deferred period is set by the policyholder at inception and cannot be changed after the policy starts
   • D
     The deferred period is 12 months; all premiums due during this period must be paid in full
   Explanation

   The waiver of premium benefit typically has its own deferred period, usually 26 weeks. During this period, the policyholder is responsible for paying premiums. Once the deferred period expires and the claim is accepted, some insurers backdate the waiver to the start of incapacity and refund or credit premiums paid during the deferred period. It is important to note that the WOP deferred period may differ from the main benefit deferred period on an IP policy.