Chartered Insurance Institute (CII) Qualifications Protection, Financial Protection and Holistic Planning (R05 / R06) Syllabus

What is the 'deferred period' in income protection and how does it affect cost?

The waiting period between the start of incapacity and the start of benefit payment (e.g. 4, 13, 26, 52 weeks). A longer deferred period lowers the premium because the insurer's exposure and claim duration are reduced.

Explain the difference between 'own occupation', 'suited occupation' and 'any occupation' definitions of incapacity.

Own occupation: pays if unable to do your own job (most generous). Suited occupation: pays if unable to do a job suited to your training/experience. Any occupation: pays only if unable to do any job (most restrictive, cheapest).

How is the maximum benefit on an income protection policy usually limited?

To a percentage of gross earnings (commonly around 50–65%, with lower bands above a threshold), so that net replacement income does not exceed or approach pre-incapacity net earnings and the incentive to return to work is preserved.

What is the difference between an 'indemnity' and a 'fixed benefit' basis for an IP claim?

On an indemnity basis the benefit is reduced if income at claim is lower than at outset; on a fixed/guaranteed benefit basis the agreed benefit is paid regardless of current earnings (subject to underwriting at outset).

What is 'underwriting' in the protection context?

The insurer's process of assessing the risk presented by a proposer — using health, lifestyle, occupation and financial information — to decide whether to accept the risk and on what terms (standard rates, loading, exclusion, postponement or decline).

List the possible underwriting decisions an insurer may reach.

Accept at standard (ordinary) rates; accept with a premium loading; accept with an exclusion; accept on amended terms (e.g. shorter term/lower SA); postpone; or decline the risk.

What is a 'premium loading' and how is it commonly expressed?

An extra charge for above-average risk, expressed as a percentage of the standard premium (e.g. +50%) or as a 'per mille' addition (£x per £1,000 sum assured), reflecting the increased mortality/morbidity risk.

What is the difference between non-disclosure and misrepresentation under the Consumer Insurance (Disclosure and Representations) Act 2012?

The Act replaced the old duty to volunteer all material facts with a duty to take reasonable care not to make a misrepresentation in answer to the insurer's questions; insurer remedies depend on whether a misrepresentation was careless or deliberate/reckless.

Under CIDRA 2012, what remedies apply for a 'careless' qualifying misrepresentation?

A proportionate remedy: the insurer may reduce the claim proportionately, apply the terms it would have set, or, if it would have declined, avoid the policy and return premiums — depending on what it would have done had it known the true facts.

What is a 'survival period' in critical illness and term-plus-CIC policies?

A minimum period (commonly 10–14 days, sometimes 28) that the life assured must survive after diagnosis of a covered condition for the CIC benefit to become payable.

Why might a moratorium underwriting approach be used, and where is it common?

Under a moratorium (common in PMI/some IP), no medical evidence is gathered at outset; instead pre-existing conditions in a look-back period are excluded until a continuous period (e.g. 2 years) symptom-free has passed — quick to set up but uncertainty at claim.

Why is writing a life policy in trust generally advantageous?

It keeps the proceeds outside the life assured's estate (no inheritance tax on the sum assured), allows payment to beneficiaries without waiting for probate (faster), and lets the settlor control who benefits.

What is the difference between an absolute (bare) trust and a discretionary trust for a protection policy?

An absolute/bare trust fixes named beneficiaries with immediate, irrevocable entitlement (cannot be changed). A discretionary trust gives trustees power to decide which of a class of potential beneficiaries benefit, offering flexibility but with periodic/exit IHT charges potential.

Who are the parties to a trust used for a life policy?

The settlor (the policyholder who creates the trust), the trustees (who legally hold and administer the policy/proceeds), and the beneficiaries (who benefit). The settlor is usually also a trustee initially.

What is a 'split trust' (or 'survivor/flexible split trust') used for with combined life and critical illness cover?

It allows the critical illness benefit to be retained by the life assured (for their own use during illness) while the death benefit is held in trust for chosen beneficiaries outside the estate.

What IHT advantage does paying premiums on a trust policy via gifts offer?

Premiums are usually covered by the IHT exemptions — the annual exemption (£3,000), small gifts, or the 'normal expenditure out of income' exemption — so they are not chargeable transfers and the proceeds fall outside the estate.

What is 'key person' (key man) protection?

Business protection that pays the company a lump sum (or income) on the death or critical illness of a key employee whose loss would significantly affect profits, to cover loss of profit, recruitment costs or loan repayment.

How is a key person sum assured commonly quantified?

Using methods such as the multiple-of-salary approach, the proportion-of-payroll/profits method (e.g. $\text{SA} = \frac{\text{key person's salary}}{\text{total payroll}} \times \text{gross profit} \times \text{years to recover}$), or covering specific loans/replacement costs.

What is 'share/partnership protection' and the role of a cross-option agreement?

It provides funds for surviving owners to buy a deceased owner's share. A cross-option (double-option) agreement gives each side an option (not obligation) to buy/sell, ensuring business property relief is preserved while enabling an orderly transfer.

Why is a 'buy and sell' agreement generally avoided in favour of a cross-option agreement for share protection?

A buy and sell agreement creates a binding contract for sale on death, which can cause loss of Business Relief (BR) for IHT because the shares are treated as already sold; a cross-option keeps it as an option and preserves BR.

What are the two main ways share/partnership protection policies can be arranged?

Own-life policies written in trust for co-owners (each insures own life for the others), or life-of-another policies where each owner takes a policy on the others' lives; the trust route is usually preferred for simplicity and equality.

What is business loan protection?

Life and/or critical illness cover taken out to repay business borrowings (loans, overdrafts, directors' loans, commercial mortgages) on the death or serious illness of the owner/guarantor, protecting the business and personal guarantees.

What is a 'relevant life policy' (RLP)?

A single-life, death-in-service-style term assurance taken out by an employer on an employee's life, written in trust for the employee's family; premiums are generally tax-deductible for the employer and not a P11D benefit for the employee.

Give the main tax advantages of a relevant life policy over a personal life policy.

Premiums are usually an allowable business expense (corporation tax relief), are not treated as a benefit in kind or subject to income tax/NI for the employee, do not count toward the pension lifetime allowance, and proceeds are paid IHT-free via trust.

How does group life assurance ('death in service') typically provide benefits?

An employer-arranged scheme paying a multiple of salary (e.g. 4x) as a lump sum on death in service, usually written under a registered or excepted group life trust so benefits are paid tax-free and outside the estate.

What is the difference between a registered and an 'excepted' group life scheme?

Registered schemes' benefits counted toward the old pension lifetime allowance and follow pension trust rules; excepted (non-registered) group life schemes sit outside pension rules, useful for high earners, but have their own trust/IHT periodic charge considerations.

What is the role of integrating protection within the wider holistic financial plan?

Protection should be coordinated with savings, pensions, mortgage, tax and estate planning so cover dovetails with liabilities, existing benefits and goals — avoiding duplication, gaps, and ensuring affordability across the whole plan.

What does 'know your client' (KYC) require an adviser to gather before recommending protection?

Full hard facts (income, expenditure, assets, liabilities, dependants, existing cover, employment benefits) and soft facts (attitudes, health, priorities, objectives), to ensure suitability and a documented needs analysis.

What should a suitability report for a protection recommendation contain?

The client's needs/objectives, the demands and needs identified, the recommended product and why it meets them, the cover amount/term/benefits, costs, any limitations/exclusions, alternatives considered, and risks of not proceeding.

Why must protection plans be reviewed regularly, and what events should trigger a review?

Because needs change over time; reviews should be triggered by life events such as marriage/divorce, birth of children, house move/new mortgage, salary change, business changes, inheritance, or changes in health/tax rules, to keep cover adequate and relevant.