Free CII R05 Practice Questions: Critical Illness Insurance

CII means Chartered Insurance Institute. R05 is Financial Protection in the Diploma in Regulated Financial Planning. Use this focused CII R05 page as a short practice test for Critical Illness Insurance. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CII questions, copied live-exam content, or exam dumps.

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Sample questions

These are original Finance Prep practice questions aligned to this topic area. They are not official CII questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Critical Illness Insurance

A client has a critical illness policy with a sum assured of £150,000. She submits a claim after surgery and 8 weeks away from work.

Claim facts:

• Mortgage outstanding: £132,000
• Diagnosis: ductal carcinoma in situ of the breast
• Histology report: abnormal cells confined to the milk duct; no invasion of surrounding tissue
• Treatment: lumpectomy followed by radiotherapy

Policy excerpt:

We will pay the full sum assured for cancer, defined as any malignant tumour positively diagnosed with histological confirmation and characterised by uncontrolled growth and invasion of tissue.

We will not pay for any tumour described as pre-malignant, non-invasive, or cancer in situ.

Which interpretation is most appropriate?

• A. The full £150,000 should be payable because the client had cancer treatment and the mortgage is less than the sum assured.
• B. A partial payment should be made because the treatment was significant but the mortgage is only £132,000.
• C. The claim should be assessed as terminal illness benefit because radiotherapy followed surgery.
• D. The claim is unlikely to meet the policy definition because the diagnosis is cancer in situ and the report states there is no invasion of surrounding tissue.

Best answer: D

What this tests: Critical Illness Insurance

Explanation: Critical illness claims depend on the exact insured condition definition and any stated exclusions, not simply on the seriousness of treatment or the client’s financial need. Here, the policy requires a malignant tumour with uncontrolled growth and invasion of tissue. The medical evidence says the abnormal cells were confined to the milk duct with no invasion. The excerpt also expressly excludes cancer in situ. Those facts are decisive, so the claim is unlikely to qualify for the full critical illness benefit under this wording. The mortgage amount and sum assured show the financial impact, but they do not change whether the insured condition has been met.

• Treatment with surgery and radiotherapy does not override a policy definition that requires invasive disease.
• The mortgage shortfall or protection need affects suitability of cover, but not claim validity under the excerpt.
• Critical illness benefit is not normally reduced to match a mortgage balance unless the policy wording provides for that structure.
• Terminal illness benefit requires a terminal prognosis under the policy terms; radiotherapy alone does not establish that.

The policy requires invasive cancer and specifically excludes cancer in situ, which matches the histology facts.

Question 2

Topic: Critical Illness Insurance

A paraplanner is preparing a recommendation for Amira, age 38, who wants critical illness cover to clear her mortgage and provide one year of replacement income if she suffers a serious illness.

Protection need:

• Repay current repayment mortgage: £185,000
• Provide one year of net income: £36,000
• Total target benefit: £221,000

Existing critical illness arrangements:

• Joint life and critical illness decreasing term assurance, started 5 years ago:
  • Original sum assured: £240,000
  • Original term: 25 years
  • Current sum assured: not shown on the file
• Own-life level critical illness policy:
  • Sum assured: £50,000
  • Remaining term: 17 years

Which missing fact is most needed before advising whether Amira has a critical illness cover shortfall?

• A. The surrender value of the joint life and critical illness policy
• B. The current sum assured under the decreasing term critical illness policy
• C. The original mortgage amount when the decreasing term policy was arranged
• D. Whether the own-life level critical illness policy includes terminal illness benefit

Best answer: B

What this tests: Critical Illness Insurance

Explanation: For a critical illness recommendation, the adviser must compare the client’s quantified need with the benefit actually payable from existing cover. Amira’s target benefit is £221,000. The file confirms £50,000 of level critical illness cover, but the current benefit on the decreasing term policy is unknown. Because decreasing term assurance reduces over time, the original £240,000 sum assured is not enough to assess the present protection position. Once the current decreasing benefit is known, it can be added to the £50,000 level policy and compared with the £221,000 target to identify any shortfall or surplus.

• A surrender value would not normally determine the adequacy of critical illness protection; the key issue is the claim benefit available.
• Terminal illness benefit is usually linked to life assurance rather than the critical illness shortfall calculation shown here.
• The original mortgage amount may explain why the policy was arranged, but the current cover and current need drive the advice.

The current decreasing-term benefit is needed to compare total available critical illness cover with the £221,000 target need.

Question 3

Topic: Critical Illness Insurance

An employer provides a group critical illness policy for its staff. One employee has been diagnosed with cancer and the employer asks what evidence is most relevant for the insurer when deciding whether the claim meets the policy definition.

Policy extract:

Cancer means a malignant tumour positively diagnosed with histological confirmation. Carcinoma in situ is excluded unless specifically listed. The insured person must survive for 14 days after diagnosis.

Which evidence is most directly needed to support the claim outcome?

• A. A GP fit note confirming that the employee is currently unfit for work because of treatment side effects
• B. A letter confirming the employee has applied for a State disability benefit following the diagnosis
• C. A hospital histopathology report and consultant confirmation of the diagnosis date, cancer type, and survival period
• D. The employer’s payroll record showing that the employee was covered under the scheme at the last renewal date

Best answer: C

What this tests: Critical Illness Insurance

Explanation: Critical illness claims are assessed against the exact policy definition for the insured condition. For cancer, insurers normally need medical evidence showing the nature of the tumour and whether it falls within the covered definition, including any exclusions such as carcinoma in situ. A consultant report and histopathology evidence are therefore central, along with the diagnosis date and confirmation that any survival period has been met. Scheme membership and employment records may be relevant to eligibility under a group policy, but they do not prove that the medical condition satisfies the critical illness definition.

• A GP fit note supports absence from work, but it does not prove the specified critical illness definition has been met.
• Payroll or scheme records may help confirm eligibility, but they do not establish the medical validity of the claim.
• Applying for a State benefit may indicate financial or health difficulties, but it is not evidence that the policy’s cancer definition is satisfied.

These documents directly address the policy definition, exclusions, diagnosis date, and survival requirement.

Question 4

Topic: Critical Illness Insurance

A paraplanner is reviewing whether critical illness cover would be suitable for Priya, age 41.

Client facts:

• Married, with two children aged 6 and 9.
• Gross salary: £58,000. Her spouse works part-time and earns £18,000.
• Repayment mortgage outstanding: £205,000.
• Desired lump sum if she survives a serious illness: clear the mortgage and keep £20,000 available for treatment-related travel, home adjustments, and recovery costs.
• Savings: £14,000, which she wants to keep as emergency savings.

Existing protection:

• Life assurance: £205,000 level term, payable only on death or terminal illness.
• Employer death-in-service: four times salary.
• Employer sick pay: six months full pay, then six months half pay.
• No existing critical illness cover.

Priya is worried because her mother had breast cancer in her early 50s. A quote for £225,000 level critical illness cover to the end of the mortgage term is within Priya’s stated monthly budget, subject to underwriting.

Which conclusion is best supported?

• A. Critical illness cover should be limited to £20,000 because the mortgage is already protected by her level term assurance.
• B. Critical illness cover is unnecessary because the life assurance and death-in-service benefits already exceed the mortgage debt.
• C. Critical illness cover is suitable for about £225,000, subject to underwriting, because her existing cover does not provide a lump sum on survival of a specified serious illness.
• D. Critical illness cover is unsuitable because her employer sick pay removes the need for any separate serious-illness protection.

Best answer: C

What this tests: Critical Illness Insurance

Explanation: Critical illness insurance is designed to provide a lump sum if the insured survives a specified serious illness and meets the policy definition. Priya’s main stated need is capital-based: repay a £205,000 mortgage and retain £20,000 for recovery-related costs. That produces an indicated lump-sum need of £225,000. Her life assurance and death-in-service benefits are relevant to death needs, but they do not normally pay on survival of a critical illness unless a valid critical illness or terminal illness claim condition is met. Employer sick pay helps with income for a period, but it does not clear the mortgage or provide a capital fund. Her family history means underwriting terms may be affected, but it does not by itself make the cover unsuitable.

• Death benefits can be substantial but still fail to meet a survival-based serious-illness need.
• Treating the mortgage as already protected confuses life assurance with critical illness cover.
• Sick pay supports short-term income, but it does not replace a mortgage-clearing lump sum.

The estimated need is £205,000 mortgage debt plus £20,000 recovery costs, and her current arrangements do not meet that critical illness lump-sum need.

Question 5

Topic: Critical Illness Insurance

A client is applying for standalone critical illness insurance to cover a mortgage and short recovery period.

Application facts:

• Age: 39
• Cover requested: £180,000 level cover over 20 years
• Mortgage balance: £160,000
• Height and weight: 1.68 m and 91 kg
• Smoking: stopped cigarettes 8 months ago but still uses nicotine replacement
• Family history: mother diagnosed with breast cancer at age 47
• Current medical position: referred by GP after an abnormal breast screening result; hospital appointment is next month

Provider underwriting guide extract:

• BMI over 30 may affect premium terms or exclusions.
• Tobacco or nicotine use within the last 12 months is treated as smoker status.
• Recent unexplained symptoms or pending investigations will usually lead to postponement until results are available.

What is the best underwriting interpretation?

• A. The application should be accepted on standard terms because the amount requested is broadly in line with the mortgage need.
• B. The application is likely to be postponed until the investigation results are known, with BMI, smoker status, and family history then considered in the final terms.
• C. The client should be treated as a non-smoker because she stopped smoking cigarettes more than six months ago.
• D. The family history means the application must automatically be declined regardless of the investigation outcome.

Best answer: B

What this tests: Critical Illness Insurance

Explanation: Critical illness underwriting considers medical and lifestyle risks as well as the amount and purpose of cover. Here, the financial need appears reasonable, but that does not remove medical underwriting concerns. The BMI is approximately \(91 \div 1.68^2 = 32\), so it falls within the provider’s range that may affect terms. Continued nicotine replacement also means smoker status under the stated guide. The most decisive point is the pending investigation following an abnormal screening result. Insurers commonly postpone rather than accept or decline immediately where a material medical investigation is outstanding, because the diagnosis and prognosis are not yet known.

• Matching the cover to the mortgage addresses financial underwriting, not medical underwriting.
• Stopping cigarettes is not enough here because the provider treats nicotine use within 12 months as smoker status.
• Family history may influence underwriting, but it does not by itself require an automatic decline under the facts given.

The pending breast investigation is the immediate underwriting issue, and the BMI of about 32 plus recent nicotine use and family history may also affect terms.

Question 6

Topic: Critical Illness Insurance

Maya and Leo are equal shareholders in a small limited company. The company has a £180,000 business loan and relies heavily on Maya, who manages its main client contracts.

They already have level term assurance on each shareholder, owned personally, to support their families on death. Their main concern is that if Maya suffers a serious illness but survives, the company may need immediate cash to reduce the loan and fund temporary management support while revenue is disrupted.

Which arrangement would most directly address this concern?

• A. Additional personal level term assurance on Maya, written to pay her family if she dies during the term
• B. A personal income protection policy for Maya, with benefits paid to replace part of her own earnings after a deferred period
• C. Private medical insurance for Maya and Leo, to improve access to eligible private treatment
• D. A company-owned critical illness policy on Maya, with the sum assured based on the loan and expected continuity costs

Best answer: D

What this tests: Critical Illness Insurance

Explanation: Critical illness insurance is designed to pay a lump sum if the insured person is diagnosed with a specified serious illness and survives any required survival period. In a business context, this can support continuity by providing cash when a key person is alive but unable to contribute fully. Here, the company’s risk is not only death; it is a serious illness affecting Maya’s ability to manage key contracts, with an immediate need to repay or reduce debt and fund replacement management. A company-owned critical illness policy aligned to the loan and continuity costs most directly meets that need. The existing personal life assurance helps families on death, but it does not solve the business’s survival-and-disruption risk.

• Personal income protection would help Maya’s personal income, but it would not usually provide the company with a capital sum for debt repayment.
• Private medical insurance may help with treatment access, but it does not provide business continuity capital.
• Additional personal life assurance addresses death benefit needs, not the specified concern of serious illness survival.

Critical illness cover can provide a lump sum on diagnosis of a specified serious illness, helping the business repay debt and maintain continuity if Maya survives.

Question 7

Topic: Critical Illness Insurance

A client took out a personal critical illness policy with a sum assured of £100,000.

Application facts:

• The application asked whether she had been referred for any heart-related tests in the previous 5 years.
• She answered No, although her GP had referred her for cardiac tests 3 months earlier.
• The insurer accepts the answer was careless, not deliberate or reckless.
• The insurer confirms it would still have offered cover, but the monthly premium would have been £60 instead of the £40 actually charged.

She has now made a valid critical illness claim following a covered heart attack. What is the most appropriate claims outcome?

• A. Pay a reduced claim of about £66,667, reflecting the premium that should have been charged.
• B. Pay the full £100,000 because consumers do not have to volunteer medical information unless asked.
• C. Decline the claim entirely because the non-disclosed tests related to the condition claimed for.
• D. Avoid the policy without refunding premiums because any incorrect medical answer is treated as deliberate misrepresentation.

Best answer: A

What this tests: Critical Illness Insurance

Explanation: For consumer protection insurance, the applicant must take reasonable care not to make a misrepresentation when answering the insurer’s questions. If a misrepresentation is careless rather than deliberate or reckless, the insurer’s remedy depends on what it would have done had the correct facts been disclosed. Here, the insurer would still have issued the critical illness policy, but at £60 per month instead of £40. The appropriate remedy is therefore to reduce the claim proportionately: £100,000 × £40 / £60 = about £66,667. The insurer should not automatically void the policy or reject the whole claim merely because the undisclosed fact relates to the claimed condition.

• Paying the full sum ignores the duty to answer clear medical questions with reasonable care.
• Avoiding the policy without refunding premiums would fit deliberate or reckless misrepresentation, which the insurer has not alleged.
• Declining the whole claim would be inappropriate because the insurer says it would have offered cover, just at a higher premium.
• A proportionate claim payment matches the underwriting evidence and the careless nature of the misrepresentation.

For a careless qualifying misrepresentation where cover would have been offered at a higher premium, the remedy is a proportionate reduction in the claim.

Question 8

Topic: Critical Illness Insurance

A paraplanner is preparing a recommendation for Maya, age 39, who wants critical illness insurance to help clear her mortgage if she suffers a serious illness.

Known facts:

• Repayment mortgage: £160,000 outstanding, 22 years remaining.
• Existing critical illness policy: £120,000 level cover, 18 years remaining, £38 per month.
• Proposed policy: £160,000 level cover, 22-year term, £46 per month.
• Maya’s stated maximum budget is £50 per month.
• The draft recommendation would cancel the existing policy and replace it with the proposed policy.

Which missing fact is most important before recommending the replacement?

• A. How the covered conditions, definitions, survival period and exclusions compare between the existing and proposed policies.
• B. Whether the proposed policy benefit would normally be paid free of Income Tax.
• C. Whether Maya expects her mortgage interest rate to change at the next review date.
• D. Whether the policy can be assigned to the mortgage lender before completion.

Best answer: A

What this tests: Critical Illness Insurance

Explanation: Critical illness insurance pays only when the insured meets the policy definition of a covered condition and any required survival period. A cheaper or larger replacement policy may still be unsuitable if it has narrower definitions, more exclusions, fewer additional benefits, or less favourable claim terms than the existing cover. Before recommending cancellation, the adviser must compare the existing and proposed contracts, including covered illnesses, definitions, exclusions, survival period and any valuable features. The known facts already show the proposed cover better matches the mortgage amount and term and is within Maya’s stated budget, but they do not show whether she would lose important protection by replacing the old policy.

• Income Tax treatment is relevant background, but it does not decide whether replacing one critical illness policy with another is suitable.
• A mortgage rate change may affect affordability, but Maya’s current premium budget and the proposed premium are already stated.
• Assignment to a lender is not the key missing suitability fact for comparing critical illness policy quality.
• Policy definitions and exclusions directly affect whether a future claim would be paid.

A replacement recommendation must assess whether the new policy improves the client’s position overall, not just the sum assured, term and premium.

Question 9

Topic: Critical Illness Insurance

Amira and Daniel are married with two young children. They are arranging a new protection policy with these features and objectives:

• Policy: joint-life, first-event term assurance with accelerated critical illness cover.
• Sum assured: £300,000.
• Main concern on death: money should be available quickly for the children and should not increase the survivor’s estate unnecessarily.
• Main concern on critical illness: if either of them suffers a covered illness, the money must be available to that person and their spouse to repay debt and fund time off work.
• They will pay the premiums personally and do not expect tax relief on them.

What is the best recommendation?

• A. Use a split trust, if available, so the death benefit is held for the chosen beneficiaries while any critical illness benefit remains available to Amira or Daniel.
• B. Place the whole policy in a standard discretionary trust for the children, because this will ensure any critical illness claim is paid directly to Amira or Daniel tax-free.
• C. Write the policy as a relevant life policy through an employer, because this is the normal way to provide family critical illness cover tax-efficiently.
• D. Avoid using any trust, because critical illness proceeds are subject to Income Tax unless they are paid directly to the policyholder.

Best answer: A

What this tests: Critical Illness Insurance

Explanation: Critical illness insurance benefits paid as a lump sum are normally free of Income Tax and Capital Gains Tax for the recipient, and personal premiums are not normally tax-relievable. The main trust issue is not making the critical illness benefit tax-free; it is ensuring the right person can receive the money at the right time. With a combined life and accelerated critical illness policy, placing the whole policy into a standard family discretionary trust can mean a critical illness claim is payable to trustees for the beneficiaries, rather than to the ill policyholder. A split trust is commonly used where the clients want death benefits outside the estate for beneficiaries but want critical illness benefits retained for their own use.

• A standard discretionary trust for all benefits may frustrate the clients’ critical illness objective because the claim could be held for the children rather than used by the ill parent.
• Avoiding a trust because of Income Tax misunderstands the usual tax position; the lump-sum critical illness benefit is normally tax-free.
• A relevant life policy is an employer-funded life cover arrangement and is not the normal solution for personal family critical illness cover.

A split trust can keep the death benefit outside the estate for beneficiaries while avoiding the problem of a critical illness payment being trapped for others when the insured person needs it.

Question 10

Topic: Critical Illness Insurance

Amira, age 44, is reviewing protection for herself and her limited company.

Personal position:

• She has no dependent children.
• Her residential mortgage is already covered by a separate decreasing term assurance policy with critical illness cover.
• She has six months’ emergency savings and private medical insurance.

Business position:

• She owns 70% of a specialist design company and is the main fee earner.
• The company has a £180,000 business loan.
• If Amira suffered a serious illness, the company would need funds to cover loan repayments and recruit temporary senior support while she recovered.

For what main purpose should additional critical illness cover be considered?

• A. Business continuity, by providing a lump sum to help the company manage the loan and temporary replacement costs if Amira suffers a covered illness.
• B. Mortgage repayment, because critical illness cover should normally be used first to clear a client’s residential mortgage.
• C. Recovery costs only, because private medical insurance means no business protection need remains.
• D. Family security, because critical illness cover is mainly designed to replace income for dependent children.

Best answer: A

What this tests: Critical Illness Insurance

Explanation: Critical illness cover can support different needs depending on the facts. It may repay a mortgage, provide family security, fund recovery costs, or protect a business. Here, Amira’s personal mortgage risk is already addressed, she has no dependent children, and private medical insurance helps with treatment costs. The clear remaining exposure is business-related: the company depends heavily on her fee-earning role and would need cash to service debt and maintain operations if she suffered a covered serious illness. Additional cover should therefore be considered for business continuity rather than duplicating her existing personal mortgage protection.

• Mortgage repayment is less compelling because the residential mortgage already has critical illness cover.
• Family security is not the main need because there are no dependent children and the facts point to a business cash-flow exposure.
• Recovery costs may be relevant in some cases, but private medical insurance and emergency savings reduce that priority here; they do not remove the business continuity need.

The key uncovered risk is the company’s reliance on Amira and its need for cash if she suffers a serious illness.

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