Free CII R05 Practice Questions: Protection Needs and Sources

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 Protection Needs and Sources. 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.

Topic snapshot

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: Protection Needs and Sources of Financial Protection

Priya, aged 38, is reviewing protection for her family.

Client facts:

• She earns £48,000 a year and her spouse earns £14,000 part time.
• They have two dependent children and a £210,000 repayment mortgage with 22 years remaining.
• Her employer provides death-in-service cover of four times salary.
• Her employer sick pay is six months at full pay followed by six months at half pay.
• There is no group income protection or group critical illness cover.
• The employer benefits would stop if Priya left that employment.
• Their savings are £8,000, and State benefits alone would not maintain their normal household commitments.

What is the best recommendation?

• A. Rely on the employer death-in-service benefit and possible State benefits, because private cover would duplicate existing protection.
• B. Arrange only short-deferred income protection, because the main priority is immediate income replacement from the first month of illness.
• C. Use payment protection insurance for the mortgage only, because it would remove the need for wider family income or life assurance planning.
• D. Treat State and employer benefits as part of the baseline, then add personal income protection with a deferred period aligned to sick pay and personal life assurance to cover the remaining family and mortgage shortfall.

Best answer: D

What this tests: Protection Needs and Sources of Financial Protection

Explanation: A protection recommendation should start by identifying what each source can realistically provide. Priya’s employer benefits are valuable, but they are incomplete and not portable. Death-in-service cover of four times salary may not clear the mortgage and provide continuing family income. Sick pay gives short-term support, so personal income protection should normally be structured to start after the employer sick pay period rather than duplicate it from the outset. State benefits may help, but they are usually limited and may be means-tested or insufficient to meet normal household commitments. The best approach is therefore to use State and employer provision as part of the overall plan, then fill the remaining gaps with private cover that matches the family’s debts, income need, affordability, and review requirements.

• Relying only on employer and State provision ignores the loss of employer benefits if Priya changes job and the likely shortfall for dependants.
• A short-deferred income protection policy may be unnecessarily expensive because it overlaps with employer sick pay.
• Mortgage payment protection alone would not provide broader long-term family income or clear wider death-cover needs.
• Combining sources avoids both underinsurance and unnecessary duplication.

This combines available State, employer, and private provision so the private cover targets the actual gaps in death and long-term incapacity protection.

Question 2

Topic: Protection Needs and Sources of Financial Protection

A protection adviser is reviewing Daniel’s needs. Daniel is aged 42, divorced, and has one child aged 10 who lives with him. He is the sole earner.

Client facts:

• Net earned income: £3,400 per month
• Essential household spending, including mortgage: £3,050 per month
• Emergency savings: £5,000
• Mortgage balance: £168,000
• Other debt: £6,000
• Existing decreasing term assurance: £168,000, matching the mortgage
• Death-in-service benefit: £180,000
• Employer sick pay: full pay for 4 weeks, then statutory sick pay only
• No income protection, critical illness cover, or family income benefit

Adviser’s estimate:

• Additional capital needed on death, after existing cover: about £20,000
• Monthly income shortfall if Daniel is unable to work after employer sick pay ends: about £2,600

What is the best calculation-supported conclusion about Daniel’s dominant protection need?

• A. Income protection is the dominant need because a prolonged incapacity would create the largest uninsured ongoing shortfall.
• B. Additional lump-sum life assurance is the dominant need because he has a dependent child.
• C. Buildings and contents insurance is the dominant need because the home is Daniel’s main asset.
• D. Additional mortgage life assurance is the dominant need because the mortgage is the largest liability.

Best answer: A

What this tests: Protection Needs and Sources of Financial Protection

Explanation: The dominant protection need is the one that leaves the client most exposed after existing arrangements are considered. Daniel’s mortgage is already matched by decreasing term assurance, and his death-in-service benefit largely covers the estimated death need, leaving only a relatively small £20,000 capital shortfall. The major uncovered risk is loss of earned income through illness or incapacity. His essential spending is £3,050 per month, savings are only £5,000, and after four weeks his employer sick pay falls to statutory sick pay only. A continuing monthly shortfall of about £2,600 would affect his ability to maintain the household and support his child very quickly. That makes income protection the priority need.

• Mortgage life assurance is less pressing because the existing decreasing term assurance matches the £168,000 mortgage balance.
• Buildings and contents cover may be important asset protection, but it does not address Daniel’s main financial exposure: loss of income.
• Extra lump-sum life assurance may be considered, but the estimated death-cover shortfall is much smaller than the ongoing incapacity shortfall.

The income shortfall of about £2,600 per month would quickly exhaust Daniel’s limited savings and is not addressed by his existing death cover.

Question 3

Topic: Protection Needs and Sources of Financial Protection

Priya, age 36, is reviewing her protection arrangements. Her main concern is what would happen financially if she died while her family still depended on her income.

Client facts:

• Partner: married, earns enough to meet day-to-day costs only if the mortgage is repaid.
• Children: two children, ages 4 and 7.
• Mortgage: £240,000 repayment mortgage over 22 years.
• Other debt: £12,000 car loan.
• Family income shortfall on Priya’s death: £1,500 per month until the youngest child reaches age 18.
• Existing death-in-service cover: £150,000.
• Savings available for protection needs: £10,000.

Ignoring inflation and investment growth, which protection priority best matches Priya’s liabilities and dependants?

• A. Death cover of about £326,000, combining debt repayment cover with income support for the children’s dependency period.
• B. Decreasing term assurance for £240,000 only, because the mortgage is the largest single liability.
• C. Critical illness cover for £252,000, because it would clear the mortgage and car loan if Priya became seriously ill.
• D. Income protection insurance only, because the family income shortfall is monthly rather than a capital liability.

Best answer: A

What this tests: Protection Needs and Sources of Financial Protection

Explanation: Priya’s stated concern is death while her family still has debts and dependant children. The priority is therefore life assurance that addresses both the capital liabilities and the continuing income need. The capital debts are £240,000 plus £12,000, or £252,000. The income gap is £1,500 per month for 14 years until the youngest child is 18, giving £252,000. Total gross need is £504,000. Existing death-in-service cover and savings total £160,000, leaving an estimated shortfall of £344,000. The best match is a combination of debt repayment cover and family income support, rather than a policy aimed only at incapacity or serious illness.

• Mortgage-only cover ignores the car loan and the children’s continuing income dependency.
• Income protection helps with incapacity while alive, but it does not meet the stated death need.
• Critical illness cover addresses serious illness, not the financial consequences of Priya’s death for dependants.

The uncovered need is £252,000 of debts plus £252,000 of family income need, less £160,000 of existing resources, giving about £344,000; the priority is death cover for debts and dependants.

Question 4

Topic: Protection Needs and Sources of Financial Protection

Amira, aged 42, lives with Ben. They are not married or civil partners and have one financially dependent child, Layla, aged 6. Amira wants any death-cover estimate to clear family debts, maintain Ben and Layla’s income until Layla is 18, and fund the expected estate liability without reducing the money available to them.

Assume inflation, investment returns and State benefits are ignored.

• Required net household income if Amira dies: £42,000 a year for 12 years
• Ben’s continuing net income: £16,000 a year
• Outstanding repayment mortgage: £280,000
• Other debts: £20,000
• Estimated IHT liability on Amira’s death after available exemptions and allowances: £62,000
• Existing death benefits outside Amira’s estate and available for Ben and Layla:
  • Employer death-in-service benefit: £280,000
  • Term assurance in trust: £150,000

Which conclusion is best supported?

• A. There is an estimated £524,000 shortfall because existing cover should only be used for income replacement, not debts or IHT.
• B. There is an estimated £244,000 death-cover shortfall once income replacement, debts, IHT and existing cover are all allowed for.
• C. There is an estimated £182,000 shortfall because the IHT liability should be excluded from the protection calculation.
• D. There is no shortfall because the £430,000 existing cover exceeds the £300,000 mortgage and debt requirement.

Best answer: B

What this tests: Protection Needs and Sources of Financial Protection

Explanation: The income need is the annual shortfall between the required household income and Ben’s continuing income: £42,000 - £16,000 = £26,000 a year. Over 12 years, this gives an income replacement need of £312,000. The debt need is £300,000, made up of the £280,000 mortgage and £20,000 other debts. The expected IHT liability of £62,000 is also relevant because Amira wants it funded without reducing Ben and Layla’s resources. Total need is therefore £312,000 + £300,000 + £62,000 = £674,000. Existing benefits outside the estate total £430,000, leaving an estimated shortfall of £244,000.

• Focusing only on mortgage and debt ignores the dependant income need and the stated estate liability.
• Excluding IHT would understate the need because Amira specifically wants that liability funded separately.
• Refusing to offset existing cover against debts or IHT is too restrictive; the stated benefits are available for Ben and Layla’s overall protection needs.

The total need is £674,000 and existing cover is £430,000, leaving a £244,000 shortfall.

Question 5

Topic: Protection Needs and Sources of Financial Protection

Aisha, age 38, is employed full-time and has two young children. She has a repayment mortgage and limited savings.

Existing sources of protection:

• Employer sick pay: full pay for 12 weeks, then statutory sick pay only if eligible.
• Employer death-in-service: four times salary, written under a discretionary trust.
• No employer income protection scheme.
• No private life assurance, critical illness cover, or income protection.

Aisha wants to make sure her family can maintain essential outgoings if she dies or is unable to work long term. Which recommendation best combines State, employer, and private cover?

• A. Treat the employer death-in-service benefit as useful existing life cover, but arrange additional family and mortgage life assurance plus income protection with a deferred period aligned to her employer sick pay.
• B. Cancel consideration of private cover until her employer sick pay ends, because protection policies cannot be coordinated with employer benefits in advance.
• C. Rely mainly on State benefits for incapacity and the employer death-in-service benefit for death, because both are designed to replace earned income for families with children.
• D. Arrange critical illness cover only, because it would replace income during any long-term illness and also meet the family’s needs on death.

Best answer: A

What this tests: Protection Needs and Sources of Financial Protection

Explanation: A protection plan should first identify what is already available, then use private cover to fill realistic gaps. State benefits may provide some support, but they are limited and should not be treated as a full income replacement. Employer sick pay gives Aisha short-term income, so an income protection policy can be designed with a deferred period that begins after the employer benefit is expected to reduce. The death-in-service lump sum is valuable existing cover, especially as it is written under trust, but it may not be enough to repay the mortgage and provide ongoing family income. Additional life assurance can address those death needs. Critical illness cover may also be considered, but it is not a complete substitute for income protection or life assurance.

• Relying mainly on State benefits overstates their role and ignores Aisha’s mortgage, dependants, and limited savings.
• Critical illness cover pays only on specified conditions and is not a general income replacement or death benefit.
• Private cover can be coordinated with employer benefits at outset, especially by using an appropriate deferred period for income protection.

This recognises the limits of State and employer benefits and fills the main death and long-term incapacity gaps with private cover.

Question 6

Topic: Protection Needs and Sources of Financial Protection

A paraplanner is assessing protection needs for Maya, who owns 60% of a small engineering company and is its main fee earner.

Key facts:

• Maya draws £72,000 a year in salary and dividends from the company.
• Her household mortgage is £310,000, with no life cover assigned to it.
• The company has a £180,000 bank loan, supported by Maya’s personal guarantee.
• Maya has £35,000 in cash savings and a 60% shareholding in the company, but the shares would be difficult to sell quickly if she died or became seriously ill.

Which planning conclusion best reflects the relationship between insurance, income, assets, and liabilities?

• A. Protection planning should focus only on Maya’s cash savings, as personal guarantees and mortgage debt are outside the scope of insurance planning.
• B. Only the company loan needs cover because business liabilities take priority over household income and mortgage needs.
• C. Insurance should be considered to provide liquidity and income replacement because Maya’s liabilities and household income dependency are not met by readily accessible assets.
• D. No further protection is needed because Maya’s shareholding is an asset that can be used to repay both personal and business debts.

Best answer: C

What this tests: Protection Needs and Sources of Financial Protection

Explanation: Protection planning compares the financial risks created by loss of income, death, illness, or incapacity with the resources available to meet those risks. Insurance can provide cash at the time it is needed, whereas assets may be insufficient, earmarked for other needs, or hard to realise quickly. In Maya’s case, her household relies on her income, she has a substantial mortgage, and the company loan could expose her estate because of the personal guarantee. Her cash savings are modest compared with these liabilities, and her shareholding may not be readily saleable. Suitable protection could therefore help avoid forced asset sales and provide funds for debt repayment, business continuity, or family income needs.

• Treating the shareholding as enough ignores liquidity risk and the possibility that the business value may fall if Maya is absent.
• Covering only the company loan ignores the household mortgage and the family’s dependency on Maya’s income.
• Focusing only on cash savings ignores major liabilities and the role of insurance in meeting protection shortfalls.

The key protection issue is that her income and liabilities depend on her continuing involvement, while her main asset is illiquid.

Question 7

Topic: Protection Needs and Sources of Financial Protection

An adviser is reviewing protection for a small engineering company owned equally by two director-shareholders.

Key facts:

• Each director is actively involved in winning contracts and managing staff.
• The company has a £350,000 commercial loan, guaranteed by both directors personally.
• There is no keyperson, business loan, or shareholder protection in place.
• Each director has a spouse and young children who rely mainly on salary and dividends from the business.
• The shareholders’ agreement does not include a funded buyout mechanism if one director dies or becomes critically ill.

What is the best professional response?

• A. Explain that the lack of cover could affect the company, families, lender, employees, and ownership continuity, then quantify needs for loan, keyperson, and shareholder protection.
• B. Advise that the commercial loan is the priority only if the lender asks for insurance at the next renewal.
• C. Conclude that no immediate action is needed because the surviving director could continue trading and buy the deceased director’s shares from future profits.
• D. Recommend personal family income benefit only, because the main risk is the loss of household income for each director’s dependants.

Best answer: A

What this tests: Protection Needs and Sources of Financial Protection

Explanation: Inadequate business protection can create several connected risks. If a key director dies or suffers a serious illness, the company may lose revenue, management skill, client relationships, and confidence from lenders or suppliers. A personally guaranteed business loan may put pressure on the surviving owner and the deceased or ill owner’s family. Without shareholder protection, the deceased owner’s spouse or estate may inherit shares but lack involvement in the business, while the surviving director may lack funds to buy those shares. Employees may also be affected if contracts are lost or cash flow weakens. The adviser should therefore identify and quantify the risks before recommending suitable arrangements, such as business loan protection, keyperson cover, and shareholder protection supported by the correct legal agreements and trusts where appropriate.

• Personal family income benefit may help dependants, but it does not protect the company, repay business debt, or solve ownership succession.
• Waiting for a lender requirement ignores current exposure from the loan, personal guarantees, and business continuity risk.
• Relying on future profits is uncertain and may be unrealistic after the loss of a key director.

This addresses the main business and family consequences of an uninsured death or serious illness and links them to the appropriate protection needs.

Question 8

Topic: Protection Needs and Sources of Financial Protection

A small limited company has two equal shareholder-directors, Amira and Ben. The adviser is reviewing the consequences if Amira died suddenly.

Current position:

• Bank loan outstanding: £300,000, with both directors as personal guarantors.
• Expected loss of gross profit while replacing Amira: £180,000.
• Recruitment and handover costs: £40,000.
• Available business cash reserve: £70,000.
• Amira owns 50% of the shares and her will leaves them to her spouse.
• Existing life assurance: Amira has a £150,000 personal policy written for the benefit of her spouse.
• There is no business loan cover, keyperson cover, shareholder protection arrangement, or cross-option agreement.

What is the best interpretation of the business protection position?

• A. There is no significant business protection gap, because the company has a cash reserve and Amira’s spouse will inherit the shares.
• B. Only Amira’s dependants are exposed, because limited company debts cannot affect the lender or Ben personally.
• C. The main gap is £150,000, because Amira’s personal life policy will reduce the bank loan from £300,000 to £150,000.
• D. The company faces an immediate business cash exposure of about £450,000 before considering any share-purchase funding, and continuity could be threatened for the lender, employees, Ben, and Amira’s spouse.

Best answer: D

What this tests: Protection Needs and Sources of Financial Protection

Explanation: Business protection planning distinguishes personal family provision from cover that protects the business, its lenders, owners and employees. Amira’s personal policy may help her spouse, but it is not arranged to repay the company loan, replace lost profits, fund recruitment, or allow Ben to buy the inherited shares. The immediate business exposure is £300,000 + £180,000 + £40,000 - £70,000 = £450,000. In addition, the lack of shareholder protection means Amira’s spouse may inherit a shareholding without wanting involvement, while Ben may lack funds to buy the shares. The lender could be concerned because the loan has personal guarantees, and employees may be affected if cash flow and continuity deteriorate.

• Treating the personal policy as loan protection is wrong because it is for Amira’s spouse, not the company or lender.
• Assuming inherited shares solve the issue overlooks ownership-control problems and the spouse’s possible need for value or income.
• Ignoring the lender and Ben is unsafe because the bank loan has personal guarantees and the company may lack cash to continue trading.

The loan, profit loss and replacement costs total £520,000, less £70,000 cash reserve, leaving a £450,000 business exposure with no shareholder protection in place.

Question 9

Topic: Protection Needs and Sources of Financial Protection

Maya, age 38, is employed by a UK technology firm and has two young children. She is reviewing whether her employer’s benefits are enough to protect her family.

Employer benefits:

• Death-in-service cover of 4 times salary, provided through a group scheme.
• Group income protection that may pay after 26 weeks’ absence, while she remains an employee.
• Private medical insurance for Maya only.

Maya says she does not need any personal protection because her employer already provides cover. Which response is most appropriate?

• A. The private medical insurance removes the need for income protection because it replaces earnings during long-term illness.
• B. The group income protection removes the need to assess income needs because it will normally continue even after Maya leaves employment.
• C. The benefits are valuable, but they should be treated as part of her protection provision rather than a complete substitute for personal cover.
• D. The death-in-service benefit fully removes any need for family life assurance because it is always paid directly to the surviving spouse.

Best answer: C

What this tests: Protection Needs and Sources of Financial Protection

Explanation: Employer-provided protection can be an important source of financial protection, particularly through group death-in-service, group income protection, private medical insurance, and other workplace benefits. However, it should not be assumed to meet all personal needs. Cover is often linked to continued employment, may be changed or withdrawn by the employer, and may have limits, deferred periods, eligibility rules, or exclusions. Death-in-service cover may help dependants but may not match mortgage, childcare, education, or wider family income needs. Group income protection may help maintain income after a deferred period, but it does not remove the need to quantify the income shortfall. Private medical insurance helps with treatment costs and access, not replacement income.

• Assuming death-in-service cover always goes directly to a spouse ignores scheme rules, nomination processes, and the need to assess the amount required.
• Assuming group income protection continues after leaving employment overstates the security of employment-linked benefits.
• Treating private medical insurance as income replacement confuses healthcare funding with protection against loss of earnings.

Employer benefits can reduce protection shortfalls, but they are usually linked to employment and may not match the client’s full family, debt, and income needs.

Question 10

Topic: Protection Needs and Sources of Financial Protection

Sam is 39 and is the sole earner in his household. His partner, who is not employed, looks after their two children aged 4 and 7.

Current position:

• Outstanding repayment mortgage: £245,000 over 22 years
• No personal life assurance
• Death-in-service cover: £120,000
• Main concern: “If I died, I want the mortgage cleared and my family to have enough income until the children are financially independent.”

Which protection priority best matches Sam’s stated liabilities and dependants?

• A. Prioritise critical illness cover for a lump sum equal to the mortgage only.
• B. Prioritise life assurance that repays the mortgage and provides ongoing family income for his partner and children.
• C. Prioritise private medical insurance to give the family faster access to treatment.
• D. Prioritise whole of life assurance mainly to meet a future Inheritance Tax liability.

Best answer: B

What this tests: Protection Needs and Sources of Financial Protection

Explanation: Protection priorities should follow the client’s actual risks, liabilities and dependants. Sam’s stated concern is death before his children are financially independent. His mortgage is larger than his death-in-service benefit, and his partner and children rely on his earnings. The most suitable priority is therefore life assurance structured to clear the mortgage and provide continuing income, such as term assurance for the debt and family income benefit for dependant income needs. Other covers may still be useful, but they do not most directly meet the stated death-related mortgage and dependant-income shortfall.

• Private medical insurance may help with treatment access, but it does not repay the mortgage or replace Sam’s income on death.
• Critical illness cover for the mortgage only would not meet the stated need for family income after death.
• Whole of life assurance for Inheritance Tax is not the priority where the immediate stated risks are mortgage debt and dependant support.

Sam has a major mortgage liability and financially dependent family members, so death cover should address both the debt and replacement income need.

Continue in the web app

Use Finance Prep for interactive CII R05 practice with mixed sets, timed mock exams, topic drills, explanations, and progress tracking.

Related focused pages

• Free CII R05 Practice Exam: Financial Protection
• Free CII R05 Practice Questions: Consumer and Retail Protection Factors
• Free CII R05 Practice Questions: State Benefits and Public Protection
• Free CII R05 Practice Questions: Life Assurance and Pension Protection
• Free CII R05 Practice Questions: Protection Policy Taxation
• Free CII R05 Practice Questions: Income Protection Insurance
• Free CII R05 Practice Questions: Critical Illness Insurance
• Free CII R05 Practice Questions: Long-Term Care Insurance
• Free CII R05 Practice Questions: Other Protection Policies
• Free CII R05 Practice Questions: Protection Priorities and Solutions

Practice next step

Use the Finance Prep web app above when you want interactive practice beyond this static page.