Free CISI CWM AWM Practice Questions: Financial Protection

CISI means Chartered Institute for Securities & Investment. CWM means Chartered Wealth Manager, and this page is for the Applied Wealth Management paper. Use this focused CISI CWM Applied Wealth page as a short practice test for Financial Protection. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI 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 CISI 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: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A wealth manager is reviewing life cover for a client with a spouse and two dependent children. If the client dies, the planning objective is to clear debt, fund a specific education goal, keep an emergency reserve intact, and provide an income top-up for 15 years.

Figures and assumptions:

The income capital need is the annual income shortfall multiplied by 15, ignoring tax, inflation, and investment return. What approximate additional lump-sum life assurance need should be recommended?

• A. £245,000
• B. £205,000
• C. £135,000
• D. £180,000

Best answer: B

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: A family protection calculation should separate capital needs from income replacement, then deduct resources that would realistically be available. The annual income gap is £42,000 less the spouse’s £24,000 net income, or £18,000. Over 15 years, that creates an income capital need of £270,000. Capital needs are the £310,000 mortgage and £70,000 education fund, so total need is £650,000. Existing resources are the £255,000 death-in-service benefit, £150,000 term assurance, and only £40,000 of savings because £25,000 must remain as emergency cash. Available resources total £445,000. The additional protection need is therefore £650,000 less £445,000, or £205,000.

• £245,000 ignores the £40,000 of savings available after preserving the emergency reserve.
• £180,000 uses the whole £65,000 savings balance, leaving no emergency cash as required.
• £135,000 omits the education fund from the capital protection need.

The shortfall is £650,000 of total need less £445,000 of usable existing resources, giving £205,000 of additional cover.

Question 2

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A self-employed client is funding a 12-year investment plan for a child’s future support. The client’s priority is that the household can meet essential expenditure and continue the investment contributions if the client is unable to work because of long-term illness or injury.

Planning facts:

• Essential household expenditure: £6,000 per month
• Planned investment contribution: £2,500 per month
• Spouse’s reliable net income: £4,800 per month
• Emergency cash is available to cover the first six months of any incapacity
• The proposed benefit would be within the insurer’s maximum income-protection limit and would be tax-free if premiums are paid personally

Which arrangement best secures the planning objective?

• A. Family income benefit of £2,500 per month for 12 years to replace only the investment contribution.
• B. Income protection with a six-month deferred period and a benefit of £3,700 per month.
• C. Critical illness cover with a lump sum of £44,400, equal to one year of the monthly shortfall.
• D. Level term assurance with a lump sum of £532,800, equal to 12 years of the monthly shortfall.

Best answer: B

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: The planning risk is loss of earnings through long-term illness or injury, not death or diagnosis of a specified critical illness. The monthly amount needed is the household’s essential expenditure plus the planned investment contribution, less the spouse’s reliable income: £6,000 + £2,500 - £4,800 = £3,700. Because the client can fund the first six months from emergency cash, a six-month deferred period is consistent with the cash-flow plan and should reduce the premium compared with immediate cover. Income protection is the most suitable policy type because it provides an ongoing income while incapacity continues, helping preserve both living standards and the investment objective.

• A critical illness lump sum may help after a specified diagnosis, but it does not directly insure ongoing inability to work and may not pay for many long-term incapacity situations.
• Level term assurance addresses death, not long-term illness or injury, so it does not match the stated risk.
• Family income benefit can provide income on death, but replacing only the investment contribution ignores the total monthly shortfall during incapacity.

The required monthly replacement income is £6,000 plus £2,500 less £4,800, and income protection matches the long-term incapacity risk.

Question 3

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A wealth manager is reviewing protection needs for a client with a new repayment mortgage.

Client facts:

• Monthly mortgage payment is £1,450, and the lender requires no specific protection product.
• The client has three months of emergency cash and no meaningful employer sick-pay beyond statutory entitlement.
• The client is employed in a sector with elevated redundancy risk over the next year.
• Existing life cover would repay the mortgage on death, so the main gap is keeping up payments after accident, sickness, or involuntary unemployment.
• The client wants a budget-conscious short-term solution rather than full long-term income replacement.

Which recommendation is the single best fit for the identified protection need?

• A. Use critical illness cover for the mortgage payment amount, because it will pay whenever the client is unable to work.
• B. Recommend long-term income protection only, because it is designed to cover redundancy as well as sickness.
• C. Replace the existing life cover with decreasing term assurance matching the mortgage balance.
• D. Arrange an MPPI or ASU policy sized to the monthly mortgage payment, with a waiting period aligned to cash reserves and a limited benefit term for accident, sickness, and involuntary unemployment.

Best answer: D

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: MPPI is designed to help meet mortgage payments for a short period if the insured cannot work due to accident, sickness, or involuntary unemployment, depending on the selected cover. ASU cover is similar in that it provides a short-term monthly benefit after a deferred or waiting period. In this case, the client’s specific gap is maintaining mortgage payments during a temporary work interruption, including redundancy risk, while existing life cover already addresses death. The emergency fund can help set an appropriate waiting period, and the limited benefit term keeps the recommendation aligned with the client’s budget-conscious, short-term objective. It should not be presented as comprehensive long-term income replacement.

• Decreasing term assurance addresses death, not temporary inability to pay the mortgage after sickness or redundancy.
• Critical illness cover pays only on specified serious illnesses and does not generally cover ordinary sickness, accident absence, or unemployment.
• Long-term income protection can cover sickness or incapacity, but it does not normally cover redundancy, so it misses a decisive client concern.

This directly matches the short-term mortgage-payment risk and includes accident, sickness, and unemployment cover within the product’s limited-term design.

Question 4

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A widowed client wants life assurance to provide cash for her adult children to meet an expected inheritance tax liability without forcing a sale of family assets.

Planning facts:

• Estate value before any new protection: £1,150,000
• Available exemptions and nil-rate bands after existing planning: £650,000
• IHT rate on the taxable excess: 40%
• Cash in the estate expected to be available for the tax bill: £80,000
• The need is permanent, and premiums are affordable.

Which recommendation best matches the amount needed and the ownership/tax treatment?

• A. An £80,000 whole-of-life policy written in trust because that is the cash currently available in the estate.
• B. A £200,000 whole-of-life policy owned personally by the client to match the full IHT liability.
• C. A £120,000 whole-of-life policy owned personally by the client so the executors can claim it.
• D. A £120,000 whole-of-life policy on the client’s life, written in a suitable trust for the children.

Best answer: D

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: The expected IHT liability is calculated on the taxable estate: £1,150,000 minus £650,000 equals £500,000, taxed at 40%, giving £200,000. The estate already has £80,000 of cash available, so the protection shortfall is £120,000. Because the need is permanent, whole-of-life cover is more suitable than temporary term assurance. Ownership is critical: if the policy is owned personally and not written in trust, the proceeds are normally part of the estate and may worsen the IHT position or delay access to funds. Writing the policy in an appropriate trust can keep the proceeds outside the estate and make funds available for the intended beneficiaries to help meet the tax burden.

• Personal ownership of the £120,000 policy gets the amount right but risks bringing proceeds into the estate.
• Personal ownership of the £200,000 policy ignores the £80,000 cash already available and may create avoidable IHT exposure.
• Using £80,000 as the insured amount confuses existing estate liquidity with the remaining protection shortfall.

The expected IHT is £200,000, leaving a £120,000 cash shortfall after estate cash, and trust ownership keeps the policy proceeds outside the client’s estate.

Question 5

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Leah is an employed homeowner with no known redundancy notice or current sickness absence. She wants short-term cover for accident, sickness or involuntary unemployment so that the mortgage and essential household bills are met for up to 12 months, but she does not want to insure discretionary spending.

Available policy terms:

• MPPI can cover only the contractual monthly mortgage payment.
• ASU can be used for the non-mortgage essential spending shortfall.
• Both policies can have a 30-day or 60-day waiting period and a 12-month maximum claim period.
• For planning, a 30-day waiting period requires one month’s shortfall to be funded from cash; a 60-day waiting period requires two months.

Which arrangement best matches Leah’s stated need without deliberate over-insurance?

• A. MPPI of £1,200 a month plus ASU of £1,350 a month, with a 30-day waiting period and 12-month claim period
• B. MPPI of £1,200 a month plus ASU of £600 a month, with a 60-day waiting period and 12-month claim period
• C. MPPI of £1,200 a month plus ASU of £600 a month, with a 30-day waiting period and 12-month claim period
• D. MPPI of £1,800 a month only, with a 30-day waiting period and 12-month claim period

Best answer: C

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: MPPI is designed to protect the contractual mortgage payment, while ASU can provide short-term accident, sickness and unemployment cover for wider household cash-flow needs. Leah’s non-mortgage essential bills are £1,350, but £750 of reliable partner income is available, leaving a non-mortgage shortfall of £600. The mortgage element is £1,200, so the total monthly protected need is £1,800, split as £1,200 MPPI and £600 ASU. The cash reserve also affects the waiting period. A 30-day wait needs one month of shortfall, £1,800, which the £2,400 reserve can cover. A 60-day wait needs £3,600, which exceeds the reserve.

• A 60-day wait leaves a cash-funding gap because two months of shortfall would be £3,600.
• MPPI alone is unsuitable because the stated policy terms limit it to the contractual mortgage payment.
• ASU of £1,350 ignores the partner’s reliable income and would deliberately over-insure the non-mortgage shortfall.

The mortgage payment is covered by MPPI, the remaining non-mortgage shortfall is £600, and the £2,400 reserve is enough for a one-month waiting period.

Question 6

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

During an annual protection review, a wealth manager records the following case extract.

Client profile:

• Daniel, 47, is a self-employed consultant and generates most of the household income.
• Maya, 44, works part-time and earns enough to cover only routine household bills.
• They have two children aged 9 and 12, a repayment mortgage, and school-fee commitments.
• Emergency cash would cover about three months of essential expenditure.

Existing protection:

• Decreasing-term life cover matches the mortgage balance.
• No income protection or critical illness cover is in place.
• Private medical cover is provided through Maya’s employer.

Client comment:

“If Daniel had a long illness, we would claim whatever state benefits are available and the council could help if care was needed. We would rather keep premiums low.”

Which feature is the clearest warning sign that the protection plan relies too heavily on uncertain public support?

• A. Using unassessed state benefits and council-funded care as the main fallback for Daniel’s income and care needs
• B. Keeping private medical cover through Maya’s employer while Daniel remains self-employed
• C. Holding emergency cash equal to about three months of essential household expenditure
• D. Maintaining decreasing-term life cover linked to the repayment mortgage

Best answer: A

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: Public support can be an important safety net, but it should not be treated as a reliable substitute for private protection without assessing eligibility, timing, amount and suitability. State benefits and local authority support may be means-tested, needs-assessed, limited in scope, delayed, or subject to future rule changes. They are not designed to maintain a higher-earning household’s mortgage, school fees, lifestyle, or preferred care choices. The warning sign is the explicit decision to avoid income protection or critical illness cover because the family assumes public support will fill the gap if the main earner cannot work or needs care.

• A short emergency fund is a liquidity weakness, but it is not the clearest sign of relying on public support.
• Decreasing-term life cover can be suitable for a repayment mortgage, although it does not solve living-benefit protection needs.
• Private medical cover may help with treatment access, but it does not replace income or guarantee social care funding.

The plan assumes limited, eligibility-based public support will meet major income and care needs without confirming entitlement or adequacy.

Question 7

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A wealth manager is reviewing protection needs with a married couple, both aged 46, with two children aged 10 and 13.

Case extract:

• Household income: £135,000 salary for one spouse and £28,000 self-employed income for the other.
• Essential spending: £7,200 per month, including a £420,000 repayment mortgage.
• Assets: £35,000 cash, £160,000 ISAs, workplace pensions intended for retirement, and the family home.
• Existing cover: death-in-service for the employed spouse and level term assurance on the mortgage; no income protection or critical illness cover.
• Preference: keep the home, avoid forced ISA withdrawals, and maintain the children’s schooling if either spouse becomes seriously ill or needs care.

“We do not want to over-insure. If something serious happened, state benefits or the local authority would surely cover most of the basics.”

Which client explanation best replaces this assumption?

• A. The couple should transfer ISAs and spare cash into trust before considering cover, so those assets are excluded from any local authority assessment.
• B. State benefits can reasonably be assumed to cover the mortgage and household bills because the employed spouse has a full salary record and death-in-service benefit.
• C. State and local authority help should be treated as a limited safety net, not the core plan, because eligibility, amounts, timing and care choices may not match the family’s spending needs.
• D. Local authority support should be assumed to meet care costs once liquid savings have been used, so private protection is mainly needed for discretionary spending.

Best answer: C

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: Protection planning should not rely on a broad assumption that the state or local authority will preserve a client’s current lifestyle. State benefits may be limited, conditional and insufficient for a high-outgoings household. Local authority care support is generally subject to needs assessment and financial assessment, and may not provide the timing, setting, level of choice or continuity the family wants. The couple’s mortgage, school-related commitments, low cash reserve and desire not to liquidate ISAs all point to a private shortfall that should be quantified. Potential benefits can be noted as a possible offset only after eligibility is understood, not used as the foundation of the plan.

• Assuming benefits will cover the mortgage confuses employment history and death-in-service cover with ongoing incapacity or care funding needs.
• Assuming local authority funding after cash is spent ignores assessment rules, uncertainty and the family’s preference for control over care and assets.
• Transferring assets to improve eligibility is not a protection solution and may be challenged where it amounts to deliberate deprivation of assets.

This directly reframes state and local authority support as uncertain and limited, so protection planning starts from the family’s actual expenditure and objectives.

Question 8

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A wealth manager is reviewing a family protection plan.

Client facts:

• Raj is 42, self-employed, and earns £120,000 a year. His spouse earns £24,000.
• They have two young children, a £480,000 repayment mortgage, and monthly committed spending of about £5,800.
• Raj has no employer sick pay, no income protection, and no critical illness cover.
• The family holds £35,000 in cash and a £190,000 taxable investment portfolio earmarked for retirement and school fees.
• Raj says: “If I could not work, state benefits and council support should cover the basics until I recover.”

Which is the single best warning sign that the protection plan relies too heavily on uncertain public support?

• A. Raj is self-employed, so he may need to review pension contributions more frequently than an employed client.
• B. The family holds a taxable investment portfolio rather than using only ISAs for long-term savings.
• C. The plan assumes means-tested benefits or local authority support would replace a high self-employed income and meet mortgage-related needs despite eligibility tests and delays.
• D. The family keeps £35,000 in cash, which may be more than their immediate monthly spending needs.

Best answer: C

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: A protection review should test whether the family could maintain essential commitments if earnings stopped through illness, disability, death, or care needs. State benefits and local authority support can be valuable, but they are not a reliable substitute for tailored protection. They may be means-tested, capped, delayed, affected by capital, and designed to provide basic support rather than preserve a family’s existing lifestyle or service a large mortgage. Here, the main earner has no employer sick pay, income protection, or critical illness cover, while the family has high committed expenditure and dependent children. That combination makes reliance on public support a clear under-protection warning sign.

• Tax wrapper choice may affect investment efficiency, but it does not show reliance on uncertain public support.
• Holding £35,000 in cash may be a liquidity planning point, but it is not the main protection weakness.
• Pension review frequency is relevant to self-employed planning, but it does not address the immediate income-protection gap.

Raj’s plan depends on uncertain public support to cover a large private-income and mortgage gap, with no insured income replacement in place.

Question 9

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

A wealth manager is reviewing the protection arrangements for a client’s family charitable foundation and a related family discretionary trust.

Case extract:

• The foundation is a UK registered charity with an invested endowment of £3.2 million.
• It makes grants from investment income and can reduce grant-making in a poor year without breaching any commitment.
• It rents a small office and owns no buildings.
• It runs two public fundraising events each year and uses volunteers at those events.
• It employs one part-time administrator on a salary.
• Existing cover includes public liability for events, trustee indemnity cover for charity trustees, contents cover, and cyber cover.
• The family discretionary trust holds a whole-of-life policy written in trust to help meet the family’s expected inheritance tax liability.

Which protection gap is most clearly indicated by the available facts?

• A. Key person cover on the founder to replace future donations
• B. Employers’ liability cover for the charity’s paid administrator
• C. Buildings insurance for the foundation’s office premises
• D. Additional life cover inside the family discretionary trust for the foundation’s grant-making budget

Best answer: B

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: A charity or foundation should match protection cover to its actual activities, people, and assets. The decisive fact is that the foundation employs a paid administrator, but its listed insurance does not include employers’ liability cover. Public liability may protect against claims from event attendees or other third parties, and trustee indemnity may protect trustees against certain governance-related claims, but neither replaces cover for employee injury or illness claims connected with employment. The other facts reduce the force of the alternatives: the charity owns no building, grant-making is funded from an endowment rather than an enforceable future donation stream, and the family trust’s life policy is aimed at family inheritance tax planning rather than the charity’s operating risk.

• Key person cover for the founder is not the clearest gap because the foundation is endowment-funded and can reduce grants if income falls.
• Buildings insurance is not indicated because the foundation rents its office and owns no premises.
• Extra life cover in the family trust addresses family estate planning, not the foundation’s employee-related protection need.

The foundation has a paid employee, and the listed policies do not include employers’ liability cover.

Question 10

Topic: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

An adviser is reviewing protection for Ardent Components Ltd, a UK engineering SME. The directors want cover for the measurable business impact if Sarah, the technical director, died or suffered a critical illness.

Protection notes:

• Annual gross profit: £1,100,000.
• Sarah is estimated to be responsible for 35% of gross profit.
• The business expects a 2-year disruption period before profits recover.
• Recruitment and training for a replacement would cost £90,000.
• A bank loan of £450,000 must be repaid immediately on the death or critical illness of either director.
• Existing company-owned death and critical illness key person cover on Sarah is £200,000.
• Family and personal mortgage protection are already dealt with outside the company review.

Which recommendation best addresses the quantifiable SME protection gap for Sarah?

• A. Arrange only £660,000 of additional key person cover, because the existing policy can meet the loan call.
• B. Arrange an additional £660,000 of key person cover and £450,000 of business loan protection.
• C. Arrange £860,000 of additional key person cover, with no separate business loan protection.
• D. Arrange £1,310,000 of additional key person cover for Sarah.

Best answer: B

What this tests: Financial Protection for Individuals, Families, Trusts, Charities, and Smes

Explanation: SME protection should distinguish between trading disruption and specific liabilities. The key person loss is based on the profit contribution during the expected disruption period plus replacement costs: £1,100,000 × 35% × 2 = £770,000, then add £90,000 recruitment and training costs, giving £860,000. As the company already has £200,000 of key person cover on Sarah, the additional key person requirement is £660,000. The bank loan is a separate liability because it becomes repayable immediately on death or critical illness, so £450,000 of business loan protection is also required. The total additional quantifiable cover is therefore £1,110,000, but it should be structured against the correct risks rather than all treated as key person profit protection.

• Ignoring the loan leaves the business exposed to an immediate £450,000 repayment demand.
• Treating £860,000 as the additional key person need fails to deduct the £200,000 existing cover.
• Writing the whole £1,310,000 as extra key person cover overstates the top-up and does not match the separate loan liability.

The key person need is £860,000 before existing cover, leaving a £660,000 top-up, and the £450,000 repayable loan is a separate business continuity exposure.

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