Free CISI ICWIM Practice Questions: Lifetime Financial Provision

CISI means Chartered Institute for Securities & Investment. ICWIM means International Certificate in Wealth and Investment Management. Use this focused CISI ICWIM page as a short practice test for Lifetime Financial Provision. 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: Lifetime Financial Provision

A private client wants to quantify the additional term life insurance cover needed if they die during the next 10 years.

Planning assumptions:

• Mortgage to be repaid immediately: £240,000
• Final expenses: £15,000
• Education fund for children: £60,000
• Spouse’s required household income: £36,000 per year for 10 years
• Spouse’s own income: £18,000 per year
• Ignore investment growth, inflation, and tax
• Existing life cover: £180,000
• Savings available for this purpose: £50,000

What amount of additional cover is required?

• A. £265,000
• B. £495,000
• C. £445,000
• D. £315,000

Best answer: A

What this tests: Lifetime Financial Provision

Explanation: Protection need is quantified by adding the capital required to meet the client’s stated objectives, then deducting resources already available for that purpose. The income element is the annual shortfall, not the spouse’s full spending need: £36,000 required income less £18,000 spouse income = £18,000 shortfall per year. Over 10 years, this equals £180,000. Total capital need is therefore £240,000 mortgage + £15,000 final expenses + £60,000 education fund + £180,000 income shortfall = £495,000. Existing life cover of £180,000 and available savings of £50,000 reduce the required new cover by £230,000. The additional cover required is £265,000.

• £315,000 ignores the £50,000 of savings available to meet the need.
• £445,000 deducts savings but ignores the existing £180,000 life cover.
• £495,000 is the gross need before deducting existing resources.

The total capital need is £495,000, less existing cover and available savings of £230,000, leaving £265,000 additional cover required.

Question 2

Topic: Lifetime Financial Provision

A wealth manager is reviewing protection needs for a privately owned engineering company.

Client facts:

• The company has two equal shareholders, both actively involved in management.
• If either shareholder dies before the planned sale of the business in 8 years, the survivor wants funds to buy the deceased shareholder’s shares from the estate.
• The business has a separate bank loan already covered by a loan protection policy.
• The shareholders want a cost-effective protection solution, not an investment product.

Which solution is the single best fit for the stated need?

• A. An investment-linked whole-life policy primarily chosen for long-term savings and potential surrender value
• B. Additional business loan protection to repay the bank if either shareholder dies
• C. Shareholder protection using term life cover for each shareholder, aligned with a buy-sell arrangement and the current share value
• D. Key person cover owned by the company to compensate for lost profits after a shareholder’s death

Best answer: C

What this tests: Lifetime Financial Provision

Explanation: Business protection should match the specific financial loss or liquidity need. Here, the stated problem is not debt repayment or general loss of profits; it is the need for funds so the surviving shareholder can buy the deceased shareholder’s shares from the estate. A shareholder protection arrangement, supported by suitable life cover and a buy-sell mechanism, is designed for that purpose. Because the need is linked to an 8-year planned sale and the clients want cost-effective protection rather than investment exposure, term life cover is a better fit than an investment-linked whole-life contract. The sum insured should be based on the share value and reviewed as the business value changes.

• Key person cover may protect the company against loss of profits, but it does not directly fund a share purchase by the surviving shareholder.
• Extra loan protection is unnecessary for the stated need because the bank loan is already separately covered.
• An investment-linked whole-life policy adds savings and market-exposure features that do not match the defined 8-year, cost-conscious protection need.

This directly provides liquidity for the surviving shareholder to buy the deceased shareholder’s shares during the defined business-planning period.

Question 3

Topic: Lifetime Financial Provision

Which statement best describes a main feature of critical illness insurance?

• A. It pays a benefit if the insured person is diagnosed with one of the serious illnesses specified in the policy.
• B. It pays a guaranteed benefit only when the insured person dies, regardless of their health before death.
• C. It replaces a proportion of the insured person’s income while they are unable to work due to illness or injury.
• D. It reimburses private hospital and medical treatment costs as they are incurred.

Best answer: A

What this tests: Lifetime Financial Provision

Explanation: Critical illness insurance is a personal protection product that pays a benefit when the insured person is diagnosed with a serious illness listed in the policy, such as certain cancers, heart attack, or stroke. The benefit is commonly structured as a lump sum and can help with mortgage repayment, care costs, lifestyle changes, or replacing lost financial flexibility. Cover is limited to the policy definitions, exclusions, and any required survival period, so not every illness or medical condition will qualify.

• A death-only benefit describes life assurance or life insurance, not critical illness cover.
• Reimbursing treatment costs describes private medical insurance rather than a policy that pays a defined benefit on diagnosis.
• Replacing income during incapacity describes income protection, which is different from a critical illness benefit.

Critical illness insurance is designed to provide a benefit on diagnosis of a covered serious illness, subject to the policy terms.

Question 4

Topic: Lifetime Financial Provision

A wealth manager is reviewing protection needs for a 38-year-old self-employed architect.

Client facts:

• She wants a lump sum if she is diagnosed with a serious illness, mainly to reduce her mortgage or pay for childcare.
• She does not want a policy limited to reimbursing hospital bills.
• She already has separate term life cover for death during the mortgage term.
• She can afford guaranteed regular premiums for the next 20 years.

Which statement best describes the protection product feature that matches this need?

• A. Critical illness insurance can pay a lump sum on diagnosis of a specified serious illness, subject to the policy definitions and any survival-period condition.
• B. Term life assurance is the most direct match because it pays out when the client survives a serious illness during the policy term.
• C. Income protection insurance pays a lump sum immediately when any illness prevents the client from working for one day.
• D. Private medical insurance provides a lump sum that the client may use for mortgage repayment after any serious diagnosis.

Best answer: A

What this tests: Lifetime Financial Provision

Explanation: Critical illness insurance is a protection product designed to pay a lump sum if the insured person is diagnosed with one of the serious illnesses listed in the policy. Cover is based on precise definitions, exclusions, and often a required survival period after diagnosis. The benefit is not normally tied to actual medical expenses, so it can be used for mortgage repayment, home adaptations, childcare, or replacing savings. It is different from life assurance, which pays on death, and different from income protection, which is intended to replace income during incapacity. It is also different from private medical insurance, which helps meet eligible treatment costs rather than providing a general lump sum for family finances.

• Income protection is about ongoing income replacement after incapacity, not a guaranteed lump sum after any brief illness.
• Private medical insurance generally reimburses or funds eligible treatment, rather than providing unrestricted capital for mortgage repayment.
• Term life assurance pays on death during the policy term, not because the insured survives a covered serious illness.

Critical illness cover is designed to provide a lump sum when a listed condition is diagnosed, rather than only on death or as reimbursement of medical costs.

Question 5

Topic: Lifetime Financial Provision

A 54-year-old private client asks for retirement planning advice. The adviser is preparing a retirement recommendation report.

Client facts:

• Wants to retire at age 64 and maintain a core level of essential income.
• Has a moderate attitude to risk but limited capacity for loss on money needed for early retirement.
• Can make additional pension contributions over the next 10 years.
• Pension contributions may receive tax relief, but future pension withdrawals may be taxable.

Which content is the single best inclusion in the report?

• A. The client’s objectives and circumstances, the recommended retirement strategy, key assumptions, risks, charges, tax implications, and review arrangements.
• B. A recommendation to use higher-risk growth assets because the client still has 10 years until retirement.
• C. A summary of possible tax relief only, with product risks and charges covered later after the client invests.
• D. A list of the pension provider’s available funds, ranked mainly by their highest recent performance.

Best answer: A

What this tests: Lifetime Financial Provision

Explanation: A retirement recommendation report should show why the advice is suitable for the client. It should connect the client’s retirement objective, time horizon, risk tolerance, capacity for loss, contribution ability, and income need to the recommended strategy. It should also explain the assumptions used in projections, the main risks, likely charges, relevant tax treatment, and how the plan should be reviewed. Recent performance, tax relief, or a long time horizon may be relevant, but none of these is enough on its own to support suitable retirement advice.

• Ranking funds by recent performance ignores suitability, retirement income needs, risk, charges, and assumptions.
• Choosing higher-risk assets just because retirement is 10 years away ignores the client’s limited capacity for loss.
• Covering tax relief alone is incomplete because risks, charges, assumptions, and suitability reasoning should be addressed before investment.

A retirement recommendation report should link the recommendation to the client’s needs and explain the assumptions, costs, risks, tax points, and review basis.

Question 6

Topic: Lifetime Financial Provision

An adviser is preparing a business protection recommendation report for a small company. The company wants key-person cover for its managing director for the remaining five years of a bank loan.

Fact-find notes:

• Outstanding business loan: £250,000
• Estimated lost profit if the managing director dies or suffers a specified critical illness: £180,000
• Recruitment and temporary management cost estimate: £70,000
• Cash reserve available for this risk: £50,000
• The managing director travels overseas monthly for the business.

The agreed cover amount is the total business exposure less the available cash reserve.

Provider quotes:

Which extract is most appropriate for the recommendation report?

• A. Recommend £450,000 of five-year key-person term insurance with Provider A, showing the need calculation, purpose of cover, premium, provider rationale, ownership, and key assumptions or exclusions.
• B. Recommend £450,000 of cover with Provider C because it avoids the travel exclusion and has a lower premium than Provider A.
• C. Recommend £250,000 of cover with Provider A because the bank loan is the only amount that needs to be documented in the report.
• D. Recommend £450,000 of five-year key-person term insurance with Provider B because it has the lowest premium, and note exclusions only after underwriting is complete.

Best answer: A

What this tests: Lifetime Financial Provision

Explanation: A protection recommendation report should connect the client’s identified need to the recommended product. In this case, the cover amount should include the loan, lost profit, and replacement costs, reduced by the cash reserve: £450,000. The report should also state the purpose of the cover, type and term of policy, recommended provider, premium, ownership or beneficiary arrangements, and important assumptions, exclusions, or underwriting issues. Provider A is most suitable from the information given because it matches the five-year need and does not contain the overseas travel exclusion that is material for a managing director who travels monthly.

• Choosing the lowest premium ignores a material exclusion affecting overseas travel claims.
• Covering only the bank loan omits the agreed profit and replacement-cost exposures.
• A three-year term does not match the five-year protection need, even though it avoids the travel exclusion.

The calculated need is £250,000 + £180,000 + £70,000 - £50,000 = £450,000, and Provider A matches the term without the material travel exclusion.

Question 7

Topic: Lifetime Financial Provision

Dr Rao is reviewing his estate arrangements. His will is current and leaves his estate equally to his two children.

Client position:

• Most of his wealth is in private company shares and a family home.
• His children want to retain both assets after his death.
• He does not want to transfer ownership of those assets during his lifetime.

Estimated liquidity position at death:

Which planning action best addresses Dr Rao’s objective of avoiding a forced sale of illiquid assets?

• A. Create a family foundation funded by the company shares for long-term family or philanthropic purposes.
• B. Arrange additional whole-of-life assurance of about £500,000 to create liquidity on death.
• C. Revise the will to leave the company shares and family home to the children in equal shares.
• D. Set up a discretionary trust now and transfer the company shares and family home into it.

Best answer: B

What this tests: Lifetime Financial Provision

Explanation: The estimated death-liquidity need is £1,200,000. Available liquid resources are £450,000 plus £250,000 of existing cover, leaving a £500,000 shortfall. A will is mainly used to direct who receives assets after death. Trusts and foundations can help with control, succession, asset protection, family governance, or philanthropic aims, depending on the structure and jurisdiction. Here, the will is already current, the assets are illiquid, and the client does not want to transfer ownership during life. Whole-of-life assurance is the tool that most directly creates a cash lump sum when death occurs, helping beneficiaries meet taxes and costs without selling the company shares or family home.

• Revising the will can direct ownership, but it does not create the missing liquidity.
• A discretionary trust may help with control or succession, but transferring the assets now conflicts with Dr Rao’s stated preference and does not itself create cash.
• A foundation may support family governance or philanthropy, but funding it with illiquid shares would not meet the immediate estate-liquidity gap.

The shortfall is £1,200,000 less £450,000 and £250,000, so life assurance directly creates the missing £500,000 of death liquidity.

Question 8

Topic: Lifetime Financial Provision

A private banking client and spouse are arranging protection alongside a new 20-year mortgage.

Client facts:

• The loan should be repaid if either spouse dies during the mortgage term.
• They do not need cover after the mortgage has been repaid.
• Both spouses are willing to be underwritten and to apply for the cover together.

Which arrangement is the single best match for these facts?

• A. A single-life term policy on only the higher-earning spouse, with the other spouse as proposer only
• B. A whole-life policy on one spouse because mortgage protection should normally continue indefinitely
• C. A joint-life, last-survivor whole-life policy that pays only after both spouses have died
• D. A joint-life, first-death term policy with both spouses as proposers and both as lives assured

Best answer: D

What this tests: Lifetime Financial Provision

Explanation: A life policy separates the person applying for the policy, the proposer or policyholder, from the life assured, whose death triggers the benefit. For mortgage protection where the need exists only for a fixed loan term, term cover is generally the natural structure. Because the clients want the debt repaid if either spouse dies, both spouses need to be lives assured. A joint-life, first-death policy pays when the first of the two lives assured dies and normally then ends, which fits a shared mortgage protection need.

• Covering only the higher-earning spouse does not meet the stated need to repay the loan if either spouse dies.
• A last-survivor policy pays after the second death, so it would not provide funds on the first spouse’s death.
• Whole-life cover is generally used for indefinite protection needs, not a mortgage need that ends after 20 years.

This matches the limited mortgage term and pays on the first death because both spouses are lives assured.

Question 9

Topic: Lifetime Financial Provision

A wealth manager is reviewing protection needs for a client.

Client facts:

• Age 41, married, with two children aged 6 and 9.
• Main household earner; spouse works part-time and could not meet the mortgage alone.
• Outstanding mortgage is £420,000 with 18 years remaining.
• Existing cover is employer death-in-service benefit of one year’s salary, which would stop if the client changed job.
• Main stated concern is that the family home and children’s living costs are protected if the client dies before the children are financially independent.

Which protection gap should be treated as the single highest priority?

• A. A private medical insurance shortfall to pay for routine family healthcare costs
• B. A long-term care funding shortfall for possible care costs in later retirement
• C. A family life insurance shortfall to cover the mortgage and dependants’ needs during the children’s dependency period
• D. A critical illness-only shortfall to replace income after diagnosis of a serious illness

Best answer: C

What this tests: Lifetime Financial Provision

Explanation: Protection planning starts with the event that would cause the most immediate financial harm to the client’s objectives. Here, the client is the main earner, has young dependants, and has a large mortgage that the spouse could not support alone. The stated concern is death before the children become financially independent. The relevant gap is therefore family life insurance, normally term-based where the need lasts for a defined period such as a mortgage term or child dependency period. The existing employer benefit is limited and not fully reliable because it depends on continued employment. Other forms of protection may still be worth reviewing, but they do not match the stated primary risk as closely.

• Long-term care is a later-life risk, not the immediate family dependency and mortgage risk described.
• Private medical cover may help with treatment costs, but it does not provide a death benefit to clear debt or support dependants.
• Critical illness cover addresses specified illnesses, but it is not a substitute for life cover where the stated concern is death of the main earner.

The main risk is premature death of the primary earner, so the priority is term-related life cover sized around the mortgage and family dependency need.

Question 10

Topic: Lifetime Financial Provision

Which statement best identifies a main feature of shareholder protection?

• A. It compensates a business for lost profits when an important employee can no longer work.
• B. It pays a lump sum directly to employees who are made redundant after a business sale.
• C. It protects a lender by repaying a company loan if the borrowing business defaults.
• D. It helps provide funds so surviving shareholders can buy the shares of a deceased or seriously ill shareholder.

Best answer: D

What this tests: Lifetime Financial Provision

Explanation: Shareholder protection is a business protection arrangement. Its main purpose is to help the remaining shareholders retain control of the business if a shareholder dies or suffers a serious illness, while also giving the affected shareholder or their estate a way to receive value for the shares. It is commonly supported by life or critical illness cover and a buy-sell or cross-option agreement. This differs from key person cover, which protects the business against loss of profits, and from loan protection, which is aimed at repaying business borrowing.

• Cover for lost profits after losing an important employee describes key person protection, not shareholder protection.
• Redundancy payments to employees are an employment-cost issue, not a shareholder ownership-continuity arrangement.
• Repayment of company borrowing describes loan protection rather than funding a share purchase between owners.

Shareholder protection is designed to support ownership continuity by funding the purchase of an affected shareholder’s shares.

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