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Critical reasons to study

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Peter Cave, chartered financial planner and senior RO5 examiner for the Chartered Insurance Institute, says if candidates want to avoid a rude awakening when they take this protection exam, they need to study the learning outcomes for this paper and not rely on experience in the field

Protecting individuals from financial loss as a result of death or illness is a key part of financial planning, so most candidates sitting the R05 paper will be familiar with the basics of life insurance, income protection and critical-illness cover. Many, however, may be unclear on the finer details of such policies and related trusts, protection for businesses and the financial protections available through state benefits.

Questions and responses

The R05 examination comprises 50 questions and lasts for one hour. All the questions are standard multiple-choice. Each provides four options from which to choose, with only one possible correct answer. Just because the first option sounds feasible, do not assume that it is the right answer. Read and reflect on all the options before deciding on your answer.

On the same note, do not be deluded into thinking that the correct option is likely to be the longest - or shortest - statement.

In order to avoid a rude awakening in the examination, candidates really do need to study the detailed learning outcomes for this paper. Below are the areas frequently tested in the exam.

Learning outcomes 1-3: understand the role and limitations of state benefits, the areas of need for protection planning and consumer and retail market factors and trends

These outcomes require knowledge of the relationship between insurance and an individual’s assets and liabilities, together with mortality and morbidity as well as understanding the benefits that individuals may receive from employers and the state as a result of illness or someone’s death. There are three questions for each of the learning outcomes.

Learning outcomes 4-5: understand the range, structure and application of life assurance, including underwriting, trusts and the taxation implications.

There are 14 questions spread across these broad learning outcomes. It is worth noting that this area covers not only the differences between qualifying and non-qualifying policies - including insurance bonds - but also the different taxation regimes for onshore and offshore policies, the legal requirements concerning, for example, ownership and assignments, together with inheritance tax implications. Pension insurance and policy additions such as terminal-illness benefits may also be included.

Learning outcomes 6-7: Understand the range, structure and application of income protection insurance and critical-illness insurance options

Outcomes six and seven consist of 12 questions on underwriting, trusts and the taxation implications of meeting financial protection needs. Candidates should observe that the syllabus also includes group policies and therefore these should not be overlooked in revision. Further lines for potential questioning concern premium calculation factors, exclusions and market developments.

Leaning outcomes 8-9: Understand the range, structure and application of longterm care insurance and other insurance-based protection policies

When it comes to questions based on financial protection policies with regard to long-term care, candidates are sometimes tripped up by topics including legal considerations, state provision and regulatory factors. The other insurance-based policy questions cover personal accident and sickness, payment protection and private medical insurance. There are three questions concerning long-term care and six related to other insurance policies.

Learning outcome 10: evaluate needs and priorities in financial protection and the factors relevant to solutions

In this final learning outcome, candidates need to demonstrate understanding when quantifying future capital and income needs, discussing affordability and setting priorities. Please note that possible lines of questioning include the relevance of marriage, divorce and working overseas. This learning area also consists of SME business protection needs regarding loans, key person assurance and shareholders. Six questions are set within this learning outcome.

Tackling the challenges

Highlighted below are some examples of where candidates may lack understanding:

The provisions available through the various state benefits form a minefield of complexity. Candidates need to demonstrate a firm knowledge of the basics. With regard to long-term care, understanding how local authority provisions interact with the NHS is also a necessity.

The difference in taxation treatment of onshore and offshore insurance bonds can cause confusion, as can the taxation of the underlying funds. Just because a fund is placed offshore, it does not follow that it is completely free of tax.

Some candidates mistakenly believe that a stand-alone critical-illness policy will pay out on death. This is not always the case - when such policies pay out needs to be checked.

Having experience in the field is not a substitute for revision. A serious and structured learning programme is sensible for everyone. Skimming through the course material or overlooking the need for revision altogether is not conducive to exam success. Particular attention should be paid to those areas that are not a part of the adviser’s daily activities.

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