CMFAS RES5 Advisory Process & Skills question: investment-linked policy (ILP)

CMFAS RES5Advisory Process & Skills

A client purchases an investment-linked policy (ILP) and later exercises the 14-day free-look. Regarding the amount refunded, the representative must have disclosed that:

A The full premium is always refunded without any deduction, whatever happens to unit prices during the free-look
B The free-look provision does not apply to investment-linked policies, only to traditional life plans
C For an ILP, the client may bear any fall in unit value during the free-look, so the refund can be below premiums paid
D Any market gain during the free-look period is added to the refund and paid to the client as a windfall

Show the answer and explanation

Answer: C. For an ILP, the client may bear any fall in unit value during the free-look, so the refund can be below premiums paid

Disclosure rules require the representative to explain that, for an investment-linked policy, the risk of any fall in the value of the underlying investment during the free-look period may have to be borne by the client. The refund reflects the current unit value, so it may be lower than the premiums paid.

Common mistake

Unlike a non-investment life policy where premiums are returned in full, an ILP free-look refund is subject to market value — the client bears the downside but is not paid an investment gain.

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Answer: C. For an ILP, the client may bear any fall in unit value during the free-look, so the refund can be below premiums paid

Common mistake

Unlike a non-investment life policy where premiums are returned in full, an ILP free-look refund is subject to market value — the client bears the downside but is not paid an investment gain.

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Original study material mapped to the public CMFAS RES5 syllabus. Unofficial, not endorsed by MAS or SCI. Verify figures and rules against current guidance before relying on them.

CMFAS RES5 Advisory Process & Skills question: investment-linked policy (ILP)

Answer: C. For an ILP, the client may bear any fall in unit value during the free-look, so the refund can be below premiums paid

Common mistake

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CMFAS RES5 Advisory Process & Skills question: investment-linked policy (ILP)

Answer: C. For an ILP, the client may bear any fall in unit value during the free-look, so the refund can be below premiums paid

Common mistake

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