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 refunded without deduction, as unit-price movements during the free-look are ignored
B The free-look provision applies to traditional life plans but not to investment-linked policies
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 A market gain during the free-look period is paid on top of a full refund of premiums, so the refund cannot fall below premiums paid

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 refunded less medical and other expenses, an ILP free-look refund is adjusted for the change in unit value, so the client bears any fall and may get back less than he paid; most insurers refund the lower of the premiums paid and the value of the units.

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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

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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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