CMFAS RES5 Advisory Process & Skills question: life insurance product

CMFAS RES5Advisory Process & Skills

A key reason to review a client's existing life insurance product is that many carry conversion options which are valuable because they:

A Can usually be exercised without further evidence of health
B Automatically double the sum assured every year without extra premium
C Refund all premiums paid to date when the option is exercised
D Let the client convert the policy's cash value into a fixed deposit

Show the answer and explanation

Answer: A. Can usually be exercised without further evidence of health

Life insurance conversion options are important because they can usually be exercised by the client without providing further evidence of health, so reviews should ensure such options are used where beneficial. Reviews also check trust arrangements and sum-assured adequacy.

Common mistake

The value is skipping fresh health evidence, not any premium refund or automatic increase.

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On a personal balance sheet, how are assets and liabilities normally valued?A client's balance sheet shows total assets of $640,000 and total liabilities of $256,000. What do his net worth and solvency ratio tell the representative?A client earns $80,000 a year. His only existing death cover is $300,000 of group term insurance through his employer plus $70,000 under the Dependants' Protection Scheme. Using the Basic Financial Planning Guide multiple for death and total permanent disability, the shortfall the representative should plan for is approximately

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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.