CeMAP 1 Consumer Needs & Products Practice Questions
Consumer Needs & Products makes up 3 of every 40 questions on a Tigertest CeMAP 1 practice test. Here are 10 of the 15 questions on it, each with the answer and the reason.
Updated by the Tigertest team. Based on LIBF's FSRE (CeMAP Module 1) syllabus for FRE1 and FRE2. Original questions; case studies written as single questions. Not affiliated with LIBF or Walbrook Institute London.
1. Before recommending long-term investments, an adviser would normally make sure the client first has:
- A.An interest-only mortgage
- B.An emergency cash fund
- C.A stocks and shares ISA
- D.A second property
Answer: B. Ready cash for emergencies comes before investing, so the client is not forced to sell investments at a bad time. Protection needs are also usually met before saving.
2. A couple with a repayment mortgage want life cover that matches the falling debt at the lowest cost. The usual choice is:
- A.Whole of life assurance policy
- B.Family income benefit
- C.Level term assurance
- D.Decreasing term assurance
Answer: D. Decreasing term cover falls roughly in line with a repayment mortgage balance, so it is cheaper than level cover. Level term suits an interest-only loan, where the debt stays the same.
3. Which policy replaces part of a person's earnings if illness or injury stops them working?
- A.Income protection
- B.Private medical insurance
- C.Critical illness cover
- D.Level term assurance
Answer: A. Income protection pays a regular income after a waiting period while the person cannot work. Critical illness pays a lump sum on diagnosis of a listed condition.
4. Critical illness cover pays out:
- A.The bills for private hospital treatment
- B.A lump sum on death within the term
- C.A lump sum on a listed diagnosis
- D.A monthly income while off work sick
Answer: C. The policy pays a tax-free lump sum when the insured is diagnosed with a condition defined in the policy, such as many cancers or a heart attack.
5. A defined contribution pension's eventual value mainly depends on:
- A.The member's state pension age
- B.The employer's profits that year
- C.Contributions and investment growth
- D.Final salary and the number of years served
Answer: C. In a defined contribution scheme the pot is what has been paid in plus investment returns, so the member bears the investment risk. Final salary schemes promise a benefit based on pay and service.
6. Under automatic enrolment, an employer must:
- A.Enrol eligible staff in a pension
- B.Provide life cover for all staff
- C.Match any personal pension payments
- D.Pay part of each employee's mortgage
Answer: A. Employers must enrol eligible jobholders into a qualifying workplace pension and contribute, though staff may opt out. Automatic enrolment is supervised by The Pensions Regulator.
7. Which is the main reason many people distrust financial services firms?
- A.Strict data protection rules
- B.Low interest rates on loans
- C.Too many bank branches closing
- D.Past mis-selling scandals
Answer: D. Large-scale mis-selling of endowments, personal pensions and payment protection insurance damaged trust. Rebuilding it is one aim of the Consumer Duty.
8. Someone with no bank account and little access to mainstream credit is said to be:
- A.Financially overextended
- B.Financially excluded
- C.Credit impaired
- D.Mortgage trapped
Answer: B. Financial exclusion means being unable to use mainstream products such as a bank account or affordable credit. It often pushes people towards high-cost lenders.
9. Which service gives free, impartial money and pension guidance to the public?
- A.The Payment Systems Regulator
- B.The Money and Pensions Service
- C.The Financial Services Compensation Scheme
- D.The Prudential Regulation Authority
Answer: B. The Money and Pensions Service, set up by government, runs MoneyHelper and Pension Wise for free guidance. The FSCS pays compensation when firms fail.
10. Which is usually the first financial priority for a client with credit card debt at a high interest rate and modest savings?
- A.Start a whole of life policy
- B.Buy a buy-to-let property
- C.Open a stocks and shares ISA
- D.Clear the expensive debt
Answer: D. Paying off debt that charges more than savings earn gives a certain return. Long-term investing usually waits until expensive debt is cleared and an emergency fund exists.
Practice all 15 consumer needs & products questions, and the rest of the 200-question bank, in the free CeMAP 1 training sets. Questions you miss come back until you have mastered them.
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