IIQE Paper 5 Guide: Linked Policies, Fund Risk and Client Suitability

Paper 5, Investment-linked Long Term Insurance, has 80 questions in two hours and a 70% pass mark. It combines an insurance contract with investment exposure. Treating the policy as an ordinary fund—or fund performance as an insurer guarantee—causes errors at the structural level.

Separate two layers: policy and investment

For each risk, identify source, effect and bearer

• Market risk: asset-price changes move investment value.
• Credit risk: an issuer or counterparty may fail to perform.
• Interest-rate risk: rate changes affect fixed-income values and income.
• Currency risk: exchange rates affect returns where currencies differ.
• Liquidity risk: an asset may not be sold quickly at a reasonable price.
• Concentration risk: excessive exposure to one market, sector or asset.

Track where each charge is deducted

Charges can come from premium, the policy account, fund assets or surrender proceeds. They affect the amount invested, units, policy value or cash received. For calculations, draw the cash flow: customer payment, point of deduction and conversion into investment value.

Suitability is not just a risk questionnaire

Financial need, objective, term, risk tolerance, loss-bearing capacity, liquidity, product knowledge and affordability belong together. A willingness to take risk does not prove that a customer can absorb a severe loss or surrender cost when money is needed soon.

Five disclosure checks

1. The product is a long-term insurance contract, not direct ownership of the related fund.
2. Investment return and policy value can rise or fall; guaranteed and non-guaranteed elements must be separated.
3. Charges, commitment period, surrender effect and liquidity constraints must be understood.
4. An investment option's objective, risk, currency and asset scope matter more than its name.
5. A recommendation must follow client information, not commission or sales targets.

Study order for Paper 5

Complete the Paper 3 long-term foundation, then cover investment tools and risks, funds and units, policy charges, client assessment and disclosure. Tag every error as a policy-layer or investment-layer error to expose the cause.