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When monitoring lapse experience, a sustained increase in lapses on a profitable in-force block of unit-linked savings would tend to:
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B
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D
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2026 Statistics
Key Facts: IFoA SP2 Exam
3h 20m
Exam Duration
IFoA
200 hrs
Recommended Study
IFoA
30%
Largest Topic Weight
SP2 2026 syllabus
5
Syllabus Areas
SP2 2026 syllabus
GBP 385
Standard Fee
IFoA fees
2x/year
Sittings (Apr & Sep/Oct)
IFoA
IFoA SP2 Life Insurance is a single 3 hour 20 minute computer-based written paper completed in Word, with around 200 recommended study hours and sittings in April and September or October. The 2026 syllabus weights are Risks and Risk Management 30%, Product Design and Features 25%, and 15% each for Products and Business Environment, Models and Valuation, and Monitoring Experience and Assumptions. The standard exam fee is around GBP 385 (reduced rate around GBP 220), and the Board of Examiners sets the pass mark each sitting rather than publishing a fixed percentage. This free set provides 100 multiple-choice technical-knowledge questions as preparation for the written exam.
Sample IFoA SP2 Practice Questions
Try these sample questions to test your IFoA SP2 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1A without-profits whole life assurance pays a fixed sum assured on death whenever it occurs. Which feature most distinguishes it from a term assurance contract?
A.It always provides cover for the whole of life, so a claim is certain provided premiums are paid
B.It contains a unit-linked investment account
C.It cannot have a single-premium version
D.It guarantees a maturity value at a fixed term
Explanation: Whole life assurance provides death cover for the entire lifetime of the policyholder, so a claim is virtually certain (subject to premiums being paid and no lapse). Term assurance only pays if death occurs within a fixed term, so most term policies expire without a claim.
2An insurer wants a savings product whose investment return is explicitly linked to the value of an underlying fund of assets, with the policyholder bearing most of the investment risk. Which contract design is most appropriate?
A.Conventional without-profits endowment
B.Unit-linked contract
C.Term assurance
D.Immediate annuity
Explanation: In a unit-linked contract the policy value is the number of units held multiplied by the unit price of the underlying fund, so investment performance passes directly to the policyholder, who bears most of the investment risk. This matches the requirement explicitly.
3Which of the following is the primary purpose of a with-profits (participating) life insurance contract from the policyholder's perspective?
A.To receive a guaranteed fixed return identical to a government bond
B.To obtain pure protection at the lowest possible premium
C.To share in the surplus of the with-profits fund through bonuses while obtaining smoothed investment returns and guarantees
D.To gain direct unit-by-unit exposure to equity markets
Explanation: With-profits contracts allow policyholders to participate in the distributed surplus of the fund via regular (reversionary) and terminal bonuses, benefiting from smoothing of returns and underlying guarantees. The insurer manages the investment and smoothing process.
4An immediate annuity is most exposed to which of the following risks for the insurer?
A.Lapse risk from early surrender
B.Expense overrun on new business acquisition only
C.Mortality risk that policyholders die earlier than expected
D.Longevity risk that annuitants live longer than assumed
Explanation: Annuity payments continue while the annuitant survives, so the insurer loses if annuitants live longer than assumed; this longevity risk is the dominant biometric risk for annuity business. Improvements in mortality increase the cost of meeting payments.
5Which statement best describes a critical illness (dread disease) policy?
A.It pays a lump sum on diagnosis of one of a defined list of serious medical conditions
B.It pays only on death within a fixed term
C.It refunds all premiums at maturity regardless of health
D.It pays a regular income only while the policyholder remains unable to work
Explanation: Critical illness cover pays a tax-free lump sum on the diagnosis of one of a specified list of conditions (such as certain cancers, heart attack or stroke), provided the policyholder survives any short survival period. It is a benefit triggered by diagnosis rather than death.
6Income protection (permanent health insurance) typically includes a deferred period. What is the main purpose of this feature?
A.To increase the sum assured over time
B.To reduce premiums and claims frequency by not paying benefits until a defined waiting period after disability has elapsed
C.To guarantee the policy can never lapse
D.To convert the benefit into a lump sum at maturity
Explanation: The deferred period is the time between the onset of incapacity and the start of benefit payments. A longer deferred period filters out short claims, reduces claim costs and so lowers premiums, and dovetails with any employer sick-pay arrangements.
7Which of the following best describes the role of distribution channels in life insurance product design?
A.They determine the statutory minimum solvency capital directly
B.They have no influence on product design
C.The chosen channel (independent advisers, tied agents, direct, bancassurance) influences product complexity, commission, target market and persistency assumptions
D.They only affect the layout of the policy document
Explanation: The distribution channel materially affects product design: advised channels can support more complex products and pay commission, while direct or online channels favour simpler products. The channel also affects expected persistency, target market and expense loadings.
8A guaranteed annuity option (GAO) attached to a deferred pension contract gives rise to which key risk for the insurer?
A.It only affects new business pricing, never the in-force book
B.It removes the need to hold reserves for the option
C.It eliminates all interest-rate risk
D.If interest rates fall and longevity improves, the guaranteed annuity rate may exceed market rates, creating a costly option for the insurer
Explanation: A GAO guarantees a minimum rate at which a pension fund converts to annuity income. It becomes valuable (in-the-money) when market annuity rates are lower than the guarantee, which happens when interest rates fall or longevity improves, creating significant cost. Such options must be reserved and hedged.
9When designing a new unit-linked product, which charging structure passes ongoing fund management costs to policyholders as a regular deduction?
A.Annual management charge (AMC) levied as a percentage of the fund value
B.Surrender penalty
C.Allocation rate above 100%
D.Bid-offer spread
Explanation: The annual management charge is a regular percentage deduction from the unit fund, designed to recover ongoing investment management and administration costs and contribute to profit. It is the principal recurring charge on unit-linked business.
10An insurer offers a unit-linked bond with both an initial (capital) unit account and accumulation units. What is the main purpose of using capital units?
A.To increase the policyholder's investment return
B.To recover initial expenses by applying a higher annual charge to early premiums held as capital units
C.To provide a guaranteed minimum maturity value
D.To eliminate mortality charges
Explanation: Capital (initial) units carry a higher annual management charge than accumulation units. Early premiums are invested in capital units so that the enhanced charge recovers high initial acquisition expenses over the policy term, a form of expense recoupment.
About the IFoA SP2 Practice Questions
Verified exam format metadata for IFoA SP2 Life Insurance Specialist Principles is pending. The practice questions above remain available while official exam length, timing, passing score, fee, and administrator details are reviewed.