Variable Life Insurance Exam Review

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Questions and Answers

Variable life insurance policy owners may make withdrawals in terms of?

Fixed monetary amount only through the reduction of the life cover sum assured

Number of units of fixed monetary through reduction of the life cover sum assured

Number of units or fixed monetary amount through the cancellation of units (correct)

Number of units through the cancellation of units (correct)

Which of the following statements about the flexibility features of variable life policies is false?

Policyholders can take loans against their variable life up to the entire withdrawal value of their policies (correct)

Policyholders have the flexibility of increasing or decreasing their premiums for regular premium variable life policies

Policyholders have the flexibility of switching from one fund to another provided it satisfies the company's switching criteria

Policyholders may request for a partial withdrawal of the policy and the withdrawal amount will be met by cashing the units at the bid price

The investment returns under variable life insurance policy?

Are a fixed rate (correct)

Are not guaranteed, are assured, are linked to the performance of the investment fund managed by the life insurance company

Fluctuate according to the rise and fall of market prices (correct)

Are guaranteed (correct)

Which of the following statements is TRUE?

The life company needs to maintain a separate account for variable life policies distinct from the general account Signup and view all the answers

Which of the following statements is FALSE?

Misrepresentation is a specific form of twisting Signup and view all the answers

Which of the following statements about variable life policies is TRUE?

The margin between the bid and offer price is used to cover the management's cost of the policy Signup and view all the answers

What is the most suitable investment instrument for an investor who is interested in protecting his principal and receiving a steady stream of income?

Fixed income securities Signup and view all the answers

What are the disadvantages of investing in common shares?

Investors are exposed to market and specific risks Signup and view all the answers

Which of the following statements about the difference between variable life policies and endowment policies?

The premiums and benefits of the endowment policies are described at the inception of the policy whereas variable life are flexible as they are account driven Signup and view all the answers

Which of the following statements about twisting is FALSE?

It refers to an agent offering a prospect a special inducement to purchase a policy Signup and view all the answers

Mr. Juan dela Cruz is currently earning Php 30,000.00 per month. He is 35 years old and he has a reasonable amount of savings. He has a moderate level of risk tolerance. What kind of policy would you recommend for him to buy?

Variable life policies Signup and view all the answers

What are the benefits available when investing in variable life funds?

The variable life funds offer policyholders access to pooled or diversified portfolios Signup and view all the answers

A unit trust is?

Established by a trust deed which enables a trustee to hold the pool of money and assets in trust on behalf of the investor. Signup and view all the answers

Study Notes

Variable Life Insurance

Variable life insurance allows policy owners to make withdrawals in various forms including cancellation of units or fixed monetary amounts.
Flexibility features include partial withdrawals, loans against withdrawal value, and switching between funds as per company criteria.
Investment returns in variable life insurance are not guaranteed and depend on the performance of managed investment funds.

Policy Value and Characteristics

The policy value relates to offer price at valuation, while endowment policies factor in cash value and accumulated dividends.
Life insurance companies must maintain separate accounts for variable life policies, distinct from general accounts.

Misrepresentation and Inducement

Rebating involves special inducements for purchasing policies; twisting is a form of misrepresentation, while misrepresentation leads to twisting.
Switching allows policyholders to move between variable life funds without penalties.

Investment Instruments and Risks

Fixed income securities are ideal for investors wanting to protect principal and ensure steady income.
Disadvantages of common shares include exposure to market risks and the possibility of shares becoming worthless.

Comparison Between Policies

Variable life policies' value reflects fund performance, unlike endowment policies which have set benefits.
Benefits and risks of variable life policies accrue directly to policyholders, offering them a more dynamic experience.

Understanding Twisting

Twisting is misleading and involves encouraging a client to discontinue an existing policy without full disclosure of the disadvantages.
It may involve comparisons that are misleading or incomplete.

Recommendations for Mr. Juan dela Cruz

For a 35-year-old individual earning Php 30,000 monthly with moderate risk tolerance, participating endowment or variable life policies are suggested due to their balance of risk and returns.

Benefits of Variable Life Funds

They offer access to diversified portfolios and flexible premium payments, including premium holidays and adjustments to the sum assured.
Policyholders benefit from access to professional fund management expertise.

Understanding Unit Trusts

A unit trust is established through a trust deed where a trustee manages pooled funds and assets on behalf of investors.

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Description

Test your knowledge on variable life insurance policies with this exam reviewer. The quiz covers topics such as withdrawals, flexibility features, and policy ownership. Prepare effectively to enhance your understanding of variable life insurance.