Variable Life Insurance Exam Review

Variable Exam Review

• Variable life insurance policies allow policy owners to make withdrawals in terms of a number of units or a fixed monetary amount through cancellation of units. Withdrawals can also occur through a reduction of the life cover sum assured.

• Policyholders can make partial withdrawals and meet the withdrawal amount by cashing the units at the bid price. Policyholders may also take loans against their variable life up to the entire withdrawal value of their policies. Policyholders can switch between funds subject to company criteria. Regular premium variable life policies allow the flexibility of increasing or decreasing premiums.

• Investment returns under variable life insurance are not guaranteed. Investment returns fluctuate in line with the performance of the investment fund managed by the life insurance company.

• The policy value of variable life policies is determined by the offer price at the time of valuation. The policy value of endowment policies is the cash value plus any accumulated dividends less outstanding loans, due at the time of surrender. The life company maintains a separate account for variable life policies separate from the general account.

• Rebating is offering a prospect a special inducement to purchase a policy. Twisting is a specific form of misrepresentation. Misrepresentation is a specific form of twisting. Switching between variable life funds is a policyholder facility.

• The investment returns under variable life insurance policies are not guaranteed. They are linked to the investment fund's performance and fluctuate with market prices.

• The policy value of variable life policies is determined by the offer price at valuation, not including dividends accumulated. Endowment policies value is cash value plus dividends less loans. Variable life policies have a separate account from the general account.

• The most suitable instrument for an investor protecting principal and seeking a steady income stream is fixed income securities.

• Disadvantages of investing in common shares include: dividends being not more than fixed rates, investors facing market and specific risks, and shares losing value if the company goes bankrupt.

• Policy values of variable life policies reflect fund performance, whereas endowment policies have predetermined premiums and benefits at policy inception. The benefits and risks of both policies directly accrue to policyholders.

• Twisting is a misleading or incomplete policy comparison of policies, often involving an inducement to purchase.

• Withdrawal value and protection benefits are determined by investment performance of underlying assets; protection cost is generally met by implicit charges; commission and company expenses are often met by implicit charges given prior to change; withdrawal value is usually value of allocated units at the bid price.

• Single premium variable life policies don't have a fixed term, allowing top-ups or single premium injections. Policyholders can adjust their coverage as needed.

• Policyholders are not required to be disclosed the basis and frequency of valuing assets.

• Variable life policy withdrawal values are not guaranteed and volatility depends on the fund's investment strategy. Policyholders do not have direct control over investment.

• Policy owners can typically purchase additional units or add premium top-ups to existing policies. Top-up premiums are used to purchase additional units after deduction of top-up charges.

• The policy owner pays further single premiums at the time of a top-up. Top-ups are generally permitted at any time, subject to a minimum amount.

• A unit trust is implemented by a trust deed which permits the trustee to hold pool of funds as well as assets in trust in the investor's behalf. It is a close-ended fund that does not need to be disposed if investors sell their shares. Investor buys units in the trust itself rather than in company shares. Unit trust is a registered organization usually investing in a wide variety of equities and other investment instruments.

• Variable life insurance does not have guaranteed minimum sum assured for dividends or protection. Premium payments are used to purchase units, whose number is dependent on the selling price per unit. Purchase of units is made from variable life funds, creating new units/adding investment to the fund.

• Investment instruments are typically ranked by liquidity: short-term securities, cash, equity, property.

• Single premium variable life insurance policies must be issued with a minimum death benefit and a maximum withdrawal value.

• Variable life policies have longer exposure to equity investments, and protection costs vary with age/coverage level. Variable life policies have explicit charges for commissions and company expenses.

• Variable life funds offer pooled/diversified portfolios, allow varying premium payments, premium holidays, top-ups, and adjusted coverage. Policy owners gain access to qualified/trained fund managers.

• Policy benefits are directly linked to the underlying investments' performance.

• Understanding the sales proposal is essential because the fund returns aren't guaranteed; investment conditions/risks are borne by the policyholder.

• Rebating is the act of offering inducements such as policy discounts to encourage policy purchases. It is prohibited under the Insurance Code.

• Variable life insurance policies offer values which are linked to investment performance, while the life company values and distributes any surplus to participating policyholders as cash dividends. Whole life/endowment policies are usable as investment instruments offering benefits payable at a later date.

• The objective of customer satisfaction can be achieved by agents offering extensive investment training to clients, coordinating sales plans with market analysis, and providing monetary assistance/discounts. Cash usually has a low yield potential, and its investment amount depends on cash flow requirements.

• Diversification means spreading investments among multiple categories of funds/instruments reducing portfolio risk.

• Variable life funds can be invested in various financial instruments such as stocks, bonds, funds, and property. Stocks are invested in to aim for capital appreciation. Investment returns depend on stock quantity and market conditions.

• Variable life policies let policyholders vary premiums, pay premiums later to add more units to their accounts. Variable life policies can be whole life/endowment policies and are similar to participating policies.

• The policy fee paid by the variable life insurance policy owner covers administrative expenses in managing the policy.

• A variable life policy's selling price is the price at which the policy units are offered for sale by the insurance company.

• Diversification in investment involves spreading funds across multiple investment categories to reduce overall risk.

• Variable life funds invest in different financial instruments; equity funds invest in stock shares and can depend on the quantity of assets/values.

• The main characteristics of variable life policies include usage for investment and protection. Protection and withdrawal values are linked to the policy's investment performance; the net cash value includes dividends up to the surrender date less indebtedness.

• Investment risk classifications include the chance of losing initial investment and the possible return mismatch with individual expectations.

• Trustee duties do not include handling buying/selling of shares, but include protecting unit holders and administering the investment portfolio.

• Premium top-ups/holidays are usually allowed under regular premium variable whole life plans. Life protection is a core objective and withdrawals are common after a set premium period. Premiums are used to purchase variable life fund units to attain life insurance coverage.

• Investment objectives are varied motivations; they include higher guaranteed returns, a comfortable living standard, or higher education funds.

• Variable life policies are useful for regular savings and protection, with withdrawal values contingent on investment performance. The net cash value is determined by a gross cash amount considering dividends and debt up to the surrender date.

• Policy fees cover professional/investment management expenses, as well as policy setting up/administrative charges.

• The selling price of a variable life insurance policy is the price at which units are offered for sale by the insurance company.

• Risk categories relate to investment and include: risk of losing the initial investment, risk of investment return not meeting individual expectations, and risk of losing some or all of the initial investment.

• The handling of investment portfolios is part of trustee duties, while ensuring compliance with the trust deeds and acting to protect unit holders are duties performed by the trustee.

• Premium top-ups and holidays subject to company policies are typical in regular premium whole-life plans. The primary use of investment is for insurance protection, while premium withdrawals may be permitted following a specified premium period. A single premium contribution purchases variable life fund units to give coverage.

• To achieve high and guaranteed return on investment is a false objective for fixed deposit investments.

• Variable life insurance policies allow uses for savings, protection, and investment. Withdrawal values are contingent on the investment performance, while net cash values contain dividends/surrender date/debt.

• The policy fee of a variable life insurance policy is usually used to cover expenses of managing investment, including professional advisor/administrative expenses.

• The price at which units within a variable life insurance policy are offered for sale is called the selling price.

• Investment diversification is spreading money among numerous investment categories to decrease risk.

• Variable life funds are invested in different financial instruments, and stock investments are for potential capital appreciation. Returns depend on various factors, including the quantity of assets and market conditions.

• Variable life policies differ from participating policies in allowing policyholders to adjust premiums, pay additional premiums, and have unique investment structures.

• The policyholder should be disclosed the bid/offer spread, single premium, policy fee, admin/mortality charge, as well as the sum assured. Cash and deposit are the least risky among investment instruments; risk level increases in order: a well-diversified investment portfolio, stock options, derivatives.

• Investment performance risk factors might include rate of corporate taxes, management fraud, and financial leverage.

• Investing in bonds provides protection to the principal while providing a guaranteed steady stream of income. Bonds offer temporary refuge from uncertain market outlooks. Bond investments also provide opportunities for capital preservation, but don't offer capital appreciation prospects.

• Investment instruments in ascending order (least to most risky) are: Cash/Deposits; A well-diversified investment portfolio; Stock Options; Derivatives.

• A risk-return graph of investments plots returns (high to low) against risk (low to high). Riskier investments are usually located at the upper right of the graph, and safer investments at the lower left. Higher returns are commonly correlated with higher risk. Risk-free investments with relatively low or zero returns are placed at the bottom of the graph, with equity investments at the top.

• The variables in determining a variable life policy's valuation are the offer prices at the valuation time. Endowment policy values depend on cash value, accumulated dividends, and outstanding loan payments up to the surrender date. Variable life policies need a separate account management system.

• Investing in bonds usually provides protection to the principal, while ensuring a steady stream of income with minimal risk of loss. Bonds are ideal for temporary refuge from a risky market with expected uncertain market conditions.

• Variable life funds can employ diverse types of investment in any financial instrument.

• Statement about diversification is false: Diversification cannot completely eliminate risk in a portfolio for investment in stocks.

• Preferred stocks give shareholders the right to a fixed dividend, and they have priority over company assets in the event of dissolution.

• Allocations in the dividends for participating life insurance policies are not directly linked to the company's investment performance.

• The allocation of dividends for participating life insurance policies has already been smoothened by the life company. Dividends' highs and lows are reflective of company's investment returns. Allocations are not fixed at policy inception. Allocation depends on investment performance.

• Customer satisfaction is achieved through freebies, extensive investment training, sales plan alignment with market analysis, and monetary assistance/discounts.

• Valid statement about cash (investment) is cash investment amount typically depends on cash flow requirements. Investment increase is not usually because of bull markets, and they decrease with rising interest rates.

• Premium top-ups and holidays are usually allowed in regular premium variable whole life plans; life protection is the plan's core purpose, investment is secondary. Withdrawals occur after several years of premium payments. A single premium contribution is used to purchase fund units for life insurance coverage.

• A false investment objective is the false belief that fixed deposits provide high, guaranteed return.

• Variable life policies are used for investment; they have withdrawal values and benefits tied to investment performance. Net cash values comprise of previous gross values plus dividends less any outstanding debts.

-When assessing risk, two notable categories are: the potential loss of the initial investment and whether the return on the investment will align with individual expectations.

• The trustee duties do not pertain to the buy/sell activity of shares, but instead to managing an investment portfolio, ensuring the compliance with trust deeds, and acting to protect unit holders.

• A policy fee, paid by the variable life insurance policy owner, includes administrative expenses for setting up the variable life insurance policy, and handling charges by professional investment managers.

• A selling price is the price of variable life insurance policy units offered for sale by the life insurance company.

• Diversification, in investment terms, involves spreading investment funds across several investment categories.

• Variable life funds can invest in several financial instruments; equity funds invest in shares and reflect stock price variations.

• Variable life policies differ from participating policies in premium flexibility and the ability to pay future single premiums for added units, which participating plans generally do not allow.

• Assuming no price/charge fluctuations, the amount that the policyholder loses if the policy gets surrendered is computed based on the single premium, policy fees, admin/mortality charges, and bid-offer spreads; the sum assured is equivalent or 200% of the single premium.

• Variable life policies' return varies based on the underlying investment's performance.

• Specific risk factors depend on issues that apply only to the investment (and not the overall portfolio), such as fraud by managers, financial leverage of the company, and rate of corporate taxes.

• The risk-return spectrum of investments (graph) has higher return in the case of higher risk, and lower return in the case of lower risk; equity risk-less cash funds usually are at bottom of the graph.

• The policy value of variable life policies is derived from the offer price at the valuation time; endowment policy calculation usually is derived from the cash value plus accumulated dividends minus any outstanding loans/debt. Separate accounts are used for variable policies.

• Bond investments have principal protection and guaranteed income, offering temporary protection during market uncertainty. Bonds do not offer returns from capital appreciation.

This quiz reviews key concepts related to variable life insurance policies, including withdrawal options, investment returns, and policy valuation. Understand how policyholders can navigate premiums and unit cancellations for better financial planning. Prepare effectively for your exam with this focused review.