Variable Life Insurance Mock Exam

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Questions and Answers

What should be offered to someone seeking the least annual cost for life insurance until death?

A 20-pay life policy

An endowment policy

A term policy (correct)

A whole life policy

What does diversification in investment primarily involve?

Reducing the risks by spreading investments across various categories (correct)

Eliminating all possible investment risk

Concentrating all funds into one investment category

Investing heavily in a single high-return asset

Which statement about diversification in portfolio management is false?

A diversified portfolio compromises return for security

Diversification can involve different types of stocks

Diversification helps to spread portfolio risk

Diversification can completely eliminate all investment risk (correct)

Which characteristic is true of a single premium variable life insurance policy?

It must be issued with a minimum death benefit Signup and view all the answers

What is a fundamental difference between traditional participating life insurance and variable life insurance?

Investment elements are disclosed at the outset in variable life insurance Signup and view all the answers

What does excessive concentration of investments in one asset class typically result in?

Higher risk of substantial losses Signup and view all the answers

What benefit does a diversified portfolio provide to an investor?

Mitigation of systemic risks by spreading investments Signup and view all the answers

Which is likely NOT a feature of variable life insurance policies?

Investment options being less transparent to the policyholder Signup and view all the answers

Which of the following benefits do top-ups or single premium injections provide in certain plans?

They allow for varying the level of cover. Signup and view all the answers

What is a key characteristic of a UNIT TRUST?

It is established by a trust deed held by a trustee. Signup and view all the answers

What is the primary goal of investing in equity funds?

To achieve capital appreciation over time. Signup and view all the answers

Which statement about variable life insurance policies is incorrect?

They guarantee a fixed cash value regardless of market conditions. Signup and view all the answers

Which of the following is NOT a typical investment option for variable life funds?

Real estate trusts Signup and view all the answers

What is the purpose of a trust deed in a UNIT TRUST?

To enable a trustee to hold assets on behalf of investors. Signup and view all the answers

During a market recession, which type of asset typically depreciates the fastest?

Equities Signup and view all the answers

What financial assurance do whole life policies provide that distinguishes them from term policies?

Guaranteed payment at death or maturity. Signup and view all the answers

What does it imply if an agent convinces a policyholder to discontinue a policy without revealing the disadvantages?

The agent is engaging in deceptive practices. Signup and view all the answers

In the risk-return profile graph, where do equity funds typically appear?

At the top end of the graph. Signup and view all the answers

Which of the following statements about the withdrawal value calculation is true?

The bid-offer spread decreases the value of investment. Signup and view all the answers

Which statement regarding variable life and endowment policies is FALSE?

Endowment policies have flexible premiums. Signup and view all the answers

What is the role of administrative charges in the calculation of withdrawal value?

Administrative charges are deducted after the single premium is invested. Signup and view all the answers

Which option correctly describes the relationship between risk and return for cash funds?

Cash funds usually provide low returns with low risk. Signup and view all the answers

What is the significance of the statement, 'the premiums and benefits of the endowment policies are described at inception'?

It confirms that endowment policies have predetermined benefits and costs. Signup and view all the answers

If a policyholder has a bid-offer spread of 4.5%, how will this impact their investment?

It will reduce the investment value by 4.5%. Signup and view all the answers

What type of withdrawals can variable life insurance policy owners make?

Number of units or fixed monetary amount through reduction of life cover sum assured Signup and view all the answers

Which statements about the characteristics of variable life policies are true?

Commissions and company expenses are met by a variety of explicit charges, including some that are variable. Signup and view all the answers

Which benefits are associated with investing in variable life funds?

Policy owners have access to pooled or diversified portfolios of investment. Signup and view all the answers

What is true regarding single premium variable life policies?

There is no fixed term, making them technically whole life insurance policies. Signup and view all the answers

When it comes to variable life policies, what is considered a misconception about their investment characteristics?

The costs associated with protection are solely fixed and do not vary. Signup and view all the answers

What financial advantage do policy owners gain from professional management of variable life funds?

Expert management increases the potential for higher returns compared to non-managed funds. Signup and view all the answers

Which statement accurately describes the policy benefits of variable life policies?

The policy benefits are directly linked to the investment performance of the underlying assets. Signup and view all the answers

Which of the following statements is FALSE regarding twisting in insurance?

Twisting occurs solely when an agent misrepresents a policy's costs. Signup and view all the answers

Which of the following statements regarding the costs of variable life insurance is incorrect?

All costs are explicitly stated in the policy documentation. Signup and view all the answers

Which of the following statements about benefits in variable life funds is FALSE?

The fund ensures definite high yield for an investor since it is managed by professionals Signup and view all the answers

Which of the following statements regarding policy values in variable life policies is TRUE?

The policy value of endowment policies is the cash value plus any accumulated dividends Signup and view all the answers

What distinguishes variable life insurance from traditional life insurance policies?

Variable life insurance typically offers variable premiums linked to investment performance. Signup and view all the answers

What is one flexibility benefit of investing in variable life funds?

Policy owners can easily change the level of sum assured and switch their investment between funds. Signup and view all the answers

Why is it essential for the customer to fully understand the sales proposal?

Because the insurer does not guarantee any return on investment. Signup and view all the answers

Which of the following statements about the option to top-up under variable life insurance products is FALSE?

Policy owners may buy new variable life insurance policies during the top-up process Signup and view all the answers

Which statement regarding rebating is correct?

Rebating refers to offering special incentives to prospects to purchase a policy. Signup and view all the answers

What aspect does not accurately represent the characteristics of variable life funds?

They guarantee a fixed interest rate for the duration of the investment Signup and view all the answers

Which statement correctly describes the purpose of maintaining a separate account for variable life policies?

To ensure that the investment returns are based solely on the performance of the separate account Signup and view all the answers

Which of the following options represent a feature of variable life insurance products?

They feature a clear structure that separates investment and insurance protection. Signup and view all the answers

In which of the following scenarios would misrepresentation occur?

Claiming a higher guaranteed return than what is actually offered. Signup and view all the answers

What is a common misconception about variable life funds?

They involve guaranteed returns regardless of market conditions Signup and view all the answers

Which of these is often a disadvantage of variable life insurance?

They provide benefits that can be less predictable than whole life plans Signup and view all the answers

Which option reflects the nature of switching in variable life policies?

It is a facility enabling policyholders to switch to another variable life fund offered by the company. Signup and view all the answers

What feature distinguishes a variable life fund from more traditional insurance policies?

The opportunity to invest in a pool of diversified portfolios Signup and view all the answers

Study Notes

Variable Life Insurance Online Mock Exam

Example Question: Edward wants life insurance at the least annual cost. Offer him a term policy.

Diversification in Investment

Diversification reduces investment risk by spreading funds across different investment categories.
Putting all funds into one category increases risk.
Diversification doesn't eliminate all risk, but it spreads it.
Diversification can involve purchasing different stock types and investing in stocks from different countries.
Diversification can potentially improve portfolio security, but it may lower potential return.
Diversification spreads risk by investing in different categories of investment.

Single Premium Variable Life Insurance Policy

Single premium variable life insurance policies typically have no death benefit.
They need a minimum death benefit.

Variable Life Insurance Policies vs. Traditional Participating Life Insurance

Variable life insurance policies offer a wider variety of investment options.
Traditional participating policies offer more stability.
Investment options in variable life insurance are detailed upfront.

Investment Instruments for Income and Principal Protection

Fixed income securities (e.g., bonds) are suitable for investors seeking principal protection and a steady income.

Disadvantages of Investing in Common Shares

Dividends are often not fixed.
Investors are exposed to market and company-specific risks.
Shares can lose value if a company performs poorly or declares bankruptcy.

Rebating in Insurance

Rebating is offering an incentive for purchasing an insurance policy.
Rebating can enhance an agent's sales performance and reputation.
Rebating in insurance practices is often prohibited by regulations.

Preferred Shares

Preferred shares offer a fixed dividend.
Preferred shareholders have priority over common shareholders during liquidation.
Preferred shares may not provide the same growth opportunities as common shares.

Customer Satisfaction and Agent Strategies

Agents can achieve customer satisfaction through various methods, including: providing training, coordinated sales goals, monetary incentives, and client support.

Variable Life Insurance Policies

Variable policies have no guaranteed minimum amount for declaring dividends.
Policy premiums are used to purchase units.
Units are determined by the selling price.

Premium Variable Whole Life Insurance Plans

Usually allow premium top-ups.
Administrative rules may limit top-ups.
Typically aim for life protection rather than pure investment.

Asset Liquidity Ranking (Least to Most Liquid)

Property
Short-term securities
Cash
Equities

Surrender Value of Traditional Participating Life Insurance Products

The surrender value may be lower than in non-participating policies, decreasing with age.
Cash value for periodic policies.

Variable Life Insurance Policy Characteristics

Withdrawal values are linked to investment performance and may experience implicit/explicit charges.
Withdrawals might require a notice period per company guidelines.

Variable Life Insurance Benefits

Pooled and diversified investment portfolios.
Flexibility in adjusting premium payments.

Important Customer Understanding in Variable Life Insurance

Understanding product details is critical as the policyholder bears the investment risk.
This allows the customer to make informed decisions.

Twisting in Variable Life Insurance

Offering a misleading comparison of policies between companies to lure customers.
Encouraging customers to discontinue one policy in favor of another without disclosing the drawbacks.

Investment Risk-Return Profile

Riskier investments are generally expected to yield higher returns.
Less risky investment options usually offer lower returns.

Withdrawal Value Calculation

The withdrawal value is determined by the higher of the premium amount or the value of units.

Comparison of Variable Life and Endowment Policies

Variable life policies are flexible; endowment policies are preset.
Endowment policies' premiums and benefits are fixed at inception, while variable life policies offer flexibility in varying premiums and returns.
Both policies generally accrue benefits to the policyholder.

Single Premium Variable Life Policies

Do not have a fixed term.
Allow for top-ups/ premium injections.
Offer flexibility in adjusting a policyholder's level of coverage.

Unit Trust

Investors buy units rather than shares from a trustee.
Trustee manages investments and assets.

Variable Life Policies and Investment Risk

Variable life policies often have a greater degree of exposure to equity investment.
Variable life investment risk is often high.
Variable life products offer the potential for high returns but with higher risk.

Variable Life Policy Flexibility

Easily changing the level of coverage or switching investment funds.

Risk Classification in Investment

Risk associated with not achieving anticipated returns.
Risk relating to losing invested capital.

Benefits of Variable Life Funds

Exposure to various investment portfolios.
Flexibility in investment strategies.
Potential for professional fund management.

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Description

Test your knowledge on Variable Life Insurance with this comprehensive mock exam. The quiz covers essential concepts including diversification in investment, policy types, and the differences from traditional life insurance. Sharpen your understanding and prepare for real-world applications.