Variable Life Insurance Mock Exam
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Questions and Answers

What is the primary aim of traditional participating policies?

  • To maximize short-term gains
  • To produce a steady return by smoothing out market fluctuations (correct)
  • To focus solely on capital gains
  • To offer high-risk investment opportunities

Which investment instrument is best for protecting principal and ensuring a steady income?

  • Warrants
  • Variable life policies
  • Equities
  • Fixed income securities (correct)

What are the disadvantages of investing in common shares?

  • Shares can only be sold at a premium
  • Investors are exposed to market and specific risks (correct)
  • They provide fixed returns every year
  • Dividends are guaranteed regardless of performance

Which of the following is true regarding rebating in insurance?

<p>Rebating is prohibited under the Insurance Code (A)</p> Signup and view all the answers

What advantages do preferred shares offer compared to common shares?

<p>Fixed dividends and priority over assets during dissolution (C)</p> Signup and view all the answers

Which statements about the objective of satisfying customers profitably are correct?

<p>It is achievable through extensive investment training by the company (D)</p> Signup and view all the answers

Which types of investment generally involve higher risks?

<p>Equities (D)</p> Signup and view all the answers

What is one major limitation of common shares concerning investor returns?

<p>They are subject to possible total loss if the company fails (C)</p> Signup and view all the answers

Which of the following BEST describes the policy benefits of variable life policies?

<p>The policy benefits are directly linked to the investment performance of the underlying assets. (C)</p> Signup and view all the answers

Which of the following statements is FALSE regarding misrepresentation and twisting?

<p>Misrepresentation is a specific form of twisting. (D)</p> Signup and view all the answers

Which of the following represents one of the flexibility benefits of investing in variable life funds?

<p>Policy owners can easily change the level of sum assured and switch their investment between funds. (B)</p> Signup and view all the answers

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

<p>Because the impact of changes in investment conditions is solely borne by the customer. (B)</p> Signup and view all the answers

Which statement about twisting is INCORRECT?

<p>Twisting is illegal and punishable by fines. (C)</p> Signup and view all the answers

The flexibility benefit of variable life funds does NOT include which of the following?

<p>Increasing the death benefit beyond the initial policy amount. (B)</p> Signup and view all the answers

Which of these is NOT a function of variable life insurance products?

<p>Ensuring that all premiums contribute strictly to the death benefit. (B)</p> Signup and view all the answers

Which of the following best explains the importance of understanding variable life policies?

<p>It influences the policyholder's awareness of risk and return expectations. (C)</p> Signup and view all the answers

Which statement about the surrender value of traditional participating life insurance products is TRUE?

<p>The surrender value is based on the bid price multiplied by the number of units. (B)</p> Signup and view all the answers

What method generally covers the protection costs under a variable life insurance policy?

<p>Explicit charges stipulated openly in the policy terms (B), Cancellation of units in the fund (D)</p> Signup and view all the answers

What does the policy fee for a variable life insurance policy cover?

<p>The mortality and administrative costs. (C)</p> Signup and view all the answers

Which of the following characteristics applies to a variable life insurance policy?

<p>It incurs implicit charges to cover protection costs. (B)</p> Signup and view all the answers

Which statement regarding investing in variable life funds is TRUE?

<p>Investors can expect greater returns from high equity investments over the long term (B)</p> Signup and view all the answers

Which of the following benefits are associated with investing in variable life funds?

<p>Flexibility in premium payments and investment options. (C)</p> Signup and view all the answers

What is NOT a duty of the trustee of a unit trust?

<p>Investing the fund's assets in speculative stocks (C)</p> Signup and view all the answers

When considering the benefits of variable life insurance, which option is NOT accurate?

<p>All investment risks are absorbed by the insurance company. (D)</p> Signup and view all the answers

Which statement about investment objectives is FALSE?

<p>Investment in real estate is solely for rental income (C)</p> Signup and view all the answers

Which of the following best describes the nature of charges in a variable life insurance policy?

<p>Charges can be influenced by the age of the policy owner and level of coverage (C)</p> Signup and view all the answers

Which of the following statements is TRUE regarding the withdrawal value of a variable life insurance policy?

<p>It varies based on the performance of underlying assets. (B)</p> Signup and view all the answers

What is a common misconception about high equity investments in variable life funds?

<p>They guarantee stable returns irrespective of market conditions (B)</p> Signup and view all the answers

What is a common misconception about participating policies regarding surrender values?

<p>They do not have any surrender values. (D)</p> Signup and view all the answers

Which of the following statements is NOT accurate about the changes in charges for variable life insurance policies?

<p>Changes in charges can occur without any notice. (C)</p> Signup and view all the answers

What should policy owners consider when choosing between variable life insurance options?

<p>Their own risk tolerance and investment goals (A)</p> Signup and view all the answers

Which of the following accurately reflects the consequences of cancellation of units in a variable life insurance fund?

<p>It leads to a decrease in the policy's cash value (A)</p> Signup and view all the answers

What does it mean when an agent induces a policyholder to discontinue a policy without disclosing the disadvantages?

<p>It is considered unethical behavior. (A)</p> Signup and view all the answers

How do higher return and risk correlate in investment funds?

<p>Higher return usually corresponds with higher risk. (B)</p> Signup and view all the answers

Where would equity funds be positioned on a risk-return graph?

<p>At the top end of the graph. (C)</p> Signup and view all the answers

What is the approximate withdrawal value after a year if the growth rate and bid-offer spread assumptions are maintained?

<p>P 420,069.02 (D)</p> Signup and view all the answers

Which statement about variable life policies versus endowment policies is false?

<p>Variable life policies are more rigid than endowment policies. (D)</p> Signup and view all the answers

What do variable life policies primarily depend on?

<p>The performance of the underlying investment funds. (C)</p> Signup and view all the answers

In terms of risk level, where do cash funds typically rank?

<p>At the bottom end of the risk-return spectrum. (B)</p> Signup and view all the answers

What characteristic is unique to the premiums and benefits of endowment policies compared to variable life policies?

<p>They are defined at the start of the policy. (C)</p> Signup and view all the answers

Which of the following accurately describes a UNIT TRUST?

<p>Established by a trust deed which enables a trustee to hold the pool of money and assets in trust on behalf of the investor. (A), One whereby the investor buys units in the trust itself and not shares in the company. (B)</p> Signup and view all the answers

What is a key characteristic of equity funds?

<p>Invest in shares of stocks and investors who buy such assets usually aim for capital appreciation. (C)</p> Signup and view all the answers

Which statement about Whole Life and Endowment policies is true?

<p>Both policies can be used as media for investment with benefits that become payable at a future date. (D)</p> Signup and view all the answers

Which of the following statements about variable life funds is CORRECT?

<p>They can be invested in a variety of financial instruments, including specialized funds. (C)</p> Signup and view all the answers

What flexibility do policyholders of certain plans have?

<p>The ability to change the level of cover as per their requirements. (B)</p> Signup and view all the answers

Which statement about the characteristics of a close-end fund is accurate?

<p>It does not have to liquidate assets if many investors sell shares. (A)</p> Signup and view all the answers

Which of the following is a FALSE statement regarding life insurance policies?

<p>Participating policyholders receive a guaranteed return every year. (B)</p> Signup and view all the answers

Which investment characteristic of unit trusts makes them attractive to investors?

<p>They allow individuals to invest in a diverse range of asset classes through units. (C)</p> Signup and view all the answers

Flashcards

What type of policies aim to produce a steady return by smoothing out market fluctuations?

Traditional participating policies aim to provide a consistent return by mitigating market volatility.

What is the most suitable investment for an investor looking for capital protection and steady income?

Fixed income securities are ideal for investors who prioritize capital preservation and a regular income stream.

What are the disadvantages of investing in common shares?

Common shares have disadvantages like potential for dividends being lower than fixed rates, vulnerability to market and specific risks, and the possibility of becoming worthless if the company fails.

What are the truths about Rebating?

Rebating is against the Insurance Code, involves offering incentives for policy purchase, and does not enhance sales or agent reputation.

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What are the advantages of investing in preferred shares?

Investing in preferred shares offers advantages like fixed dividend rights, priority in asset distribution during company dissolution, and potential capital appreciation.

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How can an agent achieve customer satisfaction and profitability?

An agent can achieve customer satisfaction and profitability by understanding their needs and offering appropriate solutions.

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How can an agent achieve the objective of satisfying customers' needs profitably?

The objective of satisfying customers need profitably can be achieved by an agent through understanding their needs and offering appropriate solutions. Freebies and company training, while beneficial, are not the primary drivers of this objective.

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Net Cash Surrender Value

The amount returned to the policyholder when a participating life insurance policy is surrendered. It includes the surrender value of the paid-up additions up to the date of surrender.

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Variable Life Insurance

A type of life insurance policy where the death benefit and cash value are linked to the performance of underlying investments. The policyholder can choose from various investment options, and the policy's value fluctuates based on the investment performance.

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Policy Fee

Charges associated with managing investments within a variable life insurance policy. These charges cover expenses like fund management fees, administrative costs, and mortality charges.

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Mortality Costs

Expenses incurred by the insurance company to cover the risk of death under a variable life insurance policy.

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Handling Charges

Charges associated with managing the underlying investments in a variable life insurance policy. These charges cover the cost of hiring professional fund managers and administrative expenses.

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Variable Life Fund

A type of life insurance policy where the policyholder can choose how to invest their premium payments. The policy's value fluctuates based on the performance of the chosen investments.

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Withdrawal Value

The amount of money that can be withdrawn from a variable life insurance policy. The withdrawal value is calculated based on the value of the units allocated to the policyholder at the time of withdrawal.

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Bid Price

The price at which units within a variable life insurance policy are purchased or redeemed. The bid price is typically lower than the offer price.

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Twisting (Insurance)

An agent encouraging a policyholder to switch insurance companies without fully disclosing the potential drawbacks of switching.

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Risk-Return Profile Graph

A graph showing the relationship between risk and return for different types of investment funds. It typically shows equity funds at the high-risk, high-return end and cash funds at the low-risk, low-return end.

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Variable Life Policy

Policyholders directly experience the benefits and risks associated with their investments. Returns depend on the performance of the underlying investment funds chosen in variable life policies.

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Endowment Policy

In endowment policies, premiums and benefits are fixed at the start. The insurer guarantees the stated benefits, and the policy value typically grows at a predetermined rate.

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Variable Life Policy Benefits

Policy benefits directly reflect the investment performance of the underlying assets, meaning the value of your coverage can fluctuate.

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Misrepresentation

Misrepresentation is a dishonest act where an agent provides false or misleading information about a policy.

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Rebating

Rebating is offering an illegal incentive (like a discount) to persuade someone to buy a policy.

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Twisting

Twisting is a form of misrepresentation that involves misleading a client into switching policies, often to the client's detriment.

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Flexibility of Variable Life Insurance

Variable life insurance allows flexibility in adjusting the amount of coverage, changing investment allocations, taking premium holidays, and adding top-ups.

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Importance of Sales Proposal Understanding

It's crucial for the customer to fully understand the sales proposal because they are responsible for investment risks and potential losses.

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False Statement about Twisting

Twisting involves dishonest practices like misleading comparisons of policies, often to benefit the agent.

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How are protection costs covered in variable life insurance?

Protection costs in variable life insurance policies are typically covered through explicit charges outlined in the policy terms and may vary depending on the policyholder's age and coverage amount.

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What is the risk associated with variable life insurance?

Variable life insurance policies allow policyholders to invest in a variety of underlying assets, creating potential for higher returns but also greater risk compared to traditional life insurance.

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Should risk-averse individuals invest heavily in variable life funds with high equity exposure?

Policyholders who are risk-averse should choose variable life insurance policies with lower exposure to equity investments, which may offer lower potential returns but carry less risk.

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What are the key duties of a unit trust trustee?

A trustee's primary responsibility is to protect the interests of unit-holders by ensuring the fund manager adheres to the trust deed's provisions, managing investments, and holding assets in trust.

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Is it true that fixed deposits always provide high and guaranteed returns?

The statement that people invest money in fixed deposits to produce high and guaranteed returns is false. While fixed deposits offer stability, they generally provide lower returns compared to other investment options that carry higher risk.

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Flexible Insurance

A type of insurance plan that allows policyholders to increase coverage and adjust the level of protection.

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What is a UNIT TRUST?

An investment vehicle where investors purchase units representing ownership in a pool of assets managed by a trustee.

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What are Equity Funds?

Equity funds invest in shares of stocks, which are prone to fluctuations in value but offer the potential for capital appreciation.

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Investment Uses of Life Insurance

Both Whole Life and Endowment policies can be used as investment vehicles with benefits payable at a future date.

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Variable Life Insurance & Investment Risk

Variable life insurance policies link the value of the policy to the performance of underlying investments, offering investors potential for both growth and risk.

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Life Insurance Fund Valuation & Dividends

Life companies annually assess their funds and may distribute any surplus to participating policyholders as cash dividends.

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SEC Registered Organization

An organization registered under the Securities and Exchange Commission (SEC) that typically invests in a variety of assets, including equities.

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Variable Life Fund Investment Options

Variable life funds can be invested in a range of instruments including cash funds, bonds, property funds, and diversified funds.

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Study Notes

Variable Life Insurance Mock Exam

  • Example Question: Edward wants life insurance at the lowest annual cost until his death. What type of policy should he get?
    • Correct Answer: Term policy
  • Diversification in Investment:
    • Reduces investment risk by spreading funds across different categories.
    • Doesn't put all funds in one category.
    • Spreading risk is better than putting all investment money in a single category.
  • Diversification in Portfolio Management (False Statement):
    • Diversification can't completely eliminate investment risk.
  • Single Premium Variable Life Insurance Policy:
    • May not have a death benefit.
    • Must be issued with minimum death benefit.
    • Does not necessarily have no withdrawal value.
  • Variable Life Insurance Policy Differences:
    • Traditional policies aim for steady returns by smoothing out market fluctuations.
    • Variable life policies offer more investment choices, potentially higher returns, but also greater risk.
    • Investment specifics, including types of funds, are clearly disclosed at policy inception in the variable policy.

Mock Exam Questions and Answers (Page 1-3)

  • Question 1: Diversification in investment involves.
    • Answer A
  • Question 2: Diversification in portfolio management, which statement is FALSE.
    • Answer C, Diversification doesn't eliminate investment risk.
  • Question 3: Single premium variable life insurance policy.
    • Answer B, Must be issued with minimum death benefit.
  • Question 4: Fundamental differences between traditional and variable life insurance policies.
    • Variable policies offer multiple investment options.
    • Investment details are outlined at policy inception.
    • Potential for higher returns exists, but with more investment risk.
  • Question 5: Investor seeking income and principal protection.
    • Answer D, Fixed income securities.
  • Question 6: Disadvantages of investing in common shares.
    • Answer D (II, III )
  • Question 7: True statements about rebating
    • Answer B, II and III
  • Question 8: Advantages of investing in preferred shares.
    • Answer B
  • Question 9: How to satisfy customers profitably by an agent.
    • Answer D (II, III, and IV)
  • Question 10: Under variable life insurance policies
    • Answer A, III and IV
  • Question 11: Under a regular premium variable whole life insurance plan.
    • Answer D
  • Question 12: Ranking liquidity from least to most liquid
    • Answer A

Mock Exam Questions and Answers (Page 4-7)

  • Question 13: True statement about surrender value in traditional participating life insurance.
    • Answer D
  • Question 14: What is policy fee payable for variable life insurance policies?
    • Answer B, Handling charges by investment managers
  • Question 15: Characteristics of variable life insurance policies (TRUE).
    • Answer B ( I, II, and III)
  • Question 16: Benefits available when investing in variable life funds.
    • Answer A
  • Question 17: What BEST describes policy benefits of variable life policies.
    • Answer A, Policy benefits directly linked to investment performance.
  • Question 18: Which statement is FALSE about Variable Life Insurance?
    • Answer D
  • Question 19: Flexibility benefits of investing in variable life funds.
    • Answer D
  • Question 20: Importance of customer understanding sales proposal (TRUE)
    • Answer C
  • Question 21: False statement about twisting.
    • Answer D
  • Question 22: Risk-return profile of different funds
    • Answer I, Higher return, higher risk.
  • Question 23: Withdrawal value after a year.
    • Answer A
  • Question 24: True or False about policy values of variable life and endowment policies.
    • Answer C
  • Question 25: How variable life insurance policy owners make withdrawals.
    • Answer B

Mock Exam Questions and Answers (Page 8-10)

  • Question 26: True statements about variable life policies.

    • Answer B

  • Question 27: Benefits of investing variable life funds.

    • Answer A

  • Question 28: True statements about single premium variable life policies.

    • Answer B

  • Question 29: Definition of UNIT TRUST

    • Answer B

  • Question 30: Investment in variable life funds.

    • Answer D

  • Question 31: Statement about Whole Life and Endowment policies (FALSE) .

    • Answer A

  • Question 32: Protection costs under variable life policies

    • Answer B

  • Question 33: Statement about risk of investing in variable life funds (TRUE)

    • Answer A

  • Question 34: Duties of a unit trust trustee (NOT include).

    • Answer C, ensuring fund manager adheres.

  • Question 35: False statements about investment objectives.

    • Answer B, People don't invest in fixed deposits for guaranteed returns.

  • Question 36: False statements about variable life policy flexibility features.

    • Answer B, withdrawal amount not met by bid price.

  • Question 37: Characteristics of Variable Life Policies

    • Answer D

  • Question 38: Risk classification in investments.

    • Answer A

  • Question 39: False statements concerning variable life fund benefits.

    • Answer C, The fund doesn't guarantee a high yield.

  • Question 40: Which statements are TRUE about variable and endowment policies.

    • Answer C

  • Question 41: False statement about top-up option in variable life insurance policies.

    • Answer B

Answer Key (Page 11)

  • The answer key provides the correct answers for each question on the mock exam.

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Description

Test your knowledge on variable life insurance with this mock exam. The quiz covers key concepts like term policies, diversification in investment, and differences in life insurance policies. Perfect for those studying financial products or preparing for licensing exams.

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