Variable Life Insurance Overview
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Questions and Answers

Variable Life Insurance policy owners may make withdrawals in terms of:

  • Number of units or fixed monetary amount through cancellation of units
  • Number of units through cancellation of units (correct)
  • Number of units fixed monetary through reduction of the life cover sum assured
  • Fixed monetary amount only through reduction of the life cover sum assured

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.

True (A)

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

False (B)

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

<p>True (A)</p> Signup and view all the answers

The investment returns under life insurance policy:

<p>Are not guaranteed (A), Are linked to the performance to the investment fund managed by the life insurance company (B), Fluctuate according to the rise and fall of the market prices (D)</p> Signup and view all the answers

The policy value of variable life policies is determined by the offer price at the time of valuation.

<p>False (B)</p> Signup and view all the answers

The policy value of endowment policies is the cash value plus any accumulated dividends less any outstanding loans due at the time of the surrender.

<p>True (A)</p> Signup and view all the answers

The life company needs to maintain a separate account for variable life policies distinct from the general account.

<p>True (A)</p> Signup and view all the answers

Rebating is to offer a prospect a special inducement to purchase a policy.

<p>True (A)</p> Signup and view all the answers

Twisting is a specific form of misrepresentation.

<p>True (A)</p> Signup and view all the answers

Misrepresentation is a specific from of twisting.

<p>False (B)</p> Signup and view all the answers

Switching is a facility allowing the policyholders to switch to another variable life funds offered by the company.

<p>True (A)</p> Signup and view all the answers

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

<p>The margin between the bid and offer price is used to cover the management costs of the policy (A), The policy value is calculated based on the bid price of units allocated into the policy (B)</p> Signup and view all the answers

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

<p>Fixed income securities (C)</p> Signup and view all the answers

What are the disadvantages of investing in common shares?

<p>Shares can become worthless if company becomes insolvent (A), Investors are exposed to market and specific risks (C)</p> Signup and view all the answers

Which of the following statements about the differences between variable life policies and endowment policies are FALSE?

<p>The benefits and risks of variable life and endowment policies directly accrue to the policyholders (B), The premiums and benefits of the endowment policies are describes at the inception of the policy whereas variable life are flexible as they are account driven (C)</p> Signup and view all the answers

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

<p>The variable life funds offer policyholders an access to pooled or diversified portfolios. (B), The variable life policyholders can vary his premium payments, take premium holidays, add single premium top-ups and change the level of the sum assured easily. (C)</p> Signup and view all the answers

Rank the following in terms of their liquidity, from the least liquid to the most liquid

<p>Property, Equities, Short term securities, Cash (D)</p> Signup and view all the answers

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

<p>True (A)</p> Signup and view all the answers

There is no guaranteed minimum sum assured for the purpose of declaring dividends.

<p>True (A)</p> Signup and view all the answers

There is no guaranteed minimum sum assured as a level of life insurance protection.

<p>True (A)</p> Signup and view all the answers

Each of the policy owner's premium will be used to purchase units the number of which is dependent on the selling price of each unit.

<p>True (A)</p> Signup and view all the answers

Purchase of the units can only be made from the variable life fund itself, which will then create new units and add investment monies to the value of the fund.

<p>True (A)</p> Signup and view all the answers

The benefits of investing in variable life funds include:

<p>Policy owners can gain access to variable life funds managed by professional investment managers with proven track records. (A), Policy owners have access to pooled or diversified portfolios of investment. (B), Policy owners can easily change the level of the premium payments as the product design of variable life. (D)</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

Why is it important that the customer must understand the sales proposal in full?

<p>Because the impact of changes in investment condition on variable life policy is borne solely by the customer (A)</p> Signup and view all the answers

Rebating is prohibited under the Insurance Code.

<p>True (A)</p> Signup and view all the answers

Which of the following statements about rebating are TRUE?

<p>Rebating is prohibited under the Insurance Code (A), Rebating deals with offering the prospect a special inducement to purchase a policy (B)</p> Signup and view all the answers

Variable life insurance policies offer investors policies with values and indirectly linked to the investment performance of the life company.

<p>False (B)</p> Signup and view all the answers

Life company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policyholder as cash dividends.

<p>True (A)</p> Signup and view all the answers

Both Whole Life and Endowment policies can be used as an investment media with benefits that become payable at a future date.

<p>True (A)</p> Signup and view all the answers

The investment element of Variable life policies varies according to underlying assets of the portfolio.

<p>True (A)</p> Signup and view all the answers

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

<p>Policy owners may be additional units of the variable life fund and these units will be allocated to new variable life insurance policies (A)</p> Signup and view all the answers

The characteristics of a variable life insurance include

<p>True (A)</p> Signup and view all the answers

Which of the following statements about single premium variable life policies are TRUE?

<p>Top-ups are single premium injections are allowed in these plans (A), There is no fixed term in a single premium variable life policy and therefore they are technically whole life insurance. (C)</p> Signup and view all the answers

Investing in bonds offer the following EXCEPT

<p>It enables the investor an opportunity for capital appreciation (A)</p> Signup and view all the answers

Single premium variable life insurance policy:

<p>True (A)</p> Signup and view all the answers

Which of the following statements about characteristics of variable life policies are TRUE?

<p>Variable policies generally have a longer exposure to equity investment than with participating and other traditional policies (A), The protection costs are generally met by implicit charges, which vary with age and level of cover (B), The commissions and company expenses are met by a variety of explicit charges, some of which are variable (C)</p> Signup and view all the answers

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

<p>The fund ensures definite high yield for an investor since it is managed by professionals who are well-versed in the management of risk of investment portfolios. (D)</p> Signup and view all the answers

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

<p>True (A)</p> Signup and view all the answers

The flexibility benefit of investing in variable life funds include

<p>Policy owners can easily take premium holidays and add single premium to top-ups (B), Variable life insurance policies offer the potential for higher returns (C)</p> Signup and view all the answers

The fundamental differences between traditional participating life insurance policies and variable life insurance policies include

<p>The investment elements of variable life insurance policies is made known to the policy owner at the outset and is invested in a separate identifiable fund which is made up of units of investment. (A), Variable life insurance policies offer the potential for higher returns. (B), Traditional participating policies aim to produce a steady return by smoothing out market fluctuation (C)</p> Signup and view all the answers

The switching facility under variable life insurance policies is a very useful ______.

<p>tool</p> Signup and view all the answers

Cash value is paid when yearly renewable term insurance policy is surrendered.

<p>False (B)</p> Signup and view all the answers

The amount of surrender value is usually higher than the amount under non-participating policies and it varies with the age of the assured, being lower at older ages.

<p>True (A)</p> Signup and view all the answers

Flashcards

How can Variable Life Policy Owners withdraw Funds?

Variable life insurance policy owners can withdraw funds from their policy in terms of units.

What are the flexibility features of Variable Life Policies?

Variable life policies offer flexibility, allowing policyholders to withdraw funds, take loans, switch investment funds, and adjust premiums.

Are Variable Life Insurance Investment Returns Guaranteed?

The investment returns in variable life insurance policies are not guaranteed and fluctuate depending on market performance.

How is the Policy Value of a Variable Life Policy Determined?

The policy value of a variable life policy is determined by the unit price at the time of valuation, reflecting the underlying fund's performance.

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How is the Policy Value of an Endowment Policy Calculated?

The policy value of an endowment policy is calculated by adding the cash value and accumulated dividends, then subtracting outstanding loans.

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How are Variable Life Policies Managed?

Variable life policies require a separate account managed by the insurance company, distinct from traditional insurance funds.

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What is Rebating?

Rebating involves offering prospects incentives or special inducements to purchase a policy.

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What is Twisting?

Twisting is a form of misrepresentation where an agent persuades a policyholder to switch policies without fully disclosing the potential downsides.

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What is Misrepresentation?

Misrepresentation is a broad term encompassing various misleading practices, including twisting, rebating, and others.

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What is the Bid-Offer Spread Used For?

The margin between the bid and offer price in a variable life policy is used to cover management costs.

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What Investment is Best for Principal Protection and Steady Income?

Fixed income securities, such as bonds, are suitable for investors seeking principal protection and a predictable stream of income.

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What are Disadvantages of Investing in Common Shares?

Investing in common shares (stocks) carries risks, including potential loss of investment if the company fails.

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How do Variable Life and Endowment Policy Premiums Differ?

Variable life policies and endowment policies have premium structures that differ. Variable life policies allow for flexible premiums to adjust as needed while endowment policy premiums are fixed at inception.

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What is Twisting?

Twisting refers to an agent persuading a policyholder to cancel a policy with another company without fully disclosing the potential disadvantages.

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What are the Benefits of Investing in Variable Life Funds?

Variable life policies offer access to diversified investment portfolios, allowing policyholders to adjust premium payments, add top-ups, and easily switch funds, but access to the fund managers themselves is not directly provided.

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Rank these Assets from Least to Most Liquid: Property, Short-Term Securities, Cash, Equities

Liquidity refers to the ease with which an asset can be converted into cash. Of the options provided, Property is the least liquid, followed by Short-term Securities, then Equities, and finally Cash is the most liquid.

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What is a Unit Trust?

A unit trust is a pooled investment fund where a trustee manages the assets in trust on behalf of investors. Investors buy units in the trust, not shares of the company.

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What is the Death Benefit in Variable Life Insurance?

Variable life insurance policies do not guarantee a minimum sum assured or fixed death benefits. The death benefit is linked to the number of units accumulated in an investment fund.

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What are the Benefits of Variable Life Funds?

Variable life funds offer diversification, flexibility, and professional management, but require an initial investment. Investing in them is not solely about the highest initial investment.

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What Determines the Policy Benefits of Variable Life Policies?

The policy benefits of variable life policies directly depend on the performance of the underlying investments.

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Why is it Important for Customers to Understand the Variable Life Sales Proposal?

Customers should fully understand the sales proposal for variable life policies because the policyholder bears the risk of investment performance fluctuations.

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What is Rebating?

Rebating is prohibited under the Insurance Code and refers to offering incentives to purchase a policy.

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How do Variable Life Policies Link to Investment Performance?

Variable life insurance policies directly link policy values to the investment performance of the underlying fund, offering a chance for higher returns than traditional policies.

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What Happens During an Option Top-Up in Variable Life Insurance?

Option top-up in variable life insurance involves adding units to an existing policy, not creating a new one.

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What are the Characteristics of a Variable Life Insurance Policy?

Variable life insurance policies involve explicit charges for administration, mortality costs, and commissions, as well as investment performance-based benefits.

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What are the Characteristics of a Single Premium Variable Life Policy?

Single premium variable life policies are technically whole life policies because no specific term is fixed, and top-ups are allowed.

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What are the Advantages and Disadvantages of Investing in Bonds?

Bonds offer principal protection, a guaranteed steady stream of income, and a chance for capital preservation, but they do not enable capital appreciation.

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What are the Features of Variable Life Policies?

Variable life insurance policies are not guaranteed, returns depend on the investment strategy of the fund. Policyholders do not have direct control over investment decisions, those are made by fund managers.

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What are the Features of a Single Premium Variable Life Insurance Policy?

Single premium variable life insurance policies offer death benefits, but do not have a maximum withdrawal value.

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What are the Characteristics of Variable Life Policy Protection Costs?

While variable life policies generally have a longer exposure to equity investment, protection costs are covered by explicit charges, which are openly stipulated within the policy and may vary based on age and level of cover.

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What are the Benefits of Variable Life Funds?

Variable life funds provide diversification, but do not ensure definite high yield. They offer professional investment management and allow small investors to participate in a diversified pool.

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Study Notes

Variable Life Insurance Policy Summaries

  • Variable life insurance policyholders can withdraw funds in terms of units or a fixed amount, but this does not affect the death benefit.
  • Policyholders have flexibility to switch funds and adjust premiums.
  • Investment returns are not guaranteed and fluctuate based on market performance.
  • Policy value is determined by the unit price at valuation, not offer price.
  • Endowment policy value is cash value, plus dividends, minus outstanding loans.
  • Variable life policies use a separate account from general accounts.

Flexibility Features of Variable Life Policies

  • Policyholders can request partial withdrawals based on the current bid price of the funds.
  • Policyholders cannot borrow from a VUL (Variable Universal Life) policy.
  • Policyholders can switch funds, but the company must allow this.
  • Policyholders can increase or decrease premium amounts on variable life policies.

Investment Returns in Life Insurance

  • Investment returns on life insurance policies are not guaranteed.
  • Returns are linked to performance of investment funds managed by the company.
  • Investment returns fluctuate based on market conditions.

True/False Statements

  • Variable life policy value is determined by the offer price. FALSE (It's unit price)
  • Endowment policy value is cash value plus dividends minus outstanding debts. TRUE
  • Separate account for variable life policies is needed. TRUE

Definitions of Terms

  • Rebating: Offering incentives to potential policyholders. TRUE
  • Twisting: Misrepresenting or misleading a policyholder, generally illegal. TRUE
  • Misrepresentation: A broader term including twisting, rebating. FALSE (Twisting is a type of misrepresentation)
  • Switching: Allowing policyholders to move between funds. TRUE

Variable Life Policies vs. Endowment Policies

  • Variable life policy values reflect fund performance. TRUE
  • Endowment premiums and benefits are fixed at the start of the policy. FALSE (Variable life premiums are flexible)
  • Benefits and risks directly accrue to the policyholders for both policies. FALSE (Companies also have risks)

Investment Recommendations

  • For a 35-year-old with moderate risk tolerance and savings, a participating endowment or annuity policy may be recommended.

Liquidity Ranking

  • Cash (most liquid)
  • Equities (stocks)
  • Property (least liquid)
  • Short-term securities

Unit Trust Characteristics

  • A unit trust is established by a trust deed, enabling a trustee to hold funds for investors.

Variable Life Insurance Policy Benefits

  • Policy owners can access pooled, diversified investment portfolios. TRUE
  • Policyholders can vary premium payments, take holidays, add single premiums, and change sum assured. TRUE
  • Policyholders can access professional fund managers. FALSE (Usually, they have access to the funds, not managers directly)

Investment Objectives

  • People invest for higher education, comfortable living, and fixed deposits for guaranteed returns.
  • Types of investments include: Cash, bonds, stocks, and options.

Risk in Investment

  • Risk of investment involves the possibility of partially or fully losing initial investment
  • Risk includes rate of return not meeting expectation

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Description

Explore the key features of variable life insurance policies, including flexibility in withdrawals and premium adjustments. Learn how investment returns are influenced by market performance and understand the structure of these policies in relation to their cash values.

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