Variable Life Insurance Policy Exam Questions
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The investment returns under variable life insurance policy are linked to the performance of which of the following?

  1. I. are not guaranteed.
  2. II. are insured.
  3. III. are linked to the performance of the investment fund managed by the life office.
  4. IV. fluctuate according to the rise and fall of market prices.

  • A. I, II, & III
  • B. I, II, & IV
  • C. I, III, & IV (correct)
  • D. II, III, & IV (correct)

    • Which of the following statements are TRUE regarding the policy value of variable life policies?

  • The life company needs to maintain a separate account for variable life policies distinct from the general account
  • The policy value 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 any outstanding loans due at the time of surrender
  • All of the above (correct)

    • Policy owners of variable life insurance policies may make withdrawals in terms of?

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

    • Which statement about flexibility features of variable life policies is FALSE?

    <p>Policyholders can take loans against their variable life policies up to the entire withdrawal value</p> Signup and view all the answers

    Which statements are FALSE regarding the difference between endowment policies and variable life policies?

    <p>All of the above</p> Signup and view all the answers

    What are the DISADVANTAGES of investing in common shares?

    <p>All of the above</p> Signup and view all the answers

    If an investor is interested in protecting his principal and in receiving a steady stream of income, what suitable investment would you recommend?

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

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

    <p>All of the above</p> Signup and view all the answers

    Which statement is FALSE?

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

    A UNIT TRUST is ____________

    <p>an organization registered at the Securities and Exchange Commission (SEC) which usually invests in a wide range of equities and other investments.</p> Signup and view all the answers

    Rank the following in terms of liquidity, from the most to the least liquid: Short term securities, Property, Cash, Equity.

    <p>Cash, Short term securities, Equity, Property</p> Signup and view all the answers

    The benefits of investing in variable life funds are:

    <p>All of the above</p> Signup and view all the answers

    Mr. Juan dela Cruz is currently earning P30,000 per month. He is 36 years old and 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?

    <p>Variable Life policies</p> Signup and view all the answers

    Which statement about twisting is FALSE?

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

    Which statement about rebating is FALSE?

    <p>Rebating will enhance performance and uphold the prestige of the agents</p> Signup and view all the answers

    What is the reason why a customer must fully understand the sales proposal?

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

    Which statement best describes the policy benefits of variable life insurance policies?

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

    The benefits of investing in variable life fund include:

    <p>All of the above</p> Signup and view all the answers

    Under variable life insurance policies, there is no guaranteed minimum sum insured as a level of life insurance protection.

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

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

    <p>All of the above</p> Signup and view all the answers

    The characteristics of a variable life insurance policy include:

    <p>All of the above</p> Signup and view all the answers

    The statements below are true about the top-up option of a variable life insurance product EXCEPT:

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

    Which statement is FALSE?

    <p>Variable life insurance policies offer investors policies with values indirectly linked to the investment performance of the company</p> Signup and view all the answers

    Which statement is NOT TRUE about the benefits of investing in a variable life insurance policy?

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

    Variable Life funds can be invested in any financial instrument including equity funds. Equity funds ___________?

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

    Investing in bonds offers the following advantages EXCEPT:

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

    Which of the following are fixed-income securities?

    <p>All of the above</p> Signup and view all the answers

    Which of the following statements about cash is TRUE?

    <p>Amount invested in cash is dependent on the size of the cash flow requirement</p> Signup and view all the answers

    Which statement describes the difference between Variable Life insurance products and Traditional participating products?

    <p>All of the above</p> Signup and view all the answers

    To satisfy customers, the agent must:

    <p>Undergo extensive investment training by the company</p> Signup and view all the answers

    Risk in investment can be categorized into two. These are:

    <p>The risk of losing some or all of a person’s initial investment</p> Signup and view all the answers

    Under the regular premium variable whole life plan, which of the following statements are TRUE?

    <p>All of the above</p> Signup and view all the answers

    The characteristics of Variable Life insurance policies include:

    <p>All of the above</p> Signup and view all the answers

    These statements are true EXCEPT:

    <p>Investing in fixed deposits gives high guaranteed returns</p> Signup and view all the answers

    Which statement about diversification in portfolio management is FALSE?

    <p>Diversification can completely eliminate the risk of investing in stock portfolio</p> Signup and view all the answers

    With traditional participating life insurance products, the allocations to policyowners of dividends are:

    <p>All of the above</p> Signup and view all the answers

    Which statement best describes Variable Life?

    <p>Flexible premium with returns that will vary</p> Signup and view all the answers

    To the Policyowners, administration benefits under variable life include:

    <p>Keeping track of their investment through the statements provided regularly by the insurance company</p> Signup and view all the answers

    Study Notes

    Variable Life Insurance

    • Returns are not guaranteed, fluctuate according to market prices, and are linked to the performance of the investment fund managed by the life office.
    • Policy value is determined by the offer price at the time of valuation.
    • Policy owners can make withdrawals in terms of a number of units or fixed monetary amount through cancellation of units.

    Flexibility Features of Variable Life Policies

    • Policyholders may request a partial withdrawal from the policy, and the withdrawal amount will be met by cashing the units at the bid price.
    • Policyholders can take loans against their variable life policies up to the entire withdrawal value of their policies.
    • Policyholders have the flexibility of switching from one fund to another provided it satisfies the company’s switching criteria.
    • Policyholders have the flexibility of increasing or decreasing their premium for regular-pay variable life policies.

    Difference between Endowment Policies and Variable Life Policies

    • Benefits and risks of endowment and variable life policies directly accrue to the policyholders.
    • Premiums and benefits of endowment policies are stated at its inception, while those of variable life policies are flexible as they are account driven.
    • Policy values directly reflect the performance of the fund of the life company.

    Disadvantages of Investing in Common Shares

    • Shares can become worthless if the company becomes insolvent.
    • Investors are exposed to market and specific risks.
    • Dividends are not more than the fixed rates.

    Suitable Investment

    • For protecting principal and receiving a steady stream of income, fixed income securities are recommended.

    Variable Life Policies

    • The margin between the bid and offer price is used to cover the management cost of the policy.
    • The policy value is calculated based on the price of units allocated into the policy.
    • The offer price is used to determine the number of units to be credited to the account.

    Unit Trust

    • A unit trust is an organization registered at the Securities and Exchange Commission (SEC) which invests in a wide range of equities and other investments.
    • A unit trust is established by a trust deed, and enables a trustee to hold the pool of money and assets in trust for the investor.

    Liquidity

    • Cash is the most liquid, followed by short-term securities, equity, and property.

    Benefits of Investing in Variable Life Funds

    • Policyholders have access to a pooled and diversified portfolio of investments.
    • Policyholders can vary their premium payments as the product design of variable life insurance policies has clear structures which cater separately for investment and insurance protection.
    • Policyholders can gain access to variable life funds managed by professional investment managers.

    Single Premium Variable Life Policies

    • There is no fixed term in a single premium variable life policy, and therefore, it is technically whole life insurance.
    • Top-ups or single premium injections are allowed.
    • Policyholders have the flexibility of varying the life coverage.

    Characteristics of Variable Life Insurance Policies

    • Withdrawal value and protection benefits are determined by the investment performance of the underlying assets.
    • Protection costs are generally met by implicit charges.
    • Commissions and company expenses are met by a variety of explicit charges with normally 6 months' notice given by the life companies prior to any changes.
    • Withdrawal value is normally the value of units allocated to the policy owner calculated at the bid price.

    Top-up Option of a Variable Life Insurance Product

    • The policy owner pays further single premium to make a top-up.
    • Top-ups are allowed at any time subject to a minimum amount.
    • Additional units of a variable life fund are allocated to the policy owner.

    Traditional Participating Life Insurance Products

    • Surrender value is calculated by multiplying the bid price with the number of units.
    • Dividends are allocated to policy owners, and the surrender value includes the surrender value of the paid-up addition up to the date of surrender.

    Diversification in Portfolio Management

    • Diversification can spread the portfolio risk by investing in different categories of investment.
    • Diversification involves purchasing different types of stocks and investing in stocks of different countries.
    • A diversified portfolio provides greater security to an investor without having to sacrifice the return of the portfolio.### Investments
    • Investing in shares of stocks can provide a relatively stable asset during market recession
    • The magnitude of the change in unit price of shares depends on the quantity of equities held

    Risk-Return Profile

    • A risk-return graph shows that higher returns have higher risk
    • Equity funds are at the top end of the graph, with higher returns and higher risk
    • Cash funds are less risky and are at the bottom end of the graph

    Unit Trust

    • The duties of a Trustee include:
      • Selecting and managing the investments of the Trust
      • Holding the pool of money and assets in trust on behalf of investors
      • Ensuring fund managers adhere to the trust deed
    • The Trustee protects the interests of unit holders

    Variable Life Policy

    • The selling price of units under the policy is the price at which units are offered for sale by the life company
    • Policy fees payable by variable life insurance policy owners cover administrative expenses, mortality costs, and handling charges by professional investment managers

    Diversification

    • Diversification involves reducing the risk of investment by putting funds under management into several categories of investment
    • This spreads the risk and increases the potential for returns

    Investment Objectives

    • People generally invest to:
      • Improve their financial position
      • Provide retirement income
      • Fund necessary expenses and taxes when they die

    Disadvantages of Cash and Deposits

    • Cash and deposits are the safest type of investment
    • They provide the lowest return
    • There is reinvestment risk associated with cash and deposits

    Fixed-Income Securities

    • Fixed-income securities include:
      • Corporate bonds
      • Government bonds
      • Preferred shares
      • Money Market instruments

    Corporate Stocks

    • Corporate stocks include:
      • Debenture Stocks
      • Loan Stocks
      • Convertible Stocks
    • Note: Government Stocks are not corporate stocks

    Ordinary Shares

    • Ordinary Shares entitle the holder to ownership and share of profits in the form of dividends

    Accessibility of Funds

    • Three elements affect the accessibility of funds:
      • Age and attitude of investor toward risk
      • Initial cost in setting up or buying into the investment
      • Time horizon when the fund is needed
      • Cost or penalty of realizing the investment before its maturity period

    Specific Risks

    • Specific risks are contributed by:
      • Fraud by Senior Management
      • Leverage Ratio of the Company

    Variable Life

    • Variable Life involves:
      • Flexible premium with returns that will vary
      • Administration benefits, including engaging professional fund managers and tracking investments through regular statements

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