Variable Life Licensing Mock Exam (Set D)
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Questions and Answers

Which set of statements accurately describes aspects of variable policies?

  • II and III
  • I and III (correct)
  • I and II
  • I, II, and III

Which statement about the benefits of a variable life fund is FALSE?

  • The fund relieves the investor from the hassle of administering his/ her investment.
  • The fund provides a highly diversified portfolio, thus lowering the risk of investment.
  • The fund enables small investors to participate in a pool of diversified portfolio in which he / she, with a low investment capital, is likely to have acceded to.
  • The fund ensures a definite high yield for an investor since it is managed by professionals who are well-versed in the management of risk of investment portfolios. (correct)

Which combination of factors contributes to the flexibility benefit of investing in variable life funds?

  • All of the above
  • I, II, and III (correct)
  • I, II, and IV
  • I, III, and IV

Identify the statements that accurately show the differences between traditional participating life insurance policies and variable life insurance policies?

<p>II, III, and IV (A)</p> Signup and view all the answers

Assuming a policy owner wishes to maximize investment control while maintaining life insurance coverage, which policy type is most suitable?

<p>Variable life insurance. (A)</p> Signup and view all the answers

A policyholder anticipates substantial increases in their income over the next few years. Which feature of variable life insurance would be most advantageous?

<p>Ability to make additional single premium top-ups. (A)</p> Signup and view all the answers

What is the primary reason variable life insurance policies have a longer exposure to equity investment compared to traditional policies?

<p>Greater flexibility in investment options. (A)</p> Signup and view all the answers

In variable life insurance, how are protection costs typically covered?

<p>Implicit charges that vary with age and level of cover. (C)</p> Signup and view all the answers

A prospective policy owner is considering a variable life insurance policy. Which statement is LEAST accurate regarding the initial investment?

<p>The policy owner is guaranteed a high return on their investment. (D)</p> Signup and view all the answers

Which of the following BEST describes how policy benefits are determined in variable life policies?

<p>Benefits are directly linked to the investment performance of the underlying assets within the policy. (D)</p> Signup and view all the answers

Why is it MOST important for a customer to fully understand a variable life insurance sales proposal?

<p>Because the customer bears the investment risk and potential losses associated with the policy. (B)</p> Signup and view all the answers

An insurance agent offers a client a portion of their commission as an incentive to purchase a variable life policy. Which of the following statements is MOST accurate?

<p>This practice is prohibited under most insurance codes and considered unethical. (B)</p> Signup and view all the answers

Which statement about variable life insurance is FALSE?

<p>Variable life insurance policies offer values which indirectly linked to the investment performance of the life company (D)</p> Signup and view all the answers

Why is it important to adhere to AML guidelines?

<p>Ensuring transparency can greatly enhance a company's repuation (A)</p> Signup and view all the answers

Consider a variable life insurance policy that allows 'top-ups'. Which statement about these top-ups is FALSE?

<p>The additional units purchased through top-ups are allocated to new variable life insurance policies. (C)</p> Signup and view all the answers

An agent is explaining the potential risks and benefits of a variable life insurance policy to a client with limited investment experience. Which approach is MOST suitable?

<p>Presenting a balanced overview of both potential gains and losses, and ensuring the client understands the risks involved. (A)</p> Signup and view all the answers

What action does 'switching' in variable life policies primarily enable policyholders to do?

<p>Move their investments between different variable life funds offered by the same company. (B)</p> Signup and view all the answers

Which statement accurately describes how units are allocated and valued within a variable life policy?

<p>Units are credited based on the offer price, and the policy value is determined by the bid price. (A)</p> Signup and view all the answers

For an investor prioritizing principal protection and a consistent income stream, which investment option is most suitable?

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

Which of the following represent potential disadvantages of investing in common shares?

<p>Exposure to market and specific risks, alongside the possibility of the shares becoming worthless if the company becomes insolvent. (C)</p> Signup and view all the answers

Which statement accurately contrasts variable life policies with endowment policies?

<p>Variable life policy values reflect fund performance; endowment policy premiums/benefits are set at the start; risks/rewards accrue to the policyholder. (C)</p> Signup and view all the answers

Which of the following actions does NOT constitute 'twisting' in the context of insurance sales?

<p>An agent provides an objective comparison of different insurance policies from multiple companies. (A)</p> Signup and view all the answers

In a variable life insurance policy, how are protection costs typically covered?

<p>Both B and C. (B)</p> Signup and view all the answers

Considering Mr. Juan dela Cruz's profile—35 years old, Php 30,000 monthly income, reasonable savings, and moderate risk tolerance—which insurance policy is potentially most suitable?

<p>Variable life policies (C)</p> Signup and view all the answers

Which statement is FALSE regarding diversification in portfolio management?

<p>Diversification can completely eliminate the risk of investing in stocks. (D)</p> Signup and view all the answers

What is a key difference in how policy values are determined between variable life insurance and traditional whole life insurance?

<p>Variable life values fluctuate based on the performance of underlying investments, whereas whole life values grow based on a guaranteed interest rate and potential dividends. (B)</p> Signup and view all the answers

Which of the following are advantages of investing in preferred shares?

<p>The right to a fixed dividend and priority over company assets during dissolution. (B)</p> Signup and view all the answers

Which statements accurately describe dividend allocations to policy owners in traditional participating life insurance products?

<p>Dividends are not directly linked to the company's investment performance, have already been smoothened by the life company and do not have the highs and lows of investment return as in good investments years of life company. (B)</p> Signup and view all the answers

Considering charges and fees deducted post single premium investment, and given annual growth rates of 8% for unit price and a 4.5% bid-offer spread, which initial premium best aligns with the provided options after a year?

<p>Php. 432,000.00 (C)</p> Signup and view all the answers

How do the protection costs in a variable life insurance policy change over time?

<p>Vary with the policy owner's age and the level of cover. (C)</p> Signup and view all the answers

If an investor is highly risk-averse, what is the MOST suitable approach to constructing an investment portfolio?

<p>Diversify across a range of asset classes, including low-risk options, to minimize potential losses. (A)</p> Signup and view all the answers

Which of the following statements accurately describe investment-related risks?

<p>II. The risk of rate of return on the investment not matching up to the individual's expectation. IV. The risk of losing some or all of a person's initial investment. (D)</p> Signup and view all the answers

Which action is NOT typically considered a duty of a unit trust trustee?

<p>Managing the portfolio of investment and administering the buying and selling of shares in the unit trust itself. (B)</p> Signup and view all the answers

When considering investing in preferred shares, what is a key disadvantage compared to common stock?

<p>Preferred shares have no voting rights, and their potential for capital appreciation is limited. (D)</p> Signup and view all the answers

What does the policy fee paid by a variable life insurance policy owner primarily cover?

<p>The administrative expenses of setting up the variable life insurance policy. (B)</p> Signup and view all the answers

In the context of a variable life insurance policy, what does the 'selling price' refer to?

<p>The price at which units under the policy are offered for sale by the life company. (D)</p> Signup and view all the answers

Which of the following describes diversification in investment?

<p>Reducing the risks of investment by putting one fund under management into several categories of investment. (C)</p> Signup and view all the answers

An agent aims to satisfy customer needs while maintaining profitability. Which combination of strategies best achieves this?

<p>Investing heavily in company training and using a coordinated sales plan. (D)</p> Signup and view all the answers

Which statement accurately describes the role of cash in an investment portfolio?

<p>The amount allocated to cash depends on short-term financial obligations. (A)</p> Signup and view all the answers

Which combination of features is characteristic of a regular premium variable whole life plan?

<p>Premium flexibility, life protection as the main goal, and withdrawals are typically allowed. (A)</p> Signup and view all the answers

Which statement about investment objectives is incorrect?

<p>Fixed deposits are commonly used to generate high, guaranteed income. (C)</p> Signup and view all the answers

What combination of characteristics defines variable life policies?

<p>Investment, savings, protection, and benefit values fluctuate with investment performance. (B)</p> Signup and view all the answers

A client seeks a product blending insurance with investment opportunities. Which policy type would best suit these needs?

<p>Variable Life Insurance (A)</p> Signup and view all the answers

An individual wants to ensure their family is financially secure upon their death, but also wants the option of accessing the policy's cash value for future needs. Which life insurance product aligns with these objectives?

<p>Whole Life Insurance (A)</p> Signup and view all the answers

A policyholder is considering surrendering their variable life insurance policy. What factor plays the MOST significant role in determining the surrender value they will receive?

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

Flashcards

High Initial Investment

Variable life insurance policies require a significant upfront payment to start.

Policy Benefits

Benefits depend on the performance of the underlying assets in variable life policies.

Customer Understanding

Customers must fully understand proposals as risks are their responsibility.

Rebating

Rebating is offering special incentives to encourage policy purchase, which is often prohibited.

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False Statement about Variable Life

Variable life policies connect benefits indirectly to the company's performance.

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Top-Up Options

Policy owners can add more units to their variable life fund through additional premiums.

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Valuation of Funds

Life companies value their funds yearly to potentially distribute cash dividends.

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Investment Media

Whole life and endowment policies can also serve as investment vehicles with future benefits.

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Switching in variable life policies

A feature allowing policyholders to change their investment funds.

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True statements about variable life policies

Offer price and bid price affect policy value and management costs.

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Investment for steady income

Fixed income securities are ideal for principal protection and stable income.

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Disadvantages of common shares

Market risks and potential worthlessness if a company fails.

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Variable life vs. endowment policies

Variable policies have fund performance risk, while endowments are fixed.

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Twisting in insurance

Misrepresenting policy details to switch insurers.

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Policy recommendation for Mr. Juan

A moderate risk tolerance suggests a variable life policy.

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Variable life policies explained

Policies where value reflects investment performance and flexible premiums.

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Risk in investment

The potential loss associated with an investment, comprising several categories.

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Types of investment risk

Includes the risk of losing initial investment and expectations not being met.

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Trustee duties

Responsibilities of a trustee include managing investments and protecting unit-holders.

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Variable life insurance policy fees

Fees paid to cover costs associated with managing the variable life insurance policy.

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Diversification in investment

The strategy of spreading investments across various assets to reduce risk.

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Variable policies vs traditional policies

Variable policies offer longer equity exposure compared to traditional policies like participating.

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Protection costs in variable policies

Protection costs in variable policies are covered by implicit charges varying with age and coverage level.

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Explicit charges in variable life funds

Explicit charges cover commissions and expenses that vary within variable life funds.

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Fund diversification benefit

Variable life funds provide diversified portfolios, lowering investment risk.

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Guaranteed high yield in management

It is false that variable funds guarantee high yields just due to professional management.

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Flexibility of variable life funds

Variable life funds allow policy owners to adjust coverage and switch investments easily.

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Investment transparency in variable policies

Variable life policies reveal investment choices upfront, connected to identifiable funds.

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Traditional vs variable life policy returns

Traditional policies aim for steady returns while variable policies allow for higher return potential.

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Charges and Fees in Investment

Charges and fees are deducted after investing a single premium into an account

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Growth Rate of Unit Price

The growth rate of the unit price is maintained at 8%

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Bid-Offer Spread

The bid-offer spread is maintained at 4.5%

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Protection Cost in Variable Life Insurance

Costs met by initial charges, cancellation of units, and explicit charges, vary with age and cover level

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False Statement on Diversification

A diversified portfolio doesn't eliminate stock risk completely

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Advantages of Preferred Shares

Preferred shares provide fixed dividends, priority during company dissolution, and potential capital appreciation

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Dividends in Traditional Life Insurance

Dividends aren't directly linked to investment performance and are smoothed by the company

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Investment Performance and Dividends

Dividends depend on company performance and are not fixed at policy inception

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Customer Satisfaction Objectives

Achieving customer satisfaction while maintaining profitability through various methods.

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CASH Investment

Investing in cash considers the flow requirements and market conditions.

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Variable Whole Life Plan

A life insurance policy with flexible premium top-ups, investments, and life coverage.

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Investment Objectives

Reasons for investing such as enhancing living standards and funding education.

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Characteristics of Variable Life Policies

Features include investment use, withdrawal values, and cash value adjustments.

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Profitability through Freebies

Using incentives like freebies to enhance customers' buying experience.

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Monetary Assistance in Sales

Offering discounts and financial support to encourage purchases.

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Market Analysis in Sales Plans

Coordination of sales strategies, goals, and market analysis for better results.

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Study Notes

Variable Life Licensing Mock Exam (Set D)

  • Variable Life Insurance Policy Withdrawals: Policyholders can withdraw funds in terms of a fixed monetary amount or a set number of units. Withdrawal amount is based on the reduction of the life cover sum assured.

  • Flexibility Features (Variable Life Policies): Policyholders can withdraw partially, take loans against the policy, and switch funds, subject to company criteria. Cashing units at bid price meets withdrawal requests.

  • Investment Returns (Variable Life Policies) are not guaranteed: Investment returns fluctuate with the market.

  • Variable Life Policy Valuation: Policy value is based on the offer price at the time of valuation. The value of endowment policies includes the cash value, accumulated dividends, and less any outstanding loans.

  • Separate Variable Life Account: Life insurance companies must keep a separate account for variable life policies.

  • Misrepresentation and Twisting (Variable Life Policies): Offering a policyholder a special inducement to purchase a policy is considered twisting.

  • Variable Life Policies and Endowment Policies: Variable life policies directly mirror underlying fund performance. Endowment policies' premiums and benefits are defined at the outset. Unlike variable life policies, benefits for endowment policies are set at the time of policy commencement

  • Policy Benefits (Variable Life Policies): Policy benefits are linked directly to the performance of the underlying investments.

  • Variable Life Policy Investment: Variable life policies invest in the fund managed by the life insurance company. The value is based on the performance of this fund.

  • Suitable Investment for Principal Protection and Income: Fixed income securities are suitable for investors looking for consistent income while preserving capital

  • Disadvantages of Common Stock Investment: Dividends are not predetermined, and investors are exposed to market and specific company risks, which include potential insolvency.

  • Variable Life Policy Liquidity Ranking (Least to Most):

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

  • Unit Trust Definition: Unit trusts consolidate assets into a pool, held in trust for investors.

  • Variable Life Insurance Policy Guarantee: Variable life policies typically do not include a guaranteed minimum sum assured.

  • Variable Life Policy Investment Structure: Variable life policies allow for investments in diversified portfolios, providing options to switch between investment funds. Policyholders also have flexibility to increase/decrease or discontinue premium payments.

  • Single Premium Variable Life Policy Features:

    • No fixed term = whole life insurance
    • Top-ups and single premium payments are allowed
    • Flexibility in adjusting levels of cover.

  • Variable Life Policies and Investment Strategy: Policyholders have direct control over the fund investment selections.

  • Single Premium Variable Life Policy Requirements: A minimum death benefit and maximum withdrawal value requirements apply

  • Characteristics of Variable Life Policies: Varying explicit charges. Withdrawal value based on underlying assets performance.

  • Variable Life Fund Benefits: Provide access to a wide range of investments, allow for flexibility, and are managed by experienced professionals, mitigating risks.

  • Variable Life Policy Valuation and Withdrawal: The policy value is determined by the offer price at the time of valuation; withdrawal amounts fluctuate based on market conditions.

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Variable Life Licensing Mock Exam (Set D) PDF

Description

Test your knowledge on Variable Life Insurance policies with this comprehensive mock exam. Explore key features like withdrawals, investment returns, and policy valuation. Prepare effectively for your licensing exam with questions focusing on the intricacies of variable life policies.

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