Variable Life Policies Overview
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Variable Life Policies Overview

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Which statement accurately describes variable life policies?

  • The policy value is independent of accumulated dividends.
  • The offer price is irrelevant to the number of units credited.
  • The policy value is determined by the offer price at the time of valuation. (correct)
  • The life company uses the general account for all variable life policies.

    • Which of the following accurately characterizes rebating?

  • Rebating is a legal strategy for increasing policy sales.
  • Rebating involves offering lower premiums to policyholders.
  • Rebating is a method of offering special inducements to purchase a policy. (correct)
  • Rebating only occurs in life insurance policies.

    • Which statement is true regarding costs associated with variable life policies?

  • The management costs are covered by the margin between bid and offer prices. (correct)
  • Management costs are not related to the policy value.
  • Offer price is solely for valuation purposes.
  • Bid price is used to determine the number of units credited.

    • What is the most suitable investment for securing principal and steady income?

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

    Which of the following accurately describes the risks associated with common shares?

    <p>Common shares can become worthless if the company becomes insolvent.</p> Signup and view all the answers

    When discussing endowment policies, which statement is accurate?

    <p>Policy value includes cash value minus any loans at surrender.</p> Signup and view all the answers

    Which of the following terms involves misleading representations in insurance?

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

    What is a primary characteristic of switching in insurance policies?

    <p>It enables policyholders to switch to other variable life funds offered by the same company.</p> Signup and view all the answers

    Which statement correctly differentiates variable life policies from endowment policies?

    <p>Variable life policy values depend on the life company's fund performance.</p> Signup and view all the answers

    Which of the following is NOT true about twisting?

    <p>It encourages clients to maintain their existing policies.</p> Signup and view all the answers

    What type of policy is suitable for Mr. Juan dela Cruz, given his income and risk tolerance?

    <p>Participating endowment offering savings and life cover.</p> Signup and view all the answers

    Which benefit is associated with investing in variable life funds?

    <p>Ability to access diverse investment portfolios.</p> Signup and view all the answers

    What characterizes variable life policies compared to endowment policies regarding benefits?

    <p>Variable life benefits fluctuate based on market performance.</p> Signup and view all the answers

    Which of the following statements is true regarding the financial structures of variable life and endowment policies?

    <p>Variable life policies are account-driven and flexible.</p> Signup and view all the answers

    Which of the following correctly describes the risk-return profile of investment funds?

    <p>Higher return typically comes with higher risk.</p> Signup and view all the answers

    What is a common misconception about the benefits of variable life funds?

    <p>They require no professional fund management.</p> Signup and view all the answers

    What is the primary risk associated with variable life policies for policyholders?

    <p>Potential decline in policy value based on fund performance.</p> Signup and view all the answers

    What characterizes the policy value of endowment policies?

    <p>It includes cash value and any accumulated dividends minus outstanding loans.</p> Signup and view all the answers

    Which statement is NOT true regarding the disclosure to policyholders of variable life policies?

    <p>The basis for valuing the assets is optional information.</p> Signup and view all the answers

    Which of the following types of investments are included in a diversified investment portfolio?

    <p>A mix of stocks, bonds, and cash.</p> Signup and view all the answers

    Which of the following is true about variable life policies?

    <p>They require distinct accounts separate from the general account.</p> Signup and view all the answers

    Which funds are typically positioned at the bottom end of the risk-return graph?

    <p>Cash funds known for lower risks.</p> Signup and view all the answers

    Which is a characteristic of stock options in a diversified investment portfolio?

    <p>They are a form of derivatives that can be included in a portfolio.</p> Signup and view all the answers

    Which statement best summarizes the risk-return relationship for bond funds?

    <p>They tend to have lower risk and moderate returns.</p> Signup and view all the answers

    What do variable life policies allow policyholders to do with their premium payments?

    <p>Adjust their premium payments based on their needs and investment goals</p> Signup and view all the answers

    What is the primary goal of investing in bonds?

    <p>Capital preservation</p> Signup and view all the answers

    Which of the following investment instruments is considered the least risky?

    <p>Cash and deposits</p> Signup and view all the answers

    In a risk-return graph, where are equities typically located?

    <p>At the top of the graph</p> Signup and view all the answers

    What determines the policy value of variable life policies at the time of valuation?

    <p>The 'bid' price</p> Signup and view all the answers

    Which of the following is NOT required to be disclosed to policyholders?

    <p>The net withdrawal value as of the statement date</p> Signup and view all the answers

    Which investment is riskier than cash deposits but less risky than an investment portfolio?

    <p>Stock options</p> Signup and view all the answers

    What is the relationship between risk and return in investments?

    <p>Higher return comes with higher risk and vice versa</p> Signup and view all the answers

    What is the Offer Price calculated with a Bid Price of Php 13.00 and a Spread of 4%?

    <p>Php 13.54</p> Signup and view all the answers

    How many units can be purchased with a Single premium of Php 450,000.00 at an Offer Price of Php 13.54?

    <p>33,234.85 units</p> Signup and view all the answers

    What is the total charges in units if the Policy Fee is Php 1,800.00 and the Mortality Charge is 3% of Php 450,000?

    <p>1,176.92 units</p> Signup and view all the answers

    What is the result of the calculation for Units Bought less Charges given 33,234.85 units bought and total charges of 1,176.92 units?

    <p>32,057.93 units</p> Signup and view all the answers

    If the units are withdrawn, what is the value calculated if there are 32,057.93 units and the Bid Price is Php 13.00?

    <p>Php 416,753.09</p> Signup and view all the answers

    What amount would a policyholder lose if they surrender the policy, given a single premium of Php 450,000.00 and a value of units if withdrawn of Php 416,753.09?

    <p>Php 33,246.91</p> Signup and view all the answers

    Which of the following correctly describes a characteristic of variable life products?

    <p>They offer flexibility in premium payments.</p> Signup and view all the answers

    How is the mortality charge calculated based on a percentage of the single premium?

    <p>3% of the single premium amount.</p> Signup and view all the answers

    Study Notes

    Variable Life Policies

    • Variable life policies allow premium payments to be adjusted.
    • Variable life policies can take different forms, including whole life and endowment.
    • Variable life policies allow additional contributions to increase investment units.
    • Variable life policies need a separate account from the general account.
    • Variable life policies' value is determined by the bid price at the time of valuation.
    • The policy value is calculated based on the bid price of units allocated into the policy.
    • The margin between the bid and offer price covers management costs for the policy.
    • Offer price is used to determine the number of units to be credited to the account.
    • Variable life policyholders can adjust their premium payments within limits based on their needs and investment goals.
    • The policy value of variable life policies directly reflects the performance of the fund of the life company.
    • Premium payments on variable life policies are not fixed.
    • Variable life policies contain separate accounts with various instruments and investment funds, and returns vary with the underlying value of investments.
    • Variable life policies benefit from pooled or diversified portfolios, ease of premium payments, and access to qualified fund professionals.
    • Variable life policies offer policyholders flexibility in premium payments with premium holidays, single premium top-ups, and adjustments to the sum assured.

    Endowment Policies

    • Endowment policies have premiums and benefits described at inception.
    • Endowment policy values are calculated as the cash value plus accumulated dividends, less any outstanding loans at the time of surrender.

    Rebating

    • Rebating refers to offering a special inducement to purchase a policy.

    Twisting

    • Twisting is a specific form of misrepresentation.
    • Twisting involves an agent encouraging a policyholder to discontinue a policy with another company without disclosing the disadvantages of doing so.
    • Twisting includes misleading or incomplete comparisons of policies.

    Switching

    • Switching allows policyholders to switch to other variable life funds offered by the company.

    Risk Return Graph

    • Cash funds are the least risky.
    • Equity funds are the riskiest.
    • Stock options are riskier than cash and deposits but less risky than an investment portfolio.
    • A well-diversified investment portfolio is riskier than stock options but less risky than derivatives.
    • Derivatives are the most risky, with their value dependent on underlying assets, groups of assets, or a benchmark.
    • Higher returns typically come with higher risks.

    Investing in Common Shares

    • Dividends on common shares are not paid at fixed rates.
    • Investors are exposed to market and specific risks associated with common shares.
    • Common shares can become worthless if the company becomes insolvent.

    Investment Instrument Analysis

    • Variable life policies are not the most suitable instrument for investors seeking principal protection and steady income.
    • Fixed income securities are the most suitable for investors seeking principal protection and steady income.
    • Equities, warrants, and variable life policies are associated with higher risks and potential for capital appreciation.

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    Pru Life UK Variable Life Mock Exam PDF

    Description

    Explore the key features of variable life policies that offer flexible premium payments and investment options. Understand how these policies are structured, their valuation methods, and how premium adjustments can be made to meet individual needs. This quiz will test your knowledge on the dynamics of variable life insurance.

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