2021 Variable Life Licensing Exam Reviewer PDF

Variable Life Licensing Exam Set D (with explanations) 1. Variable Life Insurance policy owners may make withdrawals in terms of _______. a. Number of units or fixed monetary amount through cancellation of units (false, any amount is ok) b. Number of units fixed mone...

Variable Life Licensing Exam Set D (with explanations) 1. Variable Life Insurance policy owners may make withdrawals in terms of _______. a. Number of units or fixed monetary amount through cancellation of units (false, any amount is ok) b. Number of units fixed monetary through reduction of the life cover sum assured (false, sum assured/death benefit/life cover not affected) c. Fixed monetary amount only through reduction of the life cover sum assured (false, sum assured/death benefit/life cover not affected) d. Number of units through cancellation of units (true, only units or withdrawable amount is affected) 2. Which of the following statements about flexibility features of the variable life policies is false? a. 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, you can withdraw from fund) b. Policyholders can take loans against their variable life up to the entire withdrawal value of their policies (false, you cannot loan from a VUL only in Trad) c. Policyholders have the flexibility of switching from one fund to another provided it satisfies the company’s switching criteria (true, switching or changing of fund can be done) d. Policyholders have the flexibility of increasing or decreasing their premiums for regular premium variable life policies (true, pwede dagdagan or bawasan ang premium) 3. The investment returns under life insurance policy______. I. Are not guaranteed (true) II. Are assured (false not assured) III. Are linked to the performance to the investment fund managed by the life insurance company (true, minamanage ang fund) IV. Fluctuate according to the rise and fall of the market prices (true, depende ang investment sa market) a. I, II and II b. I, II and IV c. I, III and IV d. II, III and IV 4. Which of the following statements is TRUE? I. The policy value of variable life policies is determined by the offer price at the time of valuation (false, unit price not offer price) II. 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 (true) III. The life company needs to maintain a separate account for variable life policies distinct from the general account (true, VUL policy is in a different fund) a. I & II b. I, II & III c. I & III d. II & III 5. Which of the following statements is FALSE? a. Rebating is to offer a prospect a special inducement to purchase a policy (true, bibigyan ng rebate para kumuha si client) b. Twisting is a specific form of misrepresentation (true, twisting or pagbabago ng policy para makakuha ulit ng bago) c. Misrepresentation is a specific from of twisting (false, misinterpretation ay malawak na tawag – includes twisting, rebating etc) d. Switching is a facility allowing the policyholders to switch to another variable life funds offered by the company (true, switching of funds) 6. Which of the following statements about variable life policies is TRUE? I. Offer price is used to determine the number of units to be credited to the account (false) II. The margin between the bid and offer price is used to cover the management costs of the policy (true) III. The policy value is calculated based on the bid price of units allocated into the policy (true) a. I, II and III b. I & II c. I & III  d. II & III 7. What is the most suitable investment for an investor who is interested in protecting his principal and receiving a steady stream of income? a. Equities (risky and not guaranteed/stocks) b. Warrants (risky and not guaranteed) c. Variable life policies (risky and not guaranteed) d. Fixed income securities (guaranteed/dividends) 8. What are the disadvantages of investing in common shares? I. Dividends are paid more than fixed rates (advantage because dividends are given hindi lang fixed, if maganda performance ng company mas malaki ang bibigay) II. Investors are exposed to market and specific risks (disadvantage kasi risky) III. Shares can become worthless if company becomes insolvent (disadvantage of malugi ang company wala din ang shares) a. I & II b. I & III c. II & III d. I, II, III 9. Which of the following statements about the differences between variable life policies and endowment policies are FALSE? I. The policy values of variable life policies directly reflect the performance of the fund of the life company (true, mataas ang values if mataas ang performance ng fund) II. 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 (false kasi premium ng variable life is also flexible) III. The benefits and risks of variable life and endowment policies directly accrue to the policyholders (false kasi may may risk din ang company hindi lang si policyholder) a. I & II b. I, II & III c. I & III d. II & III 10. Which of the following statements about twisting is FALSE? a. Twisting is a special form of misrepresentation (true, isang klase ng misrepresentation ang twisting) b. It refers to an agents including a policyholder to discontinue policy with another company without disclosing the disadvantage of doing so (true, this is the definition of twisting) c. It includes misleading or incomplete comparison of policies (true, this is the definition of twisting) d. It refers to an agent offering a prospect a special inducement to purchase a policy (false, this is rebating) 11. Mr. Juan dela Cruz is currently earning Php 30,000.00 per month. He is 35 years old and he 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? a. Participating Endowment b. Variable life policies c. Participating whole life d. Annuities 12. What are the benefits available when investing in variable life funds? I. The variable life funds offer policyholders an access to pooled or diversified portfolios (true) II. 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 (true) III. The variable life policyholder can have access to a pool of qualified and trained professional fund managers (false the policyholder have access to funds but not directly to the fund managers) a. I & II b. I & III c. I, II & III d. II & III 13. Rank the following in terms of their liquidity, from the least liquid to the most liquid I. Short term securities (2. Usually kailangan naka-invest sya ng 1 year) II. Property (1. Pinakamahirap sya ibenta – nakatanim sa lupa) III. Cash (4. Pinakamadaling gamitin – mawiwithdraw, malalagay sa wallet)  IV. Equities (3. Also known as stocks, Madali naman mabenta if may willing buyer) a. IV, II, III, I b. III, I, IV, II c. II, I, IV, III d. II, IV, I, III 14. A unit trust is _________. a. Established by a trust deed which enables a trustee to hold the pool of money and assets in trust in behalf of the investor (this is the definition) b. A close-end fund and does not have to dispose off if the large number investors sell their shares c. One whereby the investor buys units in the trust itself and not share in the company d. An organization registered under the SECURITY EXCHANGE COMMISSION(SEC) which usually invests in a wide range of equities and other investment (false kasi Bangko Central not SEC) 15. Under variable life insurance policies ________. I. There is no guaranteed minimum sum assured for the purpose of declaring dividends II. There is no guaranteed minimum sum assured as a level of life insurance protection III. 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 IV. 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 a. I & IV b. II & IV c. III & IV d. II & III 16. The benefits of investing in variable life funds include ________. I. Policy owners have access to pooled or diversified portfolios of investment (true) II. Policy owners can easily change the level of the premium payments as the product design of variable life (true) III. Policy owners can gain access to variable life funds managed by professional investment managers with proven track records (true) IV. Policy owners can buy a variable life insurance policy only with a high initial investment a. I, II & IV b. I, III & IV c. I, II, III d. II, III, IV 17. Which of the following BEST describes the policy benefits of variable life policies? a. The policy benefits are payable only on death or disability b. The policy benefits will depend on the long – term performance of the life company c. The policy benefits are directly linked to the investment performance of the underlying assets (best definition) d. The policy benefits are guaranteed 18. Why is it important that the customer must understand the sales proposal in full? a. Because the insurer does not guarantee any return b. Because the impact of changes in investment condition on variable life policy is borne solely by the customer. (best definition) c. Because the agent may give the wrong recommendations d. Because the policyholder expects higher returns 19. Which of the following statements about rebating are TRUE? I. Rebating is prohibited under the Insurance Code (true) II. Rebating deals with offering the prospect a special inducement to purchase a policy (true this is the definition) III. Rebating will enhance the sales performance and uphold the prestige of an agent (it won’t) a. I & II b. I & III c. II & III 20. Which of the following statements is FALSE? a. Variable life insurance policies offer investors policies with values and indirectly linked to the investment performance of the life company (they directly link so this is false)  b. Life company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policyholder as cash dividends c. Both Whole Life and Endowment policies can be used as an investment media with benefits that become payable at a future date d. The investment element of Variable life policies varies according to underlying assets of the portfolio 21. Which of the following statements about option top -up under variable life insurance is false? a. Policy owners may be additional units of the variable life fund and these units will be allocated to new variable life insurance policies (it will be allotted to the EXISTING policy, not to a new one so this is false) b. Further premiums at time of the top – up will be used in full, after deducting charges for top-ups, to purchase additional units of the variable life funds (true, if may need bayaran na premium, gagamitin muna nag top up amount then the rest will be used as top up) c. Top-up policy, the policy owner pays further single premium at the time of the top-up (true, once lang nag top up) d. Policy owners are normally allowed to top-up their policies at any time, subject to a minimum amount (true, anytime pwede magtop-up or magdagdag sa investment) 22. The characteristics of a variable life insurance include______. I. Its withdrawal value and protection benefits are determined by the investment performance of the underlying assets (true) II. Its protection costs are generally met by implicit charges (false kasi explicit naman ang charges or hindi tinatago) III. It commission and company expenses are met by a variety of explicit charges with normally 6 months notice given by the life companies prior to any change (explicit is true) IV. Its withdrawal value is normally the value of units allocated to the policy owner calculated at the bid price (true) a. I, II & III b. II, III & IV c. I, II & IV d. I, III & IV 23. Which of the following statements about single premium variable life policies are TRUE? I. There is no fixed term in a single premium variable life policy and therefore they are technically whole life insurance (pwedeng wag na withdrawhin ang single premium forever kaya whole life sya) II. Top-ups are single premium injections are allowed in these plans (pwede rin mag top -up) III. Policyholders have the flexibility of varying the level cover (just remember that this is false) a. I, II & III b. II & III c. I & II d. I & III 24. Investing in bonds offer the following EXCEPT a. Must be issued with a minimum death benefit (true) b. Must be issued with a maximum withdrawal value (true) c. It allows the investor a chance for capital preservation (true, maliit lang ang kita, pero steady sya di bumababa masyado, maprepreserve ang investment) d. It enables the investor an opportunity for capital appreciation (false, fixed income, no capital appreciation or hindi lumalaki ang pera ng sobrang laki sa funds) 25. Which of the following statements about variable life policies are TRUE? I. The withdrawal value is not guaranteed (true, hindi guaranteed ang return oh ang mawiwithdraw) II. The volatility of the return depends on the investment strategy of the fund (true ang return nito depende sa fund) III. The variable life policyholder has direct control over the investment decisions of the variable life fund (false kasi walang control ang policyholder kung ano ang decision ng fund managers a. I, II & III b. I & II c. I & III d. II & III 26. Single premium variable life insurance policy: a. Must be issued with a minimum death benefit (just remember that this is true) b. Must be issued with a maximum withdrawal value (false c. Has no death benefit (false, kasi meron) d. Has no withdrawal value (false, kasi meron) 27. Which of the following statements about characteristics of variable life policies are TRUE? I. Variable policies generally have a longer exposure to equity investment than with participating and other traditional policies (sounds true) II. The protection costs are generally met by implicit charges, which vary with age and level of cover III. The commissions and company expenses are met by a variety of explicit charges, some of which are variable (explicit, true) a. I, II, III b. I & II c. II & III d. I & III 28. Which of the following statements about benefits in variable life fund is FALSE? a. The fund provides a highly diversified portfolio, thus, lowering the risk of investment b. 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 (definite? False yan) c. The fund relieves the investor from the hassle of administering his/her investment d. 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 29. The flexibility benefit of investing in variable life funds include________. I. Policy owners can easily change the level of sum assured and switch their investment between funds (yes) II. Policy owners can easily take premium holidays and add single premium to top-ups (yes) III. Variable life insurance policies offer the potential for higher returns (yes) IV. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation (talking about variable, so false ‘to kasi traditional eh) a. All of the above b. I, II & III c. I, II & IV d. I, III, IV 30. The fundamental differences between traditional participating life insurance policies and variable life insurance policies include________. I. Variable life insurance policies are less likely to offer more choices in terms of the type of investment funds (more likely, not less) II. 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 (super true) III. Variable life insurance policies offer the potential for higher returns (yep) IV. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation (yep) a. I, III & IV b. II, III, IV c. I, II, III d. I, II, IV 31. The switching facility under variable life insurance policies is a very useful ______. a. For the purpose of profit planning by the life policies b. For the purpose of assets planning by the trustee c. For the purpose of sales planning by the fund managers d. For the purpose of financial planning by the policy owners (best answer because switching is for the PO) 32. The following statement bout surrender value under traditional participating life insurance products are TRUE? a. Cash value is paid when yearly renewable term insurance policy is surrendered (no cash value for term) b. When a participating insurance policy is surrendered the surrender value is calculated by multiplying the bid price with the number of units c. 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 d. In the case of participating policies, the net cash surrender value include the surrender value of the paid-up addition up to the date of surrender 33. Which one of the following statements bout risks of investing in variable life funds is TRUE? a. Policy owners who are risk averse should buy life insurance policies with high equity investment (definitely not since they are risky)  b. Investment in variable life funds which are fully invested in units of equity bonds are not suitable for policy owners who can tolerate the risks of short term fluctuation in their cash value (it is suitable, so false) c. Policy owners who invest in variable life funds with high equity investment face higher risk but can expect to achieve higher return than the traditional life insurance product over the long term (true) d. Policy owners who are risk averse should not purchase life insurance with high protection and guaranteed cash and maturity values (wrong advice) 34. What should be the withdrawal values after a year? Offer Price = Php 16.00 Bid-Offer Spread = 4.5% Number of units brought = 25,000 Policy Fee = 1, 800 Admin and Mortality Charge = 8,750 Top-up Fee = 700 Admin for Top-up = 2000 Sum assured is 190% of single premium or the value of units, whichever is higher. ASSUMPTIONS: 1. Charge and fees are deducted after the single premium has been invested into the account 2. The growth rate of the unit price and bid-offer spread is maintained at 8% and 4.5% respectively. a. Php 432,000.00 b. Php 420,069.20 c. Php 401,107.58 d. Php 412,500.00 35. The protection cost under a variable life insurance policy ________. I. Are met by flat initial charges for regular premium plans (not flat, depends on variables) II. Are generally covered by cancellation of units in the fund III. Are generally met by explicit charges stipulated openly in the policy terms IV. Vary with age of policy owner and level of cover a. I, II & III b. I, II, IV c. I, III, IV d. II, III & IV 36. Which of the following statements about diversification in portfolio management is FALSE? a. A diversified portfolio provides greater security to an investor having to sacrifice return for the portfolio. (true, so not the correct answer) b. Diversification can completely eliminate the risk of investing in stocks in a portfolio. (you can never 100% eliminate risk) c. Diversification can involve purchasing different types of stocks and investing stocks in different countries. (true) d. Diversification helps to spread the portfolio risk by investing in different categories of investment in a portfolio. (true) 37. What are the advantages of investing in preferred shares? I. It gives shareholders the right to a fixed dividend (true) II. Has the priority over company assets during a dissolution (true) III. They enjoy benefits of capital appreciation (true, since it is still equity) a. I, II & III b. I & II c. I & III d. II & III 38. With traditional participating life insurance products, the allocations to policy owners in the form of dividends ________. I. Are not directly linked to the company’s investment performance II. Have already been smoothened by the life company III. Do not have the highs and lows of investment return as in good investment years of life company IV. Are not fixed at the inception of the policy, but are greatly dependent on the investment performance of the company (they do depend on the investment performance) a. I, II & III b. I, II & IV c. I, III & IV  d. II, III & IV 39. The objective of satisfying customers need profitably can be achieved by and agent through I. The giving of freebies to the customers (nope) II. Extensive investment training by the company (yes) III. The use of sales plan, where sales goals, strategies and objectives are coordinated with the market analysis, segmentation and training (yes) IV. The giving of monetary assistance and discount to the customers. (no) a. I & III b. II & III c. II & IV d. II, III & IV 40. Which of the following statements is true about CASH? a. It has a high yield potential (it does not) b. Amount invested in cash depends on size of the cash flow requirement (yes) c. Investment in cash increase when there is a bull run in the stock market d. Investment in cash decrease when interest rates rise 41. Under a regular premium variable whole life plan ________. I. Premium top-ups and holidays, subject to the company’s administrative rules are usually allowed. (yes) II. Life protection is the main objective of the plan with investment as the nominal purpose.(yes) III. Withdrawals after the payment of a few years premium are usually allowed.(yes) IV. A single premium contribution is made to the policy which uses the premium to purchase units in a variable life funds to provide a certain level of life cover.(no) a. II, III & IV b. I, III & IV c. I, II & IV d. I, II & III 42. Which of the following statements about investment objectives is false? a. People invest money in fixed deposits to produce high and guaranteed returns (false, the returns won’t be high) b. People invest money to enhance a comfortable standard of living c. People invest money to provide funds for higher education for their children d. Investment in commodities has no regular income 43. Which of the following is/are the main characteristic (s) of variable life policies? I. The policies can be used for investment, as a source of regular savings and protection (yes) II. The withdrawal values and protection benefits are determined by the investment (yes) III. The net cash values of the polices are the gross cash values shown in the policy that includes dividends up to the date of surrender less and indebtedness including interest. a. II b. I c. I, II & III d. I & II 44. Risk can be classified into two particular categories in relation to investment. They include _______. I. The risk of not losing some or all of the person’s initial investment (not a risk) II. The risk of rate of return on the investment not matching up to the individual’s expectation (yes) III. The risk of rate of return on the investment matching up to the individual’s expectation (not a risk) IV. The risk of losing some or all of a person’s initial investment (yes) a. I & III b. I & II c. III & IV d. II & IV 45. The duties of the trustee of unit trust do not include: a. Managing the portfolio of investment and administering the buying and selling of shares in the unit trust itself (those are the fund manager’s duties) b. Ensuring that the fund manager adhere to the provision of the trust deeds c. Acting generally to protect the unit -holder d. Holding the pool of money and assets in the trust in behalf of the investors 46. Policy fee payable by variable life insurance policy owners is to cover __________. a. The handling charges by professional invesetment managers (that’s fund management fee) b. The price of each unit bought under the variable life insurance policy.(that’s not a fee) c. The mortality costs of the variable life insurance policy. (that’s cost of insurance) d. The administrative expenses of setting up the variable life insurance policy.(yes) 47. The selling price under a variable life insurance policy is: a. The price at which units under the policy are bought back by the life insurance company b. The price at which units under the policy are offered for sale by the life company c. Also known as the bid price d. A fixed amount throughout the life of the policy 48. Diversification in an investment involves ________. a. Putting all the funds under management into one category of investment (not diversification, definitely) b. Spreading the risk of investment by not putting the fund into several categories of investment (same as A) c. Reducing the risks of investment by putting one fund under management into several categories of investment (yes) d. Reducing the risks of investment by putting all one’s eggs in one basket (not diversification) 49. Variable life funds can be invested in any financial instruments including cash funds, bond funds, equity funds, property funds, specialized funds, and diversified funds. Equity funds _________. a. Invest in shares of stocks and the magnitude of the change in unit prices will only depend on the quantity of the equities held (not the quantity) b. Invest in shares of stocks and during market recession, such as assets are usually the last to depreciate (nope, they are the first) c. Invest in shares of stocks which are inherently of lower risk in nature and the prices of stocks are stable (they have higher risk) d. Invest in shares of stocks and investors who buy such assets usually aim for capital appreciation (yes) 50. Which of the following statements describe the differences between variable life products and participating products? I. Variable life products allow policyholders to vary the premium payments unlike participating products II. Variable life products can take the form of whole life or endowment policies with participating products III. Variable life products allow policyholders to pay future single premiums from time to time to add more units to his account unlike participating products a. I, II, III b. I c. I and III d. II and III 51. Assuming no movement in the prices and charges/ fess are deducted after the single premium has been invested in to the account, how much will be the policyholder lose if he surrenders the policy now Bid price = Ps 13,00 Bid-offer spread = 4% Single premium = Ps 450,000 Policy fee = Ps 1,800 Admin and Mortality charge = 3% Sum assured is 200% of single premium or the value of the units, whichever is higher a. Ps 43,400.90 b. Ps 33, 246.78 c. Ps 22,500.00 d. Ps 15,299.96 52. Which of the following statements BEST describes “variable life” policies? a. It is fixed premium policy with returns that will not vary with the underlying value of investments. b. It is a fixed premium policy with returns that will vary with the underlying value of investments. c. It is a flexible premium policy with returns that will not vary with the underlying value of investments d. It is a flexible premium policy with returns that will vary with the underlying value of investments (yes, varying/flexible) 53. Which of the following factors contribute to the specific risk of an investment: I. Rate of corporate taxes (does not really affect an investment) II. Fraud by senior management III. Financial leverage of the company a. I and II b. II and III c. I and III d. I, II and III 54. Investing in bonds offers the following advantages EXCEPT a. It offers protection the principal and guaranteed steady stream of income b. It is a place of temporary refuge when the investor foresees the market outlook is uncertain c. It allows the investor a chance for capital preservation d. It enables the investor an opportunity for capital appreciation (no capital appreciation kapag bonds) 55. Rank the following investment instruments in terms of their level of risks, from the least risky to the most risky I. Cash and deposit – always least risky II. Derivatives – almost always riskiest III. A well diversified instrument portfolio of a company – still risky but at least diversified IV. Stock options – less risk because you can sell the stock option at a given time a. I, IV, III & II b. I, III, IV & II c. I, IV, II & III d. I, II, III & IV 56. In risk-return profile of cash funds, bond funds, balanced funds, managed funds and equity funds, a risk-return graph will show that_________. I. Higher return normally comes with lower risk (opposite of what happens) II. Higher return normally comes with higher risk (yes) III. At the top end of the graph are the equity funds (highest risk and return) IV. The relatively risk-less cash funds sit at the bottom end of the graph (least risk, least return) a. I, II & III b. II, III & IV c. I, II & IV d. I, III, IV 57. Which of the following statements are TRUE? I. The policy value of the variable life policies is determined by the offer price at the time of valuation II. The policy value of endowment policies is the cash value plus any accumulated dividends less any outstanding loans due at the time of surrender. III. The life company needs to maintain a separate account for variable life policies distinct from the general account. a. I & II b. I, II & III c. I & III d. II & III 58. Which of the following information is NOT required to be disclosed to policyholders of variable life policies? a. The net withdrawal value as of the statement date b. The premiums received and charges levied during the period (required) c. The basis and frequency for valuing the assets (required) d. Number and value of units held at the beginning of the period, bought and sold during the period, and held at the end of the period (required)