Pru Life UK Variable Life Mock Exam PDF

DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be...

DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  VARIABLE LIFE MOCK EXAM - (57 items) INSTRUCTION: Put an X mark beside the letter of your answer. Example: 1. A single premium variable life insurance policy must be issued with ___. a. Without death benefit b. Without withdrawal value X c. A minimum death benefit d. A maximum withdrawal value VARIABLE 1. Variable life insurance policy owners may make withdrawals in terms of a. Number of units or fixed monetary amount through the cancellation of units b. Number of units of fixed monetary through reduction of the life cover sum assured c. Fixed monetary amount only through the reduction of the life cover sum assured d. Number of units through the cancellation of units 2. Which of the following statements about the flexibility features of 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 b. Policyholders can take loans against their variable life up to the entire withdrawal value of their policies c. Policyholders have the flexibility of switching from one fund to another provided it satisfies the company's switching criteria d. Policyholders have the flexibility of increasing or decreasing their premiums for regular premium variable life policies 3. The investment returns under variable life insurance policy: I. Are not guaranteed II. Are assured III. Are linked to the performance of the investment fund managed by the life insurance company IV. Fluctuate according to the rise and fall of market prices a. I, II and III b. I, II and IV c. I, III and IV d. II, III and IV DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  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 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 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 5. Which of the following statements is FALSE? a. Rebating is to offer a prospect a special inducement to purchase a policy b. Twisting is a specific form of misrepresentation c. Misrepresentation is a specific form of twisting d. Switching is a facility allowing the policyholders to switch to another variable life funds offered by the company 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 II. The margin between the bid and offer price is used to cover the managements cost of the policy III. The policy value is calculated based on the bid price of units allocated into the policy a. I only b. I & II c. I & III d. II & III 7. What is the most suitable investment instrument for an investor who is interested in protecting his principal and receiving a steady stream of income? a. Equities b. Warrants c. Variable life policies d. Fixed income securities 8. What are the disadvantages of investing in common shares? I. Dividends are paid more than fixed rates II. Investors are exposed to market and specific risks III. Shares can become worthless if company becomes insolvent a. I & II b. I & III c. II & III d. I, II & III DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  9. Which of the following statements about the difference between variable life policies and endowment policies I. The policy values of variable life policies directly reflect the performance of the fund of the life company II. The premiums and benefits of the endowment policies are described at the inception of the policy whereas variable life are flexible as they are account driven III. The benefits and risks of variable life and endowment policies directly accrue to the policyholders 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 b. It refers to an agents including a policyholder to discontinue policy with another company without disclosing the disadvantage of doing so c. It includes misleading or incomplete comparison of policies d. It refers to an agent offering a prospect a special inducement to purchase a policy 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 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 III. The variable life policyholder can have access to a pool of qualified and trained professional fund a. I & II b. I, II & III c. III only 13. 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 b. A close-end fund and does not have to dispose of 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 DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  14. 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 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 15. The benefits of investing in variable life funds include: I. Policy owners have access to pooled or diversified portfolios of investment II. Policy owners can easily change the level of the premium payments as the product design of variable life policies have clear structures which cater separately for investment and insurance protection III. Policy owners can gain access to variable life funds managed by professional investment managers with proven track records 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 16. 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 d. The policy benefits are guaranteed 17. 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 conditions on variable life policy is borne solely by the customer. c. Because the agent may give the wrong recommendations d. Because the policyholder expects higher returns DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  18. Which of the following statements about rebating are TRUE? I. Rebating is prohibited under the Insurance Code II. Rebating deals with offering the prospect a special inducement to purchase a policy III. Rebating will enhance the sales performance and uphold the prestige of an agent a. I & II b. I & III c. II & III d. All of the above 19. Which one 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 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 20. Which of the following statements about option top —up under variable life insurance is false? a. Policy owners may buy additional units of the variable life fund and these units will be allocated to new variable life insurance policies 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 c. Top —up policy, the policy owner pays further single premium at the time of the top —up d. Policy owners are normally allowed to top —up their policies at any time, subject to a minimum amount 21. 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. II. Its protection costs are generally met by implicit charges III. Its commission and company expenses are met by a variety of explicit charges with normally 6months notice given by the life companies prior to any change IV. Its withdrawal value is normally the value of units allocated to the policy owner calculated at the bid price a. I, II & III b. II, III & IV c. I, II & IV d. I, III & IV DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  22. 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 II. Top-ups or single premium injections are allowed in these plans III. Policyholders have the flexibility of varying the level cover a. I, II & III b. II & III c. I & III d. I & II 23. Investing in bonds offer the following EXCEPT: a. Must be issued with a minimum death benefit b. Must be issued with a maximum withdrawal value c. It allows the investor a chance for capital preservation d. It enables the investor an opportunity for capital appreciation 24. Which of the following statements about variable life policies are TRUE? I. The withdrawal value is not guaranteed II. The volatility of the returns depends on the investment strategy of the fund III. The variable life policyholder has direct control over the investment decisions of the variable life fund a. I, II & III b. I & II c. I & III d. II & III 25. Single premium variable life insurance policy: a. Must be issued with a minimum death benefit b. Must be issued with a maximum withdrawal value c. Has no death benefit d. Has no withdrawal value 26. 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 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 a. I, II & III b. II & III c. I & III d. I & II DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  27. 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 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 28. 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 II. Policy owners can easily take premium holidays and add single premium to Top-ups III. Variable life insurance policies offer the potential for higher returns IV. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation a. All of the above b. I, II & III c. I, II & IV d. I, III & IV 29. 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 II. The investment elements of variable life insurance policies is made known to the policy owner at the outset and is invested in a separately identifiable fund which is made up of units of investment III. Variable life insurance policies offer the potential for higher returns IV. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation a. I, III & IV b. II, III, IV c. I, II, III d. I, II & IV 30. 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 DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  31. The following statement about surrender value under traditional participating life insurance products are TRUE? a. Cash value is paid when yearly renewable term insurance policy is surrendered 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 includes the surrender value of the paid-up addition up to the date of surrender 32. Which one of the following statements about 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 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 c. Policy owners who invest in variable life funds with high equity investment face higher risk but can expect to achieve higher returns than the traditional life insurance product over the long term d. Policy owners who are risk-averse should not purchase life insurance policies with high protection and guaranteed cash and maturity values 33. What should be the withdrawal values after a year? Offer Price = Php.16.00 Bid-Offer Spread = 4.5% Number of units bought = 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. Charges 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 DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  34. The protection cost under a variable life insurance policy I. Are met by flat initial charges for regular premium plans II. Are generally covered by cancellation of units in fund III. Are generally met by explicit charges stipulated openly in the policy terms IV. Vary with the age of policy owner and level of cover a. I, II, & III b. I, II, & IV c. I, III & IV d. II, III, & IV 35. 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 b. Diversification can completely eliminate the risk of investing in stocks in a portfolio c. Diversification can involve purchasing different types of stocks and investing stocks in different countries d. Diversification helps to spread the portfolio risk by investing in different categories of investment in a portfolio 36. What are the advantages of investing in preferred shares? I. It gives shareholders the right to a fixed dividend II. Has the priority over the company III. Assets during a dissolution IV. They enjoy the benefit of capital appreciation a. I, II, & III b. I & II c. I & III d. II & III 37. 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 investments 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. a. I, II, & III b. I, II & IV c. I, III, & IV d. II, III, & IV DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  38. The objective of satisfying customers need profitably can be achieved by an agent through: I. The giving of freebies to the customers II. Extensive investment training by the company III. The use of a sales plan, where sales goals, strategies, and objectives are coordinated with the market analysis, segmentation and training IV. The giving of monetary assistance and discount to the customers a. I, & III b. II, & III c. II, & IV d. II, III, & IV 39. Which of the statements is true about CASH? a. It has a high yield potential b. Amount invested in cash depends on size of the cash flow requirement c. Investment in cash increases when there is a bull run in the stock market d. Investment in cash decrease when interest rates rise 40. Under a regular premium variable whole life plan I. Premium top-ups and holidays, subject to the company's administrative rules are usually allowed II. Life protection is the main objective of the plan with investment as the nominal purpose III. Withdrawals after the payment of a few years’ premium are usually allowed IV. A single premium contribution is made to the policy which uses the premium to purchase units in a variable life fund to provide a certain level of life cover a. II, III & IV b. I, III & IV c. I, II, & IV d. I, II, & III 41. Which of the following statements about investment objectives is false? a. People invest money in fixed deposits to produce high and guaranteed returns 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 42. 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 II. The withdrawal values and protection benefits are determined by the investment III. The net cash values of the policies 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 DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  43. 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 II. The risk of rate of return on the investment not matching up to the individual's expectation III. The risk of rate of return on the investment matching up to the individual's expectation IV. The risk of losing some or all of a person's initial investment a. I & III b. I & II c. III & IV d. II & IV 44. 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 b. Ensuring that the fund manager adhere to the provision of the trust deeds c. Acting generally to protect the unit-holders d. Holding the pool of money and assets in trust on behalf of the investors 45. Policy fee payable by variable life insurance policy owner is to cover a. The handling charges by professional investment managers b. The price of each unit bought under the variable life insurance policy c. The mortality costs of the variable life insurance policy d. The administrative expenses of setting up the variable life insurance policy 46. 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 47. Diversification in investment involves a. Putting all the funds under management into one category of investment b. Spreading the risk of investment by not putting the fund into several categories of investment c. Reducing the risks of investment by putting one fund under management into several categories of investment d. Reducing the risks of investment by putting all one's eggs in one basket DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  48. Variable life funds can be invested in any financial instrument 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 b. Invest in shares of stocks and during market recession, such as assets are usually the last to depreciate c. Invest in shares of stocks which are inherently of lower risk in nature and the prices of stocks are stable d. Invest in shares of stocks and investors who buy such assets usually aim for capital appreciation 49. 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 a future single Premiums from time to time to add more units to his account, unlike participating products a. I, II, and III b. I c. I and III d. II and III 50. Assuming no movement in the prices and charges/fees are deducted after the single premium has been Invested into the account, how much will the policyholder lose if he surrenders the policy now? Bid price = Php 13.00 Bid-offer spread = 4% Single premium = Php 450,000 Policy fee = Php 1,800 Admin and Mortality charge = 3% Sum assured is 200% of single premium or the value of the units, whichever is higher a. Php 43,400.90 b. Php 33,246.78 c. Php 22,500.00 d. Php 15,299.96 51. Which of the following statements BEST describes "variable life" policies? a. It is a 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 DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  52. Which of the following factors contribute to the specific risk of investment: I. Rate of corporate taxes 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 53. Investing in bonds offers the following advantages EXCEPT a. It offers protection to the principal and guaranteed steady stream of income b. It is a place of temporary refuge when the investor foresees that 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 54. Rank the following investment instruments in terms of their level of risks, from the least risky to the most risky I. cash and deposit II. derivatives III. a well-diversified investment portfolio of a company IV. stock options a. I, IV, III & II b. I, III, IV & II c. I, IV, II, & III d. I, II, III & IV 55. 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 II. Higher return normally comes with higher risk III. At the top end of the graph are the equity funds IV. The relatively risk-less cash funds sit at the bottom end of the graph a. I, II, & III b. II, III, & IV c. I, II & IV d. I, III, & IV DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  56. Which of the following statements are TRUE? I. The policy value of 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 57. 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 c. The basis and frequency for valuing the assets 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 DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  VARIABLE LIFE ANSWER KEY 1. D Withdrawals in variable life are always expressed as unit cancellations before they are computed as actual amounts. Withdrawals are not subtracted from sum assured. 2. B The term “loan”, as in policy loan is a concept in traditional life policies, and not in variable insurance. All the other options are true of variable policies. 3. C I, III and IV are innate features of variable insurance. The use of the word “assured” or guaranteed, is a feature of traditional life insurance. 4. D Statement I is false because the policy value of variable life policies is determined by the bid price at the time of valuation. 5. C Letter C is false because the definition of misrepresentation is the act of saying a false statement to induce a prospect to buy. 6. D Option I is wrong because bid, not offer price is used to determine the number of units to be credited to the account. 7. D Letters A, B and C are products that cannot guarantee security of principal nor fixed income payments. 8. C There is no guarantee that dividends are paid more than fixed rates when investing in common shares. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  9. D Option I is false because the policy values of variable life policies directly reflect the performance of the underlying investment chosen by the policyholder, and not based on fund of the life company. The latter concept applies to traditional, not variable insurance. 10. D Letter D refers to REBATING, and not TWISTING. 11. C Given his moderate risk appetite and his modest income, a traditional, participating whole life would be ideal. A traditional endowment product may suit his risk profile, but generally speaking, participating endowment products require bigger premiums than whole life. 12. B All three options are true of variable life insurance. 13. A Letter A is the definition of a unit trust. By investing in this, the investor becomes part owner of the trust company. A unit trust company is registered under the Central Bank and not the SEC. 14. C Options III and IV are best associated with variable life insurance policies. The concept of dividends is associated with traditional life. Minimum sum assured are set for variable insurance. 15. C Option IV is false as not all variable insurance requires a high initial investment. 16. C Letters B and D apply to traditional life policies. Letter A is false, as there are living benefits associated with variable insurance. 17. B The other options are false or secondary reasons for the policyowner to understand the policy. Full understanding is needed because the risks are borne solely by the policyholder. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  18. A Statement III is false. 19. A Variable life insurance policies offer investors policies with values DIRECTLY linked to the investment performance of the funds chosen by the policyowner, not chosen by the life company. 20. A Policyowners may purchase additional units of the variable life funds, not additional life insurance. 21. D When you purchase a variable life insurance a portion of your premium is allocated for investment. If you decide to withdraw from your policy, units will be sold and it will computed based on the price used when selling the units. 22. D Additional single premium payments are made to increase the investment component as well as the death benefit of the policy to provide better returns. 23. D Capital appreciation is not one of the primary purposes of investing in bonds. 24. B Options I and II are the correct answer. The returns depend on the market performance of their chosen fund therefore it is not guaranteed. Withdrawal value may change depending on value of units and unit price at the time of withdrawal. 25. A A single premium variable life insurance policy must be issued with a minimum death benefit. ALL other options are false. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  26. C Variable policies have generally longer exposure to equity investment because some or most of the funds are invested in equity assets, though the allocation varies. Investors who are invested in these types of funds have longer exposure to equities as long as they remain invested. Commissions and other company expenses are explicitly made known to investors. These charges vary on the design of the product, the fund/s where it will be invested and the risk presented by the insured. 27. B The fund performance, even if managed by professionals, are not guaranteed. It is highly dependent on the market condition, which can be volatile. In cases of extreme market volatility, the fund performance may decline. 28. B Variable life products are flexible that owners can increase or decrease the premium and their coverage. Owners can also make top-ups to add to their investment. If the owner cannot pay the premium, he/she may apply for a premium holiday; the corresponding charges will be deducted from the policy’s fund. 29. B A traditional plan’s benefit is guaranteed and is borne by the insurance company; thereby smoothing out the market fluctuation. In variable life insurance policy, the investment risk is borne by the policyowner – therefore, he or she has more choices in terms of investment funds and the charges are made known to him/her at the onset. And since this is an investment-linked product, there is a higher potential return at the exchange of higher risk. 30. D Since the policyowner bears the investment risk of a variable life policy, he or she can manage the risk by switching his/her money to a fund that is more suitable to his/her current need and risk profile. 31. C The amount may be higher since participating policies pay off dividends which, if left in the policy, will form part of the surrender value. 32. C This is due to the risk reward trade off where the higher the risk, the higher the return. High risks investments like equity funds in variable life insurance have higher chances of achieving higher returns than the more conservative traditional life policies. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  33. C 1. Compute for the Bid Price Bid Price = Offer Price (1 – Spread %) = 16 (1 – 4.5%) = 16 (0.955) = 15.28 2. Compute for the total charges in units: Charges in Units = (Policy Fee + Mortality Charge) / Bid Price = (1,800 + 8,750) / 15.28 = 10,550 / 15.28 = 690.45 units 3. Compute for the Units Bought less Charges = Total units bought – Total Charges = 25,000 – 690.45 = 24,309.55 units 4. Compute for the future value Future Value = X (1 + i)n Value of X after, n = years and it increases by i (interest rate) = Php 15.28 (1 + 8%)1 = Php 16.50 5. Compute for the total remaining units x future value = 24,309.55 x Php 16.50 = Php 401,107.58 34. D Protection costs like insurance or rider charges are covered thru unit cancellation; these charges are also stipulated openly and may increase overtime depending on the insured's age and benefit. 35. B Diversification does not eliminate all risks completely. What may be reduced is unsystematic risk (ex. risk specific to a particular company). So, if the investment is diversified, allocated amongst various companies, the risk of exposing your investment to the same unsystematic risk is reduced or managed. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  36. A Opportunities for capital appreciation is lower in preferred shares than those from common or ordinary shares as there is a fixed rate offered on the dividend of preferred shares, much like a bond. 37. A Dividends are not guaranteed but are paid on a regular basis and originates from the company’s net profits. 38. B Giving freebies and discounts does not address the customer’s need for long-term financial security provided by life insurance. It might also be perceived as a form of Rebating and can undermine the integrity of the agent and company. 39. B Cash cannot be regarded as an investment. It is of value only as medium of exchange that why it depends on the size of the cash flow requirement. 40. D Item IV refers to single-pay variable whole life plans. The policyholder of a regular-pay variable life plan must pay premiums continuously. 41. A Fixed deposits are low risk in nature thus, they are also low-yielding in return. 42. D Variable life policies are not entitled to dividends. 43. D Options II and IV covers both the potential disappointment from returns not meeting expectations and the risk of (partial or full) capital loss. Risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. Meanwhile, options I and III talks about not losing value or matching expected returns. 44. A Letter a (Managing the portfolio of investment and administering the buying and selling of shares in the unit trust itself) is a task that primarily falls to the fund manager, not the trustee. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  45. D Policy fee covers the administrative costs incurred during the setup and maintenance of the policy. It includes tasks such as paperwork, record-keeping, and policy administration. 46. B The selling price in variable life insurance reflects the value of the underlying investments and determines how much money you’ll receive if you decide to surrender the policy. It is not a fixed amount but varies based on market conditions and investment performance. 47. C Diversification aims to reduce risk by spreading investments across multiple categories, thereby enhancing the overall stability of an investment portfolio. 48. D Letter D is correct because equity funds primarily invest in stocks, and investors expect their value to appreciate over time. The other options are incorrect: letter A focuses on quantity, letter B doesn’t accurately describe equity behavior during recessions, and letter C provides incorrect information about stock risk and stability. 49. A Letter A is the correct answer because it accurately describes the differences between variable life products and participating products. Variable life products offer flexibility in premium payments, can take various forms (whole life or endowment), and allow additional contributions to increase investment units (we may be more familiar with this as top-ups). 50. B 1. Compute for the Offer Price Offer Price = Bid Price / (1 – Spread %) = Php 13.00 / (1 – 4%) = Php 13.00 / (0.96) = Php 13.54 2. Compute for Number of Units: Number of Units = Single premium / Offer Price = Php 450,000.00 / Php 13.54 = 33,234.85 units 3. Compute for the total charges in units: Charges in Units = (Policy Fee + Admin & Mortality Charge) / Bid Price = [(Php1,800.00) + (3% x Php450,000.00)] / Php 13.00 = [(Php1,800.00) + (Php 13,500.00)] / Php13.00 = Php15,300.00 / Php 13.00 = 1,176.92 units DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  4. Compute for the Units Bought less Charges = Units bought – Total Charges = 33,234.85 – 1,176.92 = 32,057.93 units 5. Compute for the Value of Units if Withdrawn Value of units if withdrawn = Units bought less total charges x Bid price = 32,057.93 x Php13.00 = Php 416,753.09 6. Compute for the amount Policyholder loses if he surrenders the policy = Single premium - Value of units if withdrawn = Php 450,000.00 - Php 416,753.09 = Php 33,246.91 51. D In variable life policies, premiums are not fixed, and within limits, policyholders may adjust their premium payments based on their needs and investment goals. This product contains separate accounts comprised of various instruments and investment funds with returns that will vary with the underlying value of investments. 52. B ALL except option I since rate of corporate taxes does not really affect investment. 53. D Investing in bonds offers fixed income, and the primary goal of the investor is for capital preservation and not for capital appreciation. 54. A Correct answer is letter A (I, IV, III & II). I. Cash and deposit – least risky of the investment instruments IV. Stock options – riskier than cash and deposit but less risky than an investment portfolio III. A well-diversified investment portfolio of a company – riskier than stock options but less risky than derivatives since a well-diversified portfolio can reduce the overall risk of the portfolio so that no single investment can hurt too much II. Derivatives – most risky since value is dependent on an underlying asset, group of assets, or benchmark DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”  55. B The risk-return graph shows that high return comes with higher risk and vice versa (item II), the lowest risk is cash fund is at the bottom end of the graph (item IV) and the highest risk are equities which sit at the top end of the graph (item III). 56. D Item I is incorrect since it should be the policy value of variable life policies is determined by the ‘bid’ price at the time of valuation. 57. A ALL items are required to be disclosed to policyholders EXCEPT the net withdrawal value of the policy as of the statement date. DISCLAIMER: The questionnaire and answer key have been prepared for general information purposes only. These documents have not been officially signed-off by our company’s Compliance Department. “This material is solely for the information, use and private circulation of Pru Life UK and may not be published, circulated, reproduced or distributed in part or in whole to any other person without the company’s written prior consent.”