Variable Life Online Mock Exam PDF

VARIABLE LIFE ONLINE MOCK EXAM INSTRUCTION: Put an X mark beside the letter of your answer. Example: Edward tells you that he wants to be insured for life at the least annual cost until he dies. What would you offer him? X a. A whole life policy...

VARIABLE LIFE ONLINE MOCK EXAM INSTRUCTION: Put an X mark beside the letter of your answer. Example: Edward tells you that he wants to be insured for life at the least annual cost until he dies. What would you offer him? X a. A whole life policy b. A 20-pay life policy c. Endowment policy d. A term policy 1. Diversification in investment involves __________________________ A. Reducing the risks of investment by putting one fund under management into several categories of investment. B. Putting all the funds under management into one category of investment C. Spreading the risks of investment by not putting the fund into several categories investment D. Reducing the risks of investment by putting all one's eggs in one basket 2. Which one of the following statements about diversification in portfolio management is FALSE? A. Diversification can involve purchasing different types of stocks and investing in stocks of different countries B. A diversified portfolio provides greater security to an investor having to sacrifice the return for the portfolio C. Diversification can completely eliminate the risk of investing in stocks in a portfolio D. Diversification helps to spread the portfolio risk by investing in different categories of investment in a portfolio. 3. Single premium variable life insurance policy: A. Has no death benefit B. Must be issued with a minimum death benefit C. Must be issued with a maximum withdrawal value D. Has no withdrawal value 4. 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 units of investment. III. Variable life insurance policies offer the potential for 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.  IV. Traditional participating policies aim to produce a steady return by smoothing out market fluctuation. A. I, II and III B. I, III and IV C. II, III and IV D. I, II and IV 5. 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. Variable life policies B. Equities C. Warrants D. Fixed income securities 6. What are the disadvantages of investing in common shares? I. Dividends are paid not more than fixed rates II. Investors are exposed to market and specific risks III. Shares can become worthless if company becomes insolvent A. II, III B. I, II C. I, III D. I, II, III 7. 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. II and III B. I and II C. I and III 8. What are the advantages of investing in preferred Shares? I. It gives shareholders the right to a fixed dividend II. Has the priority over company assets during dissolution III. They enjoy benefit of capital appreciation. A. I and III B. I, II and III C. I and II D. II and 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. 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 sales plan, where sales goals, strategic and objectives are coordinated with market analysis, segmentation and targeting. IV. The giving of monetary assistance and discount to the customers A. I, II and IV B. I and III C. II and III D. II, III and IV 10. Under variable life insurance policies ___________________________. I. There is no guaranteed minimum sum assured for the purpose of declaring dividends II. There is not 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 the investment monies to the value of the fund. A. III and IV B. II and III C. I and IV D. II and IV 11. Under a regular premium variable whole life insurance plan ____________________. I. Premium top-ups and holidays, subject to the life company's administrative rules are usually allowed II. Life protection is the main objective of the plan with investment as a nominal purpose III. Withdrawals after the payment of a few years’ premium are usually allowed IV. IV. A single premium contribution is made to the policy which uses the premium to purchase units in variable life fund and to provide certain level of life cover A. I, II and IV B. II, III and IV C. I, III and IV D. I, II and III 12. Rank the following in terms of their liquidity, from the least liquid to the most liquid: I. Short Term Securities II. Property III. Cash IV. Equities 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.  A. II, I, IV, III B. IV, II, III, I C. III, I, IV, II D. II, IV, I, III 13. The following statement about surrender value under traditional participating life insurance products is TRUE? A. 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. B. Cash value is paid when a yearly renewable term insurance policy is surrendered C. When a participating insurance policy is surrendered, the surrender value is calculated by multiplying the bid price with number of units. 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. 14. Policy fee payable by variable life insurance policy owner is to cover _________. A. The mortality costs of the variable life insurance policy B. The handling charges by professional investment managers. C. The price for each unit bought under the variable life insurance policy D. The administrative expenses of setting up the variable life insurance policy 15. The characteristics of a variable life insurance policy 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 6- month 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 and IV B. I, II and III C. II, III and IV D. I, III and IV 16. 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 policyholder can vary his premium payments, take premium holidays, add single premium top-ups and change the level of sum assured easily. III. The variable life policyholder can have access to a pool of qualified and trained professional fund managers. A. I, II and III B. I and II C. I and 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.  D. II and III 17. Which of the following BEST describes the policy benefits variable life policies? A. The policy benefits are directly linked to the investment performance of the underlying assets. B. The policy benefits are payable only on death or disability. C. The policy benefits will depend on the long-term performance of the life company. D. The policy benefits are guaranteed. 18. Which of the following statements is FALSE? A. Misrepresentation is a specific form of twisting B. Rebating is to offer a prospect a special inducement to purchase a policy C. Twisting is a specific form of misrepresentation D. Switching is a facility allowing policyholders to switch to another variable life funds offered by company. 19. The flexibility benefit of investing in variable life funds includes ___________: 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 products have a simple product design with a clear structure which cater separately for investment and insurance protection. IV. Policy owners can easily change the level of their premium payment A. I, II and IV B. I, III and IV C. I, II and III D. All of the above 20. Why is it important that the customer must understand the sales proposal in full? A. Because the agent may give the wrong recommendations B. Because the insurer does not guarantee any return C. Because the impact of changes in investment condition on variable life policy borne solely by the customer D. Because the policyholders expect higher returns 21. Which of the following statements about twisting is FALSE? A. It includes misleading or incomplete comparison of policies B. Twisting is a special form of misrepresentation C. It refers to an agent inducing a policyholder to discontinue policy with another company without disclosing the disadvantage of doing so D. It refers to an agent offering a prospect a special inducement to purchase a policy 22. In risk-return profile of cash funds, bonds funds balanced funds, managed funds and equity funds, a risk-return graph will show that 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.  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 and IV B. I, II and III C. II, III and IV D. I, III and IV 23. What would be the withdrawal value after a year? Offer Price = Ps. 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 = 2,000 Sum assured is 190% of single premium or the value of the 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 the bid-offer spread is maintained at 8% and 4.5% respectively. A. P 401,107.58 B. P 432,000.00 C. P 420,069.02 D. P 412,500.00 24. Which of the following statements about the difference between variable life policies and endowment policies are FALSE? I. The policy values of variable life and endowment policies directly reflect the performance of the performance of the fund of life company. II. The premiums and benefits of the endowment policies are described at inception of the policy whereas variable life policies are flexible as they are account driven. III. The benefits and risks variable life and endowment policies directly accrue to the policyholders. A. I and III B. I and II C. I, II and III D. II and III 25. Variable life insurance policy owners may make withdrawals in terms of 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.  A. Fixed monetary amount only through reduction of the life cover sum assured B. Number of units or fixed monetary amount through cancellation of units C. Number of units or fixed monetary amount through reduction of the life cover sum assured D. Number of units through cancellation of units 26. Which of the following statements about characteristics of variable life policies are TRUE? I. Variable life policies generally have a larger 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. Commissions and company expenses are met by a variety of explicit charges, some of which are variable. A. II and III B. I, II and III C. I and II D. I and III 27. 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 as the product design of variable life insurance 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 and III B. I, II and IV C. I, III and IV D. II, III and IV 28. 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 and II B. I, II and III C. II and III D. I and III 29. A UNIT TRUST is _______________________________. 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.  A. One whereby investor buys units in the trust itself and not shares in the company. B. Established by a trust deed which enables a trustee to hold the pool of money and assets in trust on behalf of the investor C. A close-end fund and does not have to dispose off its assets if large number of investors sell their shares D. An organization registered under the SECURITY AND EXCHANGE COMMISSION (SEC) which usually invests in a wide range of equities and other investment. 30. 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 share of stocks which are inherently of lower risk in nature and the prices of stocks are stable B. Invest in shares of stocks and the magnitude of the change in unit prices will only depend on the quantity of the equities held C. Invest in shares of stocks and during market recession, such assets are usually the last to depreciate D. Invest in shares of stocks and investor who buys such assets usually aims for capital appreciation. 31. Which one of the following statements is FALSE? A. Both Whole Life and Endowment policies can be used as an investment media with benefits that become payable at a future date. B. Variable life insurance policies offer investors policies with values and indirectly linked to the investment performance of the life company C. Life company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policyholders as cash dividends. D. The investment element of variable life policies varies according to underlying assets of the portfolio. 32. The protection costs under a variable life insurance policy _______________. I. Are met by a flat initial charges for regular premiums plans 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, III and IV B. I, II and III C. I, II and IV D. II, III and IV 33. Which of the following statements about risk of investing in variable life funds is TRUE? A. Policy owners who invest in variable life funds with high equity investment face greater risk but can expect to achieve higher return than the traditional life insurance product over the long term. B. Policy owners who are risk averse should buy variable life insurance policies with high equity investment C. Investments in variable life finds 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. 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.  D. Policy owners who are risk averse should not purchase life insurance policies with high protection and guaranteed cash and maturity values. 34. The duties of the trustee of unit trust do not include: A. Acting generally to protect the unit-holders B. Managing the portfolio of investment and administering the buying and selling of shares in the unit trust itself C. Ensuring that the fund manager adhere to the provision of the trusts deeds D. Holding the pool of money and assets in trust in behalf of the investors 35. Which of the following statements about investment objective is FALSE? A. People invest money to provide funds for higher education for their children B. People invest money in fixed deposits to produce high and guaranteed returns C. People invest money to enhance a comfortable standard living D. Investment in commodities has no regular income 36. Which one of the following statements about the flexibility features of variable life policies is FALSE? A. Policyholders have the flexibility of switching from one fund to another provided it satisfies the company's switching criteria. B. Policyholders may request for a partial withdrawal of the policy and the withdrawal amount will be met by cashing the units at bid price. C. Policyholders can take loans against their variable life policies up to the entire withdrawal value of their policies D. Policyholders have the flexibility of increasing or decreasing their premiums for regular premiums variable life policies 37. 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 performance of the underlying assets 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 any indebtedness including interest. A. I, II and III B. II C. I D. I and II 38. Risk can be classified into two particulars categories in relation to investment. They include _________: I. The risk of not losing some or all of a 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 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.  A. III and IV B. I and III C. I and II D. II and IV 39. Which of the following statements about benefits in variable life fund is FALSE? A. The fund relieves investor from the hassle of administering his/her investment B. The fund provides a highly diversified portfolio, thus, lowering the risk of investment C. The fund ensures definite high yield for an investor since it is managed by professionals who are well-versed in the management of risks of investment portfolios D. The fund enables small investor to participate in a pool of diversified portfolio in which he/she, with low investment capital, is likely to have acceded to. 40. 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 time of surrender III. The life company needs to maintain a separate account for variable life policies distinct from the general account. A. I and III B. I and II C. I, II and III D. II and IIIs 41. Which of the following statements about option to top-up under variable life insurance products is FALSE? A. To top-up a policy, the policy owner pays further single premium at the time of top-up. B. Policy owners may buy additional units of the variable life fund and these units will be allocated to new variable life insurance policies. C. Further premiums at time of top-up will be used in full, after deducting charges for top-ups, to purchase additional units of the variable life funds. D. Policy owners are normally allowed to top-up their policies at any time, subject to a minimum amount 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.  E. VARIABLE F. LIFE MOCK EXAM: ANSWER KEY 1. A 31. B 2. C 32. D 3. B 33. A 4. C 34. B 5. D 35. B 6. A 36. C 7. B 37. D 8. B 38. D 9. C 39. C 10. A 40. D 11. D 41. B 12. A 13. A 14. D 15. A 16. B 17. A 18. A 19. A 20. C 21. D 22. C 23. A 24. A 25. D 26. B 27. A 28. A 29. B 30. D