Variable Life Insurance Mock Exam PDF

VARIABLE MOCK EXAM 1. The investment returns under variable life insurance policy I. are not guaranteed. II. are insured. III. are linked to the performance of the investment fund managed by the life office. IV. fluctuate according to the rise and...

VARIABLE MOCK EXAM 1. The investment returns under variable life insurance policy I. are not guaranteed. II. are insured. III. are linked to the performance of the investment fund managed by the life office. IV. fluctuate according to the rise and fall of market prices. A. I, II, & III B. I, II, & IV C. I, III, & IV D. II, III, & IV 2. Which of the following statements are TRUE? I. The life company needs to maintain a separate account for variable life policies distinct from the general account. II. The policy value of variable life policies is determined by the offer price at the time of valuation. III. The policy value of endowment policies is the cash value plus any accumulated dividends less any outstanding loans due at the time of surrender. A. I & II B. I & III C. II & III D. All of the above 3. Policy owners of variable life insurance policies may make withdrawal in terms of A. Number of units or fixed monetary amount through cancellation of units. B. Number of units or fixed monetary amount through reduction of the life cover sum assured. C. Number of units through cancellation of units. D. Fixed monetary amount only through reduction of the life cover sum assured. 4. Which statement about flexibility features of variable life policies is FALSE? A. Policyholders may request for a partial withdrawal from the policy and the withdrawal amount will be met by cashing the units at bid price. B. Policyholders can take loans against their variable life policies 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 premium for regular-pay variable life policies. 5. Which statements are FALSE regarding the difference between endowment policies and variable life policies? I. The benefits and risks of endowment and variable life policies directly accrue to the policyholders. INTERNAL  II. The premiums and benefits of the endowment policies are stated at its inception while those of variable life policies are flexible as they are account driven. III. Their policy values directly reflect the performance of the fund of the life company. A. I & II B. I & III C. II & III D. All of the above 6. What are the DISADVANTAGES of investing in common shares? I. Shares can become worthless if company becomes insolvent. II. Investors are exposed to market and specific risks. III. Dividends are paid not more than the fixed rates. A. I & II B. I & III C. II & III D. All of the above 7. If an investor is interested in protecting his principal and in receiving a steady stream of income, what suitable investment would you recommend? A. Equities B. Warrants C. Fixed income securities D. Variable life 8. Which of the following statements about variable life policies are true? I. The margin between the bid and the offer price is used to cover the management cost of the policy. II. The policy value is calculated based on the price of units allocated into the policy. III. The offer price is used to determine the number of units to be credited to the account. A. I & II B. II & III C. I & III D. All of the above 9. Which statement 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. Switching is a facility allowing policyholders to switch to another variable life fund offered by the company. D. Misrepresentation is a specific form of twisting. 10. A UNIT TRUST is ____________ A. An organization registered at the Securities and Exchange Commission (SEC) which usually invests in a wide range of equities and other investments. B. When an investor buys units in the trust itself and not share in the company. INTERNAL  C. Established by a trust deed, and enables a trustee to hold the pool of money and asset in trust for the investor. D. A close-end fund and does not have to dispose off its assets in large numbers if investors sell their shares. 11. Rank the following in terms of liquidity, from the most to the least liquid. I. Short term securities II. Property III. Cash IV. Equity A. III, I, IV, II B. IV, II, III, I C. III, IV, I, II D. II, III, IV, I 12. The benefits of investing in variable life funds are: I. Variable life funds give the policyholder access to a pooled and diversified portfolio. II. The policyholder can vary his premium payments, change the level of sum assured, add single premium top-ups and take premium holidays easily. III. Variable life policyholders have the access to a pool of qualified and trained professional fund managers. A. I & II B. I & III C. II & III D. All of the above 13. Mr. Juan dela Cruz is currently earning P30,000 per month. He is 36 years old and 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 14. Which statement about twisting is FALSE? A. It includes misleading or incomplete comparison of policies. B. It is a special form of misrepresentation. C. Twisting refers to an agent inducing a policy holder to discontinue his policy with another company without disclosing the disadvantages of doing so. D. It refers to an agent offering a prospect special inducement to purchase a policy. 15. Which statement about rebating is FALSE? A. Rebating is prohibited under the Insurance Code. B. Rebating refers to an agent offering a prospect a special inducement to purchase a policy. C. Rebating will enhance performance and uphold the prestige of the agents. D. None of the above. INTERNAL 16. What is the reason why a customer must fully understand the sales proposal? A. Because he expects a high return. B. Because the agent may give wrong recommendations. C. Because the insurer does not guarantee any return. D. Because the impact of changes in investment condition on variable life policy is borne solely by the customer. 17. Which statement best describes the policy benefits of variable life insurance policies? A. The policy benefits will depend on the long-term performance of the company. B. The policy benefits are directly linked to the investment performance of the underlying assets. C. The policy benefits are payable only upon death or disability. D. The policy benefits are guaranteed. 18. The benefits of investing in variable life fund include: I. Policyholders have access to a pooled and diversified portfolio of investment. II. The policyholder can easily change the level of premium payments as the product design of variable life insurance policies have clear structures which cater separately for investment and insurance protection. III. Policyholders can gain access to variable life funds managed by professional investment managers. IV. The policyholder is relieved of the day to day administration of his investment. A. I, II, & III B. I, II, & IV C. I, III, & IV D. All of the above 19. Under variable life insurance policies ______________. I. There is no guaranteed minimum sum insured as a level of life insurance protection. II. Each of the policy holder’s single premium will be used to purchase units, the number of which is dependent on the offer price of each unit. III. Purchase of units can only be made from the variable life fund itself, which will then create new units and add the investment to the value of the fund. A. I & II B. I & III C. II & III D. I, II & III 20. 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, it is technically whole life insurance. II. Top-ups or single premium injections are allowed. III. Policyholders have the flexibility of varying the life coverage. A. I & II B. I & III INTERNAL  C. II & III D. All of the above 21. 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 the implicit charges III. Its commissions and company expenses are met by the variety of explicit charges with normally 6 months notice given by the life companies prior to any changes 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 22. The statements below are true about top-up option of a variable life insurance product EXCEPT: A. The policy owner pays further single premium to make a top-up. B. Normally, policy owners are allowed to make a top-up on their policies at any time subject to a minimum amount. C. Policy owners may buy additional units of variable life fund and these units will be allocated to new variable life insurance policies. D. Further premiums at the time of top-up will be used in full after deducting charges to purchase additional units of the variable life funds. 23. Which statement is FALSE? A. Company will carry a valuation of its funds yearly and any surplus may be allocated to traditional participating life policyholders as dividends. B. Variable life insurance policies offer investors policies with values indirectly linked to the investment performance of the company. C. The investment element of variable life policies varies according to the underlying assets of the portfolio. D. Both whole life and endowment policies can be used as an investment media with benefits payable at a future date. 24. Which statement is NOT TRUE about the benefits of investing in a Variable life insurance policy? A. The fund provides a highly diversified portfolio, thus, lowering the risk of investment. B. The fund relieves the investor from the hassle of administering his/her 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 risk of investment portfolio. D. The fund enables small investors to participate in a pool of diversified portfolio in which he/she is unlikely to have access to with low investment capital. 25. Which of the following statements about variable life policies are TRUE? I. The withdrawal value is not guaranteed. INTERNAL  II. The volatility of returns depends on the investment strategy of the fund. III. The variable life policyholder has a direct control over the investment decisions of the variable life fund. A. I, II & III B. I & II only C. I & III only D. II & III only 26. Investing in bonds offers the following advantages EXCEPT A. It is a place of temporary refuge when the investor foresees that the market outlook is uncertain. B. It offers protection of the principal and guaranteed stream of income. C. It enables the investor an opportunity for capital appreciation. D. It allows the investor a chance for capital preservation. 27. 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. 28. Which of the following statements about the characteristics of variable life policies are TRUE? I. Variable life policies generally have a larger exposure to equity investment than traditional policies. II. The protection costs are generally met by implicit charges, which may vary with age and level of coverage. III. Commissions and office expenses are met by variety of explicit charges, some of which are variable. A. I & II B. I & III C. II & III D. All of the above 29. Under the traditional participating life insurance products, which statement about the surrender value is TRUE? A. If the policy is participating, the net surrender value includes the surrender value of the paid-up addition up to the date of surrender. B. Cash value is paid when a yearly renewable term insurance policy is surrendered. C. If the insurance policy is participating, the surrender value is calculated by multiplying the bid price with the number of units. D. The surrender value is usually higher compared to that of a non-participating policies and it varies with the age of the assured, being lower at older ages. INTERNAL 30. Which statement describes the difference between Variable Life insurance products and Traditional participating products? I. Traditional participating life policies aim to produce steady return by smoothing out market fluctuations, while variable life insurance policies offer the potential for higher returns but at the expense of market volatility and higher risk. II. Variable Life insurance products can take the form of Whole Life or Endowment policies but Traditional Participating life policies cannot. III. The investment element of variable life insurance policies is made known at the outset and is invested in a separately identifiable fund, which is made up of units of investments. A. I only B. I &III only C. II & III only D. All of the above 31. The flexibility benefits of investing in variable life funds include: I. Policyholders can easily change the level of sum insured and switch their investments between funds. II. Policyholders can easily take premium holidays and add single premium top-ups. III. Variable life insurance products have simple product design with a clear structure which caters separately to investment and insurance protection. IV. Policyholders can easily change the level of their premium payment. A. I, II, & III B. I, II, & IV C. I, III, & IV D. All of the above 32. The switching facility is very useful for A. The purpose of assets planning by the trustee. B. The purpose of sales planning by the fund manager. C. The purpose of financial planning by the policyowner. D. The purpose of profit planning by the life policies. 33. The protection cost under a variable life insurance policy ______ I. Are met by a flat initial charges for regular premium II. Are generally covered by cancellation of units in the fund III. Are generally met by explicit charges stipulated openly in the policy name IV. Vary with age of policy owner and level of cover a. II & III b. I, II & IV c. I, III & IV d. II, III & I, IV 34. Which statement regarding the risk of investment in variable life is TRUE? A. Policyowners who are risk averse should not purchase life insurance policy with high protection and guaranteed cash and maturity values. INTERNAL  B. Investments in variable life funds which are fully invested in units of equity funds are not suitable for policyowners 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 greater risk but can expect to achieve higher return than traditional life insurance policies with high equity investment. D. Policy owners who are risk averse should buy variable life policies with high equity investment. 35. Mr. Claro bought a Variable Life policy with the following details: Offer Price = P16 Bid Offer Spread = 4.5% Units = 25,000 Pol fee = P1,800 Admin and Mortality Charges = P8,750 Top up fee 700 Admin top up P2,000 Presuming all charges are deducted by canceling units and that the Bid Price increases by 8%, what is the withdrawal value after a year? A. 432,000 B. 420,069.02 C. 401,107.58 D. 412,500 36. What are the ADVANTAGES of investing in preferred shares? I. It has priority on company assets during dissolution. II. Has a benefit of capital appreciation. III. The shareholder has the right to a fixed dividend. A. I & II B. I & III C. II & III D. All of the above 37. Which statement about diversification in portfolio management is FALSE? A. Diversification can completely eliminate the risk of investing in stock portfolio. B. Diversification helps spread the portfolio risk by investing in different categories of investment. C. Diversification involves purchasing different types of stocks and investing in stocks of different countries. D. A diversified portfolio provides greater security to an investor without having to sacrifice the return of the portfolio. 38. With traditional participating life insurance products, the allocations to policyowners of dividends: I. Are not directly linked to the investment performance of the life company. II. Have already been smoothened. III. Do not have the highs and lows of investment returns as in good investment years of the life company. INTERNAL  IV. Are not fixed at the inception of the policy but are greatly dependent on the investment performance of the life company. A. I, II and III B. I, II and IV C. I, III and IV D. II, III and IV 39. To satisfy customers, the agent must: I. Give freebies. II. Give discount and monetary assistance to them. III. Undergo extensive investment training by the company. IV. Use sales plan – where sales goals, strategies, and objectives are coordinated with market analysis, segmentation, and targeting. A. I & II B. III & IV C. I, II & III D. All of the above 40. Risk in investment can be categorized into two. These are: 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. A. I & III B. I & II C. II & IV D. III & IV 41. Under the 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 a nominal purpose. III. Partial and full withdrawals, usually after the payment of a few years premium, are allowed. IV. A single premium contribution is made to the policy which is used to purchase units in a variable life fund and to provide certain level of coverage. A. I, II & III B. I, II & IV C. I, III & IV D. II, III & IV 42. Which of the following are the main characteristics of Variable Life insurance policies? I. The policies can be used for investments, as a source of regular savings and protection. II. The withdrawal and protection benefit are determined by the investment performance of the underlying assets. INTERNAL  III. The net withdrawal values of the policies are the gross withdrawal values shown in the policy which includes cash dividends up to the date of surrender, less all indebtedness, includes interests. A. I only B. II only C. I & II only D. I, II & III 43. Which statement about cash is TRUE? A. Investment in cash increases when there is a bull run in the stock market. B. Investment in cash decreases when there is a rise in interest rates. C. Amount invested in cash is dependent on the size of the cash flow requirement. D. Its yield potential is high. 44. These statements are true EXCEPT A. No regular income may be gained from investing in commodities. B. Investing in fixed deposits gives high guaranteed returns. C. People invest money to enhance a comfortable standard of living. D. People invest money to provide funds for the higher education of their children. 45. Variable Life funds can be invested in any financial instrument including equity funds. Equity funds _________? A. Invest in shares of stocks and investors who buy such assets usually aim for capital appreciation. B. Invest in shares and stocks which are inherently of lower risk in nature and the prices of which are stable. C. Invest in shares of stocks and during market recession, such assets are usually last to depreciate. D. Invest in shares of stocks and the magnitude of the change in unit price will only depend on the quantity of the equities held. 46. A risk-return graph for the risk-return profile of cash funds, bond funds, balanced funds, managed funds and equity funds will show that: I. Higher returns have lower risk. II. Higher returns have higher risk. III. Equity funds are at the top end of the graph. IV. Cash funds are less risky and are at the bottom end of the graph. A. I, II, & III B. I, III & IV C. I, II & IV D. II, III & IV 47. In a Unit Trust investment, the duties of a Trustee include all of these EXCEPT: A. Selects and manages the investments of the Trust. B. Holds the pool of money and assets in trust on behalf of the investors. C. Ensures that the fund managers adhere to the provisions of the trust deed. D. Protects the interests of unit holders. INTERNAL 48. For variable life policy, the definition of selling price is: A. The price at which units under the policy is offered for sale by the life company. B. It is also known as the bid price. C. The price at which units under the policy are bought back by the life company. D. It is a fixed amount throughout the life of the policy. 49. Policy fee payable by variable life insurance policy owner 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 50. Diversification in investment involves A. Reducing the risks of investment by putting the fund under management into several categories of investment. B. Reducing the risk of investment by putting all one’s eggs in one basket. C. Putting all the funds under management into one category of investment. D. Spreading the risk of investment by not putting the fund into several categories of investment. 51. People generally invest their money to provide: I. an improvement in their financial position II. a less comfortable standard of living III. retirement income IV. funds for paying necessary expenses and taxes when the person dies A. I, II & III B. I, III & IV C. I, II, & IV D. II, III & IV 52. What are the DISADVANTAGES of investing in cash and deposits? I. The safest type of investment. II. They provide the lowest return. III. There is reinvestment risk. A. I only B. II only C. II & III only D. I, II & III 53. Which of the following are fixed-income securities? I. Corporate bonds II. Government bonds III. Preferred shares IV. Money Market instruments INTERNAL  V. Properties A. I, II, III & IV only B. I & III only C. I, III & V only D. All of the above 54. Which of the following are types of corporate stocks? I. Debenture Stocks II. Government Stocks III. Loan Stocks IV. Money Market Instruments V. Convertible Stocks A. I, II, & III only B. I, II, III & IV only C. I, III & V only D. All of the above 55. Which of the following investment options entitle the holder ownership and share of profits in the form of dividends? A. Cash B. Bonds C. Futures D. Ordinary Shares 56. Which of the following is NOT a type of fixed income securities? A. Money market instruments B. Government bonds C. Preferred shares D. None of the above 57. Three elements affect the accessibility of the funds. These are: I. The age and attitude of investor toward risk. II. The initial cost in setting up or buying into the investment. III. The time horizon when the fund is needed. IV. The cost or penalty of realizing the investment before its maturity period. A. I, II, & III B. I, III& IV C. I, II & IV D. II, III & IV 58. Which contributes to specific risks? I. The amount of corporate taxes the company pays II. Fraud by Senior Management. III. Leverage Ratio of the Company. A. I only B. I & III C. II & III INTERNAL  D. All of the above 59. Which statement best describes Variable Life? A. Fixed premium with returns that will not vary. B. Fixed premium with returns that will vary. C. Flexible premium with returns that will not vary. D. Flexible premium with returns that will vary. 60. To the Policyowners, administration benefits under variable life include: A. Engaging independent professional fund managers personally to manage the complicated transaction. B. Constructing their own diversified portfolio. C. Keeping track of their investment through the statements provided regularly by the insurance company. D. Exercising investment expertise by selecting funds that will give higher returns. INTERNAL