VUL (Variable Universal Life) Exam Reviewer PDF 2020

VUL (VARIABLE UNIVERSAL LIFE) EXAM REVIEWER 1. Variable life insurance policyowners may make withdrawals in terms of _____________________. A. The number of units or fixed monetary amount through the cancellation of units. B. The number of units or fixed monetary amount th...

VUL (VARIABLE UNIVERSAL LIFE) EXAM REVIEWER 1. Variable life insurance policyowners may make withdrawals in terms of _____________________. A. The number of units or fixed monetary amount through the cancellation of units. B. The number of units or fixed monetary amount through reduction of the life cover sum insured. C. The fixed monetary amount only through reduction of the life cover sum assured. D. The number of units through the cancellation of units. 2. Which one of the following statements about the flexibility features of Variable Life policies is FALSE? A. Policyowners may request for a partial withdrawal of the policy and the withdrawal amount will be met by cashing the units at bid price. B. Policyowners can take the loans against their Variable Life policies up to the entire withdrawal value of their policies. C. Policyowners have the flexibility of switching from one fund to another provided it satisfies the company’s switching criteria. D. Policyowners have the flexibility of increasing or decreasing their premium for regular premiums variables life policies. 3. The investment returns under a Variable Life insurance policy __________________________. I. Are not guaranteed II. Are assured III. Are linked to the performance of the investment fund management by the life company IV. Fluctuate according to the rise and fall of the market prices. A. I, II and II C. I, III,and IV B. I, II and IV D. II, III and IV 4. 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 the 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 and II C. I and III B. I, II and III D. II and 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 policyowners to switch to another Variable Life fund offered by the company. 6. Which of the following statement about Variable Life policies are TRUE? I. Offer price is use to determine the numbers of units to be cancelled from the account. II. The margin between the bid and offer price is used to cover the management cost of the policy. III. The policy value is calculated based on the bid price of units allocated into the policy. A. I, II and III C. I and III B. I and II D. II and 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 C. Variable Life Policies B. Warrants D. Fixed income securities 8. 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 worthlessif company becomes insolvent. A. I,II C. II, III B. I, III D. I, II, and III 9. Which of the following statements about the differences between Variable Life policies and Endowment policies are FALSE? I. The policy values of Variable Life and Endowment policies directly reflect the performance of the fund of the 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 policyowners. A. I and II C. I and III B. I, II and III D. II and III 10. Which of the following statements about twisting is FALSE? A. Twisting is a special form of misrepresentation. B. It refers to an advisor inducing a policyowner to discontinue a policy with another company without disclosing the disadvantage of doing so. C. It includes misleading or the incomplete comparison of policies D. It refers to an advisor offering a prospect a special inducement to purchase a policy. 11. Mr. Juan dela Cruz is currently earning P30,000/month. He is 35 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 C. Participating Whole Life B. Variable Life policies D. Annuities 12. What are the benefits available when investing in Variable Life Funds? I. The Variable Life funds offer policyowners an access to a pooled of diversified portfolios. II. The Variable Life policyowners 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 policyowners can have access to a pool of qualified and trained professional fund managers. A. I and II C. I, II and III B. I and III D. II and III 13. Rank the following in terms of their liquidity from the least liquid to the most liquid. I. Short Term Securities III. Cash II. Property IV. Equities A. IV, II, III, I C. II, I, IV, III B. III, I, IV, II D. II, IV, I, III 14. A UNIT TRUST is _____________________________________. A. Established by a trust deed which enables a trustee to hold the pool of money and assets in trust on behalf of the investor. B. A closed – end fund and does not have to dispose of its assets if a large number of investors sell their shares. C. One whereby an investor buys units in the trust itself and not from ethe shares of the company. D. An organization registered under the Security and Exchange Commission (SEC) which usually invests in a wide range of equities and other investments. 15. Under Variable Life insurance policies______________________________. I. There is no guaranteed minimum sum assured for the pupose of declaring dividends. II. There is no guaranteed minimum sum assured as a level of life insurance protection. III. Each of the policyowners 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 the investments will add value to the fund. A. I and IV C. III and IV B. II and IV D. II and III 16. The benefits of investing in Variable Life funds include________________________. I. Policyowners have access to pooled of diversified portfolios of the investments. II. Policyowners can easily change the level of the premium payments as the product design of Variable Life insurance policies have clear structures which cater separately for investment and insurance protection. III. Policyowners can gain access to Variable Life funds managed by professional investment managers with proven etrack records. IV. Policyowners can buy a Variable Life insurance policy only with a high initial investments. A. I, II and IV C. I, II, and III B. I, III and IV D. II, III, and IV 17. Which of the following BEST describes the policy benefits of Variable Life policies. A. The policy benefits are payable only for 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. 18. Why is it important that the customer must understand the sales proposal in full? A. Because the insurer does not guarantee any return B. Because the impact of changes in an investment condition on a Variable Life policy is borne solely by the customer. C. Because the advisor may give the wrong recommendations D. Because the policyowners expect higher returns. 19. 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 performances and uphold the prestige of an advisor. A. I and II C. II and III B. I and III 20. Which one of the following statements is FALSE? A. Variable Life insurance policies offer investors policies with values and are indirectly linked to the investment performance of the life company. B. The life company will carry out a valuation of its funds yearly and any surplus may be allocated to participating policy holder as cash dividends. C. Both whole life and endowment policies can be used as an investment media with benefits that become payable at the future date. D. The investment element of Variable life policies varies according to underlying assests of the portfolio. 21. Which of the following statements about the option to top up under Variable Life insurance product is FALSE? A. Policyowners 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 the time of top ups will be used in full, after deducting charges for top ups, to purchase additional units of the Variable Life funds. C. To top up a policy, the policyowner pays further single premium at the time of top up. D. Policyowners are normally allowed to top up their policies at any time subject to a minimum amount. 22. 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 implicit charges with normally 6 months notice given by the life companies prior to any change. IV. Its withdrawal value is normally the value of units allocated to the policyowners calculated at the bid price. A. I, II and III C. I, II, and IV B. II, III, and IV D. I, III and IV 23. Which of the following statements about Single Premium Variable Life policies are TRUE? I. There is no fixed term in a single premium variable life policy and therefore they are technically Whole life insurance. II. Top ups single premium injections are allowed in these plans. III. Policyowners have the flexibility of varying the level cover. A. I, II and III C. I and II B. II and III D. I and III 24. Investing in bonds offer the following advantages EXCEPT: A. It offers protection to the principal and a 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. 25. Which of the following statements about variable life policies is/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 policy holder has direct control over investment decisions of the variable life funds. A. I, II and III C. I and III B. I and II D. II and III 26. A Single Premium Variable Life insurance policy. A. Must be issued with a minimum death benefits. B. Must be issued with a maximum withdrawal value. C. Has no death benefits. D. Has no withdrawal value 27. Which of the following statements about the characteristics of Variable Life policies are TRUE? I. Variable Life policies generally have larger exposure to equity investments 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. I, II and III C. II and III B. I and II D. I and III 28. Which of the following statements about benefits in Variable Life fund is FALSE? A. The fund provides a highly diversified portfolio, thus lowering the risk of investment. B. The fund ensures definite high yield for an investor since it is managed by professionals who are well versed in the management of risks of investment portfolios. C. The fund relieves the investor from the hassles of administering his/her investment. D. The fund enables enables small investors to participate in a pool of diversified portfolio in which he/she with low investment capital, is unlikely to have acceded to. 29. The flexibility benefits of investing in Variable Life funds include. I. The policyowner can easily change the level of sum assured and switch their investment between funds. II. Policyowners 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. Policyowners can easily change the level of their premium payment. A. All of the above C. I, II, and IV B. I, II and III D. I, III and IV 30. The fundamental differences between traditional participating life insurance policies and Variable Life insurance policies include____________________________. I. Variable Life insurance policies are less likely to offer more choices in terms of the type of investment funds. II. The investment elements of Variable Life insurance policies are made known to the policyowner at the outset and are invested in a separately identifiable fund which is made up of units of investments. 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 and IV C. I, II and III B. II, III and IV D. I, II and IV 31. The switching facility under Variable Life insurance policies is 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 policyowners 32. Which of the following staements about surrender value under traditional participating life insurance products is TRUE? A. Cash value is paid when a 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. 33. Which of the following statements about the risk of investing in Variable Life funds is TRUE? A. Policyowners who are risk averse should buy Variable Life insurance policies with high equity investment. B. Investment in variable life funds which are fully invested in units of equity is not suitable for policyowners who can tolerate the risks of short term fluctuations in their account value. C. Policyowners who invest in variable life funds with high equity investment face greater risk but offer the potential for higher returns over the long term than traditional life insurance policies. D. Policyowners who are risk averse should not purchase policies with high protection and guaranteed cash maturity values. 34. What would be the withdrawal value after a year? Offer Price = P 16.00 Bid offer spread= 4.5% Number of Units bought= 25,000 Policy Fee = P1,800 Admin and Mortality charge = P8,750 Top up Fee = P700 Admin for Top Up= P2,000 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. 432,000.00 C. 401,107.58 B. 420,069.02 D. 412,500.00 35. 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 the cancellation of units in the fund III. Are generally met by explicit charges stipulated openly in the policy terms IV. Vary with age of policyowner and level of cover A. I, II and III C. I, III and IV B. I, II and IV D. II, III and IV 36. Which one of the following statements about diversification in portfolio management is FALSE? A. A diversified portfolio provides greater security to an investor having to sacrifice the 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 in stocks of different countries. D. Diversification helps to spread the portfolio risk by investing in different categories of investment in a portfolio. 37. What are the advantage 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 the benefits of capital appreciation. A. I, II and III C. I and III B. I and II D. II and III 38. With traditional participating life insurance products, the allocations to policyowners in the form of dividends_______________________. I. Are not directly linked to the life company’s investment performance. II. Have already been smoothened by the life company. III. Do not have the highs and lows of investment returns as in good investment years of the life company. IV. Are not fixed at the inception of the policy but are greatly dependent on th investment performance of the life company. A. I, II and III C. I, III, and IV B. I, II and IV D. II, III and IV 39. The objective of satisfying customers need of profitably can be achieved by an advisor 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, strategies and objectives are coordinated with market analysis segmentation and targeting. IV. The giving of monetory assistance and discount to customers A. I and III C. I, II and IV B. II and III D. II, III and IV 40. Which of the following statements is true about CASH? A. It has high yield potential B. The amount invested in cash depends on the 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 decreases when interest rates rise 41. Under a Regular Premium Variable Whole Life insurance plan_____________________. I. Premium top ups and holidays subject to the life company’s administration 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. A single premium contribution is made to the policy which uses the premium to purchase units in a Variable Life fund and to provide a certain level of life cover. A. II, III and IV C. I, II, and IV B. I, III and IV D. I, II and III 42. Which of the following statements about investment objective is FALSE? A. People invest money in fixed deposits to produce high and guaranteed returns B. People invest money to enhance a comfortable standard living C. People invest money to provide funds for the higher education of their children D. Investment in commodities has no regular income 43. Which of the following is/are the main characteristics 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 the surrender, less any indebtedness and interest A. II C. I, II and III B. I D. I and II 44. Risk can be classified into two particular categories in relation to investment. They include _____________. I. The risk of not losing some or all of 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 IV. The risk of losing some or all of a person’s initial investment A. I and III C. III and IV B. I and II D. II and IV 45. The duties of the trustees of a 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 trusts deeds C. Acting generally to protect the unit holders D. Holding the pool of money and assets in trust in behalf of the investors 46. The policy fee payable by a Variable Life insurance policyowner is to cover __________________. A. The handling charges by professional investment managers. B. The price for 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 47. The selling price under a Variable Life insurance policy is. A. The price at which units the policy is bought back by the life company B. The price at which units under the policy are offered for the sale by the life company C. Also known as the bid price D. A fixed amount throughout 48. In the 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 equity funds IV. The relatively risk-less cash funds sit at the bottom end of the graph A. I, II and III C. I, II and IV B. II, III and IV D. I, III and IV 49. Diversification in investment involves_________________________. A. Putting all the funds under management into one category of investment B. Spreading the risks 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 50. Variable Life funds can be invested in any financial instruments includingcash funds, bond funds, equity funds,property funds, specialized funds and diversified funds Equity funds______________ A. Invest in sghares 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 assets are usually the last to depreciate C. Invest in share of stocks which are inherently of lower risk in nature and the prices of stocks are stable D. Invest in shares of stocks and an investor who buys such assets usually aims for capital appreciation. ANSWER 1. A 26. A 2. B 27. D 3. C 28. B 4. D 29. A 5. C 30. B 6. A 31. D 7. D 32. D 8. C 33. C 9. C 34. C 10. D 35. D 11. B 36. B 12. C 37. A 13. D 38. D 14. A 39. B 15. C 40. B 16. C 41. D 17. C 42. A 18. B 43. D 19. A 44. D 20. A 45. A 21. A 46. D 22. D 47. B 23. C 48. B 24. B 49. C 25. B 50. D