Variable Life Insurance Policy Quiz - Every Agent Must Know This

A UNIT TRUST is established by a trust deed which enables a trustee to hold the pooled money and assets in trust on behalf of the investor. This means that the investor's money and assets are held and managed by a trustee, who has a legal obligation to act in the best interest of the investor. The trustee is responsible for making investment decisions and managing the assets within the trust. This structure provides investors with a level of security and protection, as their investments are held separately from the trustee's own assets.

It is important for the customer to understand the sales proposal in full because the impact of changes in investment conditions on a variable life policy is solely borne by the customer. This means that if there are any negative changes in the investment conditions, it will directly affect the customer's policy and potentially reduce their returns. Therefore, understanding the proposal will allow the customer to make an informed decision and assess the potential risks involved in the policy.

The objective of satisfying customers' needs profitability can be achieved by an agent through extensive investments training by the company and the use of a sales plan. Extensive investments training helps agents develop the necessary skills and knowledge to understand and meet customers' needs effectively. A sales plan, which includes setting sales goals, strategies, and objectives based on market analysis, segmentation, and targeting, helps agents align their efforts with customer demands and maximize profitability. The giving of freebies and monetary assistance and discounts may be tactics used to attract and retain customers, but they alone may not ensure long-term profitability.

Based on the given information, Mr. Juan dela Cruz is earning a moderate income and has a moderate level of risk tolerance. Variable Life policies would be a suitable recommendation for him because they offer both a life insurance component and an investment component. This type of policy allows the policyholder to allocate their premiums towards various investment options, giving them the potential for higher returns. Given Mr. Juan dela Cruz's reasonable amount of savings, he may be interested in the investment aspect of the policy to grow his wealth.

The switching facility under variable life insurance policies is a very useful tool for policy owners to engage in financial planning. It allows them to reallocate their investments among different funds offered by the insurance company based on their changing financial goals and market conditions. This flexibility enables policy owners to optimize their investment returns and manage risk according to their individual needs and preferences.

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Fixed income securities are the most suitable investment instrument for an investor who wants to protect their principal and receive a steady stream of income. Unlike equities or warrants, fixed income securities provide a fixed interest or dividend payment, ensuring a predictable income stream. Additionally, these securities are generally considered less risky compared to equities, making them a safer option for protecting the principal investment. Variable life policies are insurance products and may not provide a consistent income stream, making them less suitable for this purpose.

A single premium variable life insurance policy must be issued with a minimum death benefit because it is a type of life insurance policy that combines the features of both life insurance and investment. The policyholder pays a lump sum premium upfront, and the policy's cash value fluctuates based on the performance of the underlying investments. In order to provide a death benefit to the beneficiaries, the policy must have a minimum death benefit amount specified at the time of issuance. This ensures that there is a guaranteed payout to the beneficiaries in case of the policyholder's death.

The correct answer is that policy holders cannot make loans against their variable life up to the entire withdrawal value of their policies. Variable life policies typically allow policy holders to take out loans against the cash value of their policies, but the amount available for loans is typically less than the full withdrawal value.

Misinterpretation is not a specific form of twisting. Twisting refers to the act of persuading a policyholder to surrender an existing policy and replace it with a new one, often to the policyholder's detriment. Misinterpretation, on the other hand, refers to providing incorrect or misleading information about a policy or its terms. While both twisting and misinterpretation involve deception in the insurance industry, they are distinct concepts.

The correct answer is II and III. This means that the disadvantages of investing in common shares include being exposed to market and specific risks, as well as the possibility of shares becoming worthless if the company becomes insolvent. This implies that common shares are subject to fluctuations in the market and can result in a total loss of investment if the company fails.

Variable life policies are a type of life insurance policy where the policy benefits are directly linked to the investment performance of the underlying assets. This means that the value of the policy benefits can fluctuate based on the performance of the investments made by the life insurance company. Unlike other types of life insurance policies, the policy benefits are not guaranteed and can vary over time.

Rebating is prohibited under the insurance code because it involves offering the prospect a special inducement to purchase a policy. This practice is considered unethical and can lead to unfair competition among insurance agents. The statement that rebating will enhance the sales performance and uphold the prestige of an agent is not true, as it goes against the regulations set by the insurance code.

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Diversification in investment involves reducing the risk of investment by putting one fund under management into several categories of investment. This strategy helps to spread the risk across different types of investments, such as stocks, bonds, and real estate, rather than putting all the funds into one category. By diversifying, investors can potentially minimize the impact of any single investment's performance on their overall portfolio. This approach aims to create a balance between risk and return by not relying too heavily on a single investment.

The correct answer is II, IV, I, III. This ranking is based on the liquidity of the assets listed. Property (II) is the least liquid because it can take time to sell and convert into cash. Equities (IV) are also not as liquid as cash because they need to be sold on the stock market before turning into cash. Cash (I) is the most liquid asset as it can be easily used for transactions. Short term securities (III) are more liquid than property and equities but less liquid than cash.

The correct answer is "all of the above" because all of the statements mentioned in the options are true. Policy owners of variable life funds can easily change the level of sum assured, switch their investment between funds, take premium holidays and add single premium top-ups, and change the level of their premium payments. Additionally, variable life insurance products have a simple product design that separates the investment and insurance protection aspects.

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The correct answer is "Amounts invested in cash depend on the size of the cash flow requirement." This statement is true because the amount of money invested in cash is determined by the specific cash flow needs of an individual or organization. If there is a higher cash flow requirement, more money will be invested in cash to meet those needs. Conversely, if the cash flow requirement is lower, less money will be invested in cash. This decision is not influenced by factors such as yield potential, stock market performance, or interest rates.

The duties of the trustees of a unit trust include ensuring that the fund manager adheres to the provisions of the trust deeds, acting generally to protect the unit-holders, and holding the pool money and assets in trust on behalf of the investors. However, managing the portfolio of investments and administering the buying and selling of shares in the unit trust itself is not one of their duties.

Variable life policies and endowment policies differ in several ways. However, the given statement that the policy value of variable life endowment policies directly reflects the performance of the fund of the company is false. In variable life policies, the policy value is determined by the performance of the underlying investments chosen by the policyholder, not the company's fund. Additionally, the statement that the benefits and risk of variable life and endowment policies directly rescue to the policyholders is also false. The benefits and risks of these policies are borne by the policyholders themselves.

Variable life insurance policies typically have flexible premium payments, allowing policyholders to adjust their contributions based on their financial situation and investment goals. The other options are key features: a guaranteed minimum death benefit provides a basic level of coverage, cash value accumulates over time based on investment performance, and policyholders can choose from a variety of investment options to potentially grow their cash value.

Variable life policies use the offer price to determine the number of units credited to the accounts. The margin between the bid and offer price is used to cover the management cost of the policy. Additionally, the policy value is calculated based on the bid price of units allocated into the policy. Therefore, all of the statements provided are true.

The statement that is FALSE is "Policy owners may buy additional units of variable life and these units will be allocated to new variable life insurance policies." This is incorrect because when policy owners top-up their policies, the additional units of variable life are allocated to the existing policy and not to new policies.

The policy value of endowment policies is indeed the cash value plus accumulated dividends less any outstanding loans due at the time of surrender. This means that when a policyholder surrenders their endowment policy, they will receive the cash value of the policy along with any accumulated dividends, minus any outstanding loans. Additionally, the statement that the life company needs to maintain a separate account for various policies distinct from the general account is also true. This is done to ensure that the funds and assets related to specific policies are properly accounted for and managed separately from the company's general funds.

Twisting is a practice where an agent convinces a policyholder to switch from one company to another without fully disclosing the drawbacks of such a decision. It involves misleading or incomplete comparisons of policies. However, it does not refer to an agent offering a prospect a special inducement to purchase a policy. This statement is false because twisting does not involve offering incentives or inducements to potential policyholders.

The benefits of investing in variable life funds include having access to a period or diversified portfolio of investments, being able to easily change the level of premium payments, and gaining access to variable life funds managed by professional investment managers with proven track records.

Equity funds invest in shares of stock, and investors who buy such assets usually aim for capital appreciation. This means that they are looking for the value of their investment to increase over time. The statement mentions that equity funds invest in shares of stock, which aligns with the nature of equity funds. Additionally, it states that investors who buy such assets usually aim for capital appreciation, indicating that they are seeking to grow their investment rather than just maintain its value.

Investing in bonds does not typically offer the opportunity for capital appreciation. Unlike stocks or other equity investments, the return on bonds is primarily in the form of interest payments and the return of the principal amount. While bond prices can fluctuate, the main focus of bond investing is on income generation and preservation of capital.

Variable life insurance policies offer investors policies with value directly linked to the investment performance of the life company.

The correct answer is II, III and IV. This is because the statement in option II explains that variable life insurance policies have an investment element that is made known to the policy owner at the beginning and is invested in a separate fund. Option III states that traditional participating policies aim to produce a steady return by smoothing out market fluctuations. Option IV suggests that variable life insurance policies are less likely to offer more choice in terms of investment funds.

Variable life insurance policies allow policy owners to make withdrawals in terms of either a fixed monetary amount or a cancellation of units. This means that they have the option to withdraw a specific amount of money from their policy or to cancel a certain number of units from their coverage. This flexibility allows policy owners to adjust their coverage and access funds as needed.

Investing in variable life funds offers policy holders the benefits of accessing a pooled or diversified portfolio. This means that their investments are spread across different assets, reducing the risk of loss. Additionally, variable life policy holders have the flexibility to vary their premium payments, take premium holidays, and make single premium top-ups. This allows them to adjust their investment strategy based on their financial situation. However, the answer does not include the benefit of having access to qualified and trained professional fund managers, as stated in option III. Therefore, the correct answer is I and II.

The protection cost under a variable life insurance policy is generally covered by cancellation of units in the fund (II), are generally met by explicit charges stipulated openly in the policy name (III), vary with age of policy owner and level of cover (IV), and are met by a flat initial charge for the regular premium (I).

Under regular premium variable whole life insurance plans, premium top-ups and holidays are usually allowed, meaning that policyholders can increase their premium payments or take breaks from making payments, subject to the life company's administrative rules. The main objective of the plan is life protection, with the investment serving as a nominal purpose. Additionally, withdrawals after the payment of a few years' premium are typically allowed. This indicates that the correct answer is I, II, and III.

Variable life insurance policies do not have a guaranteed minimum sum assured as a level of life insurance protection. Instead, each policy owner's premium is used to purchase units, the number of which is dependent on the selling price of each unit. Additionally, the 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.

Variable life insurance policies have several characteristics. The first characteristic mentioned in the answer is that the withdrawal value and protection benefits of the policy are determined by the investment performance of the underlying assets. This means that the value of the policy and the benefits it provides can fluctuate based on how well the investments perform. The third characteristic is that commissions and company expenses are met by explicit charges. This means that the policyholder will be charged fees for these expenses. The fourth characteristic is that the withdrawal value is normally the value of units allocated to the policy owner calculated at the bid price. This means that the value of the policy when withdrawn is based on the number of units allocated to the policyholder and the bid price of those units.

Single premium variable life policies do not have a fixed term, meaning they provide coverage for the entire life of the insured, making them technically whole life insurance. These policies also allow for top-ups or single premium injections, giving policy holders the flexibility to add additional funds to their policy. Additionally, policy holders have the flexibility to vary the level of cover, allowing them to adjust the amount of coverage based on their changing needs.

Variable life policies are a type of life insurance policy that combines a death benefit with an investment component. Statement I is true because the withdrawal value of a variable life policy is not guaranteed and can fluctuate based on the performance of the investment component. Statement II is true because the volatility of the returns of a variable life policy depends on the investment strategy of the fund, which can vary in terms of risk and return potential. Statement III is not true because while the policyholder may have some input in the investment decisions, they do not have direct control over them.

Variable life policies generally have a larger exposure to equity investment than with participating and other traditional policies. This means that variable life policies tend to invest a larger portion of their funds in equity investments, which can result in higher potential returns but also higher risk.

Commissions and company expenses are met by a variety of explicit charges, some of which are variable. This means that variable life policies charge explicit fees to cover commissions and company expenses, and some of these fees may vary depending on certain factors. This can include factors such as the age of the policyholder or the level of coverage.

Preferred shares have several advantages for investors. Firstly, they give shareholders the right to fixed dividends, meaning they are entitled to receive a set amount of dividend payments before common shareholders. This provides a stable income stream for investors. Secondly, preferred shares have priority over company assets during dissolution. If the company goes bankrupt and its assets are liquidated, preferred shareholders are paid back their investment before common shareholders. This provides a level of security and protection for preferred shareholders. Therefore, the correct answer is I and II.

The net cash surrender value of a participating policy includes the surrender value of the paid-up addition up to the date of surrender. This means that if a policyholder decides to surrender their participating policy, they will receive the cash value of any paid-up additions that have accumulated in the policy up until the surrender date. This is a benefit of participating policies as it allows policyholders to receive additional value from their policy when surrendering it.